Question Details

Lois Howe and Ron Dole are department managers i



1
Errors occasionally occur when physically counting inventory items on hand. Identify the financial statement effects of an overstatement of the ending inventory in the current period. If the error is not corrected, how does it affect the financial statements for the following year?

2
Lois Howe and Ron Dole are department managers in the housewares and shoe departments, respectively, for Litwins, a large department store. Ron has observed Lois taking inventory from her own department home, apparently without paying for it. He hesitates confronting Lois because he is due to be promoted, and needs Lois' recommendation. He also does not want to notify the company management directly, because he doesn't want an ethics investigation on his record, believing that it will give him a “goody-goody” image. This week, Lois tried on several pairs of expensive running shoes in his department before finding a pair that suited her. She did not, however, buy them. That very pair was missing this morning.
Litwins recently replaced its old periodic inventory system with a perpetual inventory system using scanners and bar codes. In addition, the annual inventory is to be replaced by a monthly inventory conducted by an independent firm. On hearing the news of the changes, Ron relaxes. "The system will catch Lois now," he says to himself.
Required:
1.	Is Ron's attitude justified?  Why or why not?
2.	What, if any, action should Ron take now?



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