Question

Barrick Gold Corporation, with headquarters in Toronto, Canada, is the world’s most profitable and largest gold mining company outside South Africa. Part of the key to Barrick’s success has been due to its ability to maintain cash flow while improving production and increasing its reserves of gold-containing property. In the most recent year, Barrick achieved record growth in cash flow, production, and reserves. The company maintains an aggressive policy of developing previously identified target areas that have the possibility of a large amount of gold ore, and that have not been previously developed. Barrick limits the riskiness of this development by choosing only properties that are located in politically stable regions, and by the company’s use of internally generated funds, rather than debt, to finance growth. Using Your Judgment 491 492 Chapter 9 Inventories: Additional Valuation Issues Barrick’s inventories are as follows. Barrick Gold Corporation Inventories (in millions, US dollars) Current Gold in process \(133 Mine operating supplies 82 \)215 Non-current (included in Other assets) Ore in stockpiles \(65 Instructions (a) Why do you think that there are no finished goods inventories? Why do you think the raw material, ore in stockpiles, is considered to be a non-current asset? (b) Consider that Barrick has no finished goods inventories. What journal entries are made to record a sale? (c) Suppose that gold bullion that cost \)1.8 million to produce was sold for $2.4 million. The journal entry was made to record the sale, but no entry was made to remove the gold from the gold in process inventory. How would this error affect the following? Balance Sheet Income Statement Inventory ? Cost of goods sold ? Retained earnings ? Net income ? Accounts payable ? Working capital ? Current ratio ?

Short answer

All the requirements are mentioned in the steps.

Step-by-step solution

Reason for no inventory

Barrick Gold Corporation is a gold mining company thatmines gold from the gold ore. As gold is ahighly liquid commodity, there will probably be no ending inventories at the end of the year, as it can be easily sold.

Ore stockpiles arenon-current assets, as theycan be realized into cash within a year or an operating cycle because it takes more time to process to item extracted from the ore.

Journal entry for sales

(b) Following journal entry will be recorded:

Date	Description	Debit	Credit
	Cash	XXX
	Sales Revenue		XXX
	(To record sales revenue)
	Cost of Goods Sold	XXX
	Gold in Process		XXX
	(To record cost of goods sold)

Effect on Balance sheet and income statement items

The effect is shown as follows:

Balance Sheet	Income Statement
Inventory Overstated Retained earnings Overstated Accounts payable No effect Working capital Overstated Current ratio Overstated	Cost of goods sold Understated Net income Overstated