Question

An auditor is reviewing sales cutoff as of March 31, 2019. All sales are shipped FOB destination and the company records sales three days after shipment. The auditor notes the following transactions:

If the entity records the required adjustments, the net effect on income (in thousands of dollars) for the period ended March 31, 2019 is
A) an increase of 12.
B) an increase of 8.
C) a decrease of 12.
D) a decrease of 8.

Answer 1

The net effect on income for the period ending March 31, 2019, after recording the required adjustments, is an increase of $12,000. Option A is the answer.

Step-by-step explanation:

Sales Shipped Before March 31: The auditor identifies sales of $20,000 that were shipped before March 31 but recorded after shipment.

Adjusting for these sales adds $20,000 to the income.

Adjusted Income: +$20,000

Sales Recorded Before Shipment: The auditor notes sales of $8,000 that were recorded before shipment but shipped after March 31. Adjusting for these sales reduces income by $8,000.

Adjusted Income: - $8,000

Net Effect:

Adjusted Income (+$20,000) - Adjusted Decrease (-$8,000) = Net Increase of $12,000

Therefore, the correct answer is an increase of $12,000, and option A is the answer.