33 in early 2012 darwin 39 s pet shop discovered that some of its inventory of puppi 4306272

33 in early 2012 darwin 39 s pet shop discovered that some of its inventory of puppi 4306272

33) In early 2012, Darwin's Pet Shop discovered that some of its inventory of puppies were not what the supplier purported them to be. More than 550 puppies that were supposed to be purebred (and therefore expensive) were in fact sired by parents with unknown history. As at the fiscal year ended December 31, 2011, 300 of these puppies had been sold while 250 remained in inventory. Purebred puppies cost $140 each and they would retail for $415. Non-purebreds have replacement cost of $30 each, and the estimated sale price is $100 each. Darwin is pursuing the supplier to obtain a refund for the cost difference. However, whether there will be compensation is uncertain.


a.Record the journal entry for the write-down of puppy inventory on December 31, 2011. Note any assumptions necessary.

b.Suppose the error (non-purebreds treated as purebreds) had not been discovered. Indicate the effect of this error on the following accounts (i.e., were they over- or understated, and by how much?):

i. Inventory, December 31, 2011;

ii. Cost of goods sold, year 2011; and

iii. Cost of goods sold, year 2012.

34) A particular production process requires two types of raw materials to produce the end product. Each unit of finished product requires three units of raw material A and 2 units of raw material B, plus processing costs of $35. The following provides information on inventories at fiscal 2011 year-end:

Inventory item

# units

Cost per unit

Replacement cost

Net realizable value

Finished goods





Raw material A





Raw material B






a. Evaluate these inventories to determine the amount of write-down, if any.

b. If the entry required in part (a) is not made in fiscal 2011, what is the effect on

i) 2011 and 2012 inventory on the balance sheet

ii) 2011 and 2012 cost of goods sold

iii) 2011 and 2012 net income

iv) 2011 and 2012 retained earnings

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