Reference no: EM132784754

Question - Part A: On the morning of November 21, management of Strang Company learned that there had been a break-in at their warehouse, and that SOME of their merchandise inventory (but not ALL the inventory) had been stolen after the close of business on November 20.

Strang immediately took an inventory count on Nov 21 to figure out the amount of the loss before opening for business. This inventory count indicated that $90,000 of goods were on-hand and present in the warehouse.

The following additional data is available from the accounting records of Strang:

Purchases received, Nov 1 - 20 $144,000

Inventory on hand, Nov 1 $168,000

Sales revenue, Nov 1-20 (goods delivered to customers) $270,000

Records from the recent past indicate that sales prices for the goods that were stolen are set, on average, at 45% above cost.

Required (show all calculations): Estimate the inventory of goods on hand at the close of business on November 20th AND determine the amount of the theft loss.

Part B: Henry Corporation's inventory at December 31, 2020, included 1000 units of product XX. The bookkeeper incorrectly valued the XX inventory at $210 per unit.

Relevant per-unit data for product XX follow:

Estimated selling price: $300

Cost: $260

Replacement cost: $278

Estimated direct selling expenses: $56

Normal profit: $20

All 1,000 units are expected to be sold in 2021.

Required (show all calculations):

(a) What was the correct TOTAL inventory value that should be used for product XX at December 31, 2020?

(b) Was net income for 2020 overstated or understated due to the bookkeeper's mistake? By how much (ignore income tax aspects)?