Hi! Im new to the forum! Currently student to be certified through AIPB.
Im stuck on a question and hoping to get some clarification on the following Final Practice Exam.
I answered "A" thinking omission. I was graded wrong. Followed up with "D". Yup wrong again.
I keep thinking the answer is "A" !
Any input will be greatly appreciated as I like to go back and figure out what I did wrong on the incorrect questions.
Doreen
At year end, a physical count of office supplies reveals that $7000 of supplies were used up but no adjusting entry was made to account for this.If this error is found, it will most likely be because
a. the trial balance would be out of balance by $7000
b. the trial balance would be out of balance by $14,000
c. the trial balance would be out of balance by $3,500
This seems like part of a much larger question rather than a question in its own right. Do you have the full question please Doreen.
On it's own to me it makes little sense as office supplies are consumables which would not be carried as assets. When they are expensed their whole purpose is to be consumed so I'm lost as to why the physical count seemed surprsed by this.
The only time this would be valid is that if this was an office supply company using their own stock (which is why I wanted the rest of the question).
If thats the case then the stock (inventory) figure carried to the B/S is currently overstated by $7000 in stock that no longer exists.
The effect of that is that inventory is overstated.
Also expenses are understated by $7000
Meaning that the Net profit is overstated.
Is not the effect of this that the trial balance will be out by $14,000 (inventory & expenses both out by $7k) as no physical sale of the inventory took place so there is no balancing debtors or bank.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
ISTR a company I was involved in auditing one year, back when I worked for the accountants, did carry a large stock of office supplies so did actually count it as stock - though nowhere near the sort of numbers above. So while it seems unlikely, my experience is that it's not without precedent. And for all I know large Overpuddlian companies might do this as a matter of course.
Either way, based on the question as presented I'd answer d, because a-c are answers in which the trial balance is "out of balance" - which I read as referring to the total debit balances and total credit balances not matching. If no stock adjustment has been made for this use, those totals will still match.
__________________
Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
to be honest, I would have gone D as well but the poster stated that they had already tried that and it was rejected so I was looking for a viable explanation around options B or C from a question that feels incomplete (or just badly written).
The reason that I would have gone D if that had been an option was different to yours in that the question as stated includes the line :
"If this error is found, it will most likely be because"
Then lists out trial balance discrepancies. Where surely the issue was found by a stocktake, not because of a discrepancy in the trial balance.
The reality is that the company is I believe using its own stock and so a stocktake is the only way that would show yet the question indicates (to the way that I read it at least) that it expects the trial balance to be out?
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
to be honest, I would have gone D as well but the poster stated that they had already tried that and it was rejected
I thought D when I first saw it, until I read the question again and have to agree there does seem to be something missing from it.
Although could also be a case of the wrong answer being in the book - we all know that Kaplan put in the wrong answers in their answer booklets sometimes and make us completely doubt what planet we are from.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
