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trapecia [35]
2 years ago
14

The CFO of the Souta Microscope Corporation intentionally misclassified a downstream transportation expense in the amount of $66

,375,000 as a product cost in an accounting period when the company made 11,800 microscopes and sold 7,800 microscopes. Souta rewards its officers with bonuses that are based on net earnings.
Required:
Indicate whether the elements on the financial statements (i.e., assets, liabilities, equity, revenue, expense, and net income) would be overstated or understated as a result of the misclassification of the upstream research and development expense.
Determine the amount of the overstatement or understatement for each element
Business
1 answer:
IgorLugansk [536]2 years ago
3 0

Answer and Explanation:

Particulars  Microscopes

Made units         11,800

Less : Sold units 7,800

Closing Inventory 4,000

Now

Cost per Microscope is

= $66,375,000 ÷ 11,800  

= $5,625.

Now

The Portion of Transportation Cost still in hand in Ending Inventory is  

= $5,625 × 4,000  

= $22,500,000

Now the identification of the financial statement elements are as follows

Assets          Overstated $22,500,000

Liabilities Not Affected  

Retained earnings Overstated $22,500,000

Revenue             Not Affected $22,500,000

Expense            Understated $22,500,000

Net income       Overstated $22,500,000

The liabilities and the revenue is not affected and the other items would affected accordingly

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Given:
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The express warranty is given in Fact 1 where the Sales Rep promised that the system was "A-1" and "perfect". There is a breach in express warranty here IF the written contract also expresses the same promises. 

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Answer:

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