Maxtor's Inventory Error

When I discuss inventory errors it is always in a mechanical sense if inventory is overstated then cost of goods is understated, etc. We very seldom have a real world example of this type of situation. However, Maxtor disclosed yesterday that it had made just this type of error. In an 8-K filing the company announced that it had simply reversed an end of period adjustment to inventory. Here is the relevant part of the announcement:

Maxtor Corp. (MXO) said Tuesday that it will restate its financial statements for its first quarter ended April 2, after it discovered a data entry error related to inventory and cost of goods sold in its previously issued first-quarter financial statements.

As a result of the data entry error, inventory at April 2 was understated by $4 million, cost of goods sold was overstated by $4 million, the net loss for the quarter was overstated by $4 million and the net loss per share for the quarter was overstated by 2 cents a share, according to a Form 8-K filed with the Securities and Exchange Commission.

This is the type of item I like to bring into the classroom to get students dicussing what might have happened, what is the effect on the share price, how could this type of error have been made.