Worthmore Bank and Trust is considering giving Madsen Company a loan. Before doing so, it decides that further discussions with Madsen’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $285,060. Discussions with the accountant reveal the following.
1) Madsen sold goods costing $56,680 to Allen Company FOB shipping point on December 28. The goods are not expected to reach Allen until January 12. The goods were not included in the physical inventory because they were not in the warehouse.
2) The physical count of the inventory did not include goods costing $92,400 that were shipped to Madsen FOB destination on December 27 and were still in transit at year-end.
3) Madsen received goods costing $31,800 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.
4) Madsen sold goods costing $51,560 to Finet of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Madsen’s physical inventory.
5) Madsen received goods costing $44,690 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $285,060.
Determine the correct inventory amount on December 31.
2 Answers
-
1) Madsen sold goods costing $56,680 to Allen Company FOB shipping point on December 28. The goods are not expected to reach Allen until January 12. The goods were not included in the physical inventory because they were not in the warehouse.
This is correct. The goods were shipped FOB shipping point, so the buyer took ownership as soon as the goods were shipped.
2) The physical count of the inventory did not include goods costing $92,400 that were shipped to Madsen FOB destination on December 27 and were still in transit at year-end.
Correct. Buyer would not take ownership until goods are delivered.
3) Madsen received goods costing $31,800 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.
Incorrect. Goods should have been included as soon as they were shipped.
Add $31,800 to inventory.
4) Madsen sold goods costing $51,560 to Finet of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Madsen’s physical inventory.
Incorrect. Seller retained ownership until goods were delivered.
Add $51,560 to inventory.
5) Madsen received goods costing $44,690 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $285,060.
Determine the correct inventory amount on December 31.
Incorrect. Buyer did not take ownership until goods were received.
Subtract $44,690 from inventory.
285,060 + 31,800 + 51,560 – 44,690 = $323,730 corrected inventory balance
Source(s): Accounting Fan -
GOOD STUFF MAN THANKS
