Reference no: EM132539434

Point 1) Inventory Errors: in reviewing the documentation obtained during the December 31, 2018 inventory count for the heavy equipment division, I discovered a number of errors. The details are provided below.

a) We received an invoice from a supplier on January 3, 2019 for goods purchased with a cost of $61,000. This invoice was entered into our accounts payable system on that date. The goods were shipped by the supplier on December 26, 2018 and were received by us on January 3, 2019. The invoice terms were 2/10, n30, FOB shipping. These goods were a special order for one of our customers, and we sold the goods to the customer on January 7, 2019 for $93,000. These goods were not included in the December 31 inventory count.

b) During the inventory count, the supervisor noticed a box labeled "Return for Credit" sitting in the receiving bay. These goods were not included in the inventory count, as the box was sealed and the supervisor did not know what to do with them. On January 4, 2019, the box was opened and the goods were counted. Goods with a total cost of $16,000 were returned to inventory, but additional goods with a cost of $2,000 had to disposed, as they were damaged beyond repair. Credit memos were issued to customers on January 4, 2019 for $24,000.

c) Included in the inventory count were goods with a cost of $11,000, which were waiting to be picked-up by the freight company for delivery to a customer. The terms were 1/10 net 30, FOB shipping. The goods had been invoiced to the customer on December 31, 2018 at $14,000.

d) An invoice from a supplier for $6,000 was received and entered into the accounts payable system on December 31, 2018. The terms of the invoice were 2/10 n30, FOB destination, and the goods were not received until January 2, 2019. The goods were not included with the inventory count.

Point 2) On December 2, 2018, one of the oil and gas division's wells exploded. It leaked a significant amount of oil into a nearby stream until it could be repaired. The repair was completed on December 27, 2018, but remediation of the site has just begun. It cost $800,000 to repair the well, as a number of attempts initially failed, and new components had to be fabricated to replace the damaged parts. Our CEO issued a press release soon after the explosion, stating that the company will bear the full cost for cleaning up the damage and returning the site to its original condition. It is estimated that it will cost between $2 million to $4 million to fully remediate the site. The process of remediation will likely take several years, as the process of cleaning up the site and the nearby waterway is complicated.

Point 3) During the exploration of a different well site, the oil and gas division discovered a significant amount of gold. The division is now mining and selling the gold. We are trying to decide how to account for the gold inventory. We are considering valuing the gold inventory at its market price once it has been refined, even though it has not yet been sold.

Required:

Question 1: Prepare the requested memo to the controller.