The Molex Inc Case Study

A prior period adjustment is a correction, for an accounting error, on the financial statements of a prior year. ASC 250-10-50-7 states that “when financial statements are restated to correct an error, the entity shall disclose that its previously issued financial statements have been restated, along with a description of the nature of the error. The entity also shall disclose …the cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position.” The adjustment to the estimate is not a correction due to an error. Therefore, it should not affect or restate retained earnings or liabilities recorded in prior periods

25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”

The accountant did not prepare an entry to adjust the Supplies account at the end of the accounting period and, as a result:

As a result, they demanded that the group add "below-the-line" items to reduce the amount of warranty liabilities that the company would have to report on its financial statements. The issue with this is that the additional items embedded into the calculation were not supported by any evidence. These items included anticipated engineering improvements that had no evidence of actually decreasing the amount of claims, and vendor reimbursements for warranty claims even though these arrangements were usually not specified in the contractual agreements with vendors.[4] With these new reductions to estimated warranty liabilities, the estimation no longer followed GAAP since it included potential reductions in future warranty costs that were not backed by any evidence.

35-1 A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the difference shall be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly designated as market.

22. Mitch Company’s ending inventory is understated by $4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are

In the balance sheet we would have a different situation: The balance sheet would contain the barrels as an asset and the value of inventory would increase while the value of the barrels actually would decrease.

Inventories, is similar to the US GAAP definition under Accounting Standards Codification, ASC 330. According to Ernst & Young (2013) article, they are both based on the principle that the primary basis of accounting for inventory is cost. Both define inventory as assets held for sale in the ordinary course of business, in the process of production for such sale or to be consumed in the production of goods or services (pg.71). This which lead to the entries above. Under U.S. GAAP, the company reports inventory on the balance sheet at the lower of expense or market, where business sector is characterized as replacement cost of$180,000, with net realizable value of $190,000 and net realizable value less a normal profit of $152,000. In this case, stock was composed down to replacement cost and provided details regarding the December 31, 2014 asset report at $180,000. A $70,000 loss was incorporated into 2014 income. The company would report inventory on the balance sheet at the lower of cost $250,000 as historical cost and net realizable value as $190,000. Inventory would have been accounted for on the December 31, 2014 asset report a net realizable estimation of $190,000 and a loss on write-down of inventory of $60,000 (the historical cost subtracted from net realizable expense) would have been reflected in net income. IFRS income would be $10,000 bigger than U.S. GAAP net pay. IFRS held earnings would bigger by the same amount.

1. There were many adjustments that were made in the original balance sheet to properly record overstatements made by DHB Inc. In the current assets, one major entry that was heavily overstated was inventory. Inventory went from $47,560,000 to $38,231,000. The difference of $47,742,000 is a material due to the magnitude of the difference.

In total Green Mountain had five areas of their financial statements in which they did not follow GAAP. The first issue overstated $7.6 million dollars of inventory during the time period, because of an

As a CPA Eric must comply with the use Generally Accepted Accounting Principles (GAAP) as a guide in recording and reporting financial information, and to perform any service. When Eric carelessly overstated net sales and profits for the current year not only is not following these principles but he breached his duty of care. Eric will face civil liability under common law if the company has to incur any loss due to any kind of the carelessness of Eric.

Les Pulaski, the supervisor of a new division of Innovation Corporation, received annual bonus based upon the number of sales that exceeds the breakeven point of the company (Crosson & Needles, 2014). She was given bonus for the mentioned year as well. But, a review of the sales for that year confirmed that 7,500 units were returned by the customer to the company. These returned were included when calculating her bonus. Researching further into this situation, she found out that the returned products were labeled as overhead expense and the cost for the 7,500 units were charged to the overhead account (Crosson & Needles, 2014). Due to this accounting error, it appeared that the sales of the product exceeded the breakeven point

The effect of writing off the inventory for the year’s income is one that has a drastic effect on the balance sheet according to Porter and Norton (2013) because, it determines the amount eventually recognized as an expense on the income statement. An error in assigning the proper amount to inventory on the balance sheet will affect the amount recognized as cost of goods sold on the income statement. (Using Financial Accounting Information: The Alternative to Debits and Credits, 9th Edition, section 5-6, para 2)

Under this task I will make necessary adjustments to the financial statements per the events given and also I will write a brief report assessing the impact of each adjustment on profit or loss, assets and liabilities. Additional information for adjusting entries as follows: a) There was $200 of supplies on hand at the end of accounting period. b) The one year lease on the office space was effective beginning on October 1, 2014. c) There was $1,200 of accrued salaries at the end of 2014. Adjusting entries of the year end of 2014 a) Dr. Salaries expenses $1,200 Cr.

The audit committee is responsible for the following. It is responsible for reviewing the financial statements, for reviewing the company's compliance and control systems, for monitoring the effectiveness of the internal audit function, assessing the independence and objectivity of the external auditors, and ensuring the employees have the opportunity to raise concerns about matters of financial reporting. The audit committee supports the Board. Ultimately, because the audit committee is comprised of members of the Board, they are elected by the shareholders. Should the shareholders decide, they can replace these members at the annual meetings.