5th Third Street Bank is considering giving Fallen Company a loan. Before doing so, it decides that further discussion with fallen?
accountant may be desirable.One area of particular concern is the inventory account, which has a year‐end balance of $375,000.
Discussions with the accountant reveal the following.
1. Fallen sold goods costing $55,000 to White Company FOB shipping point on
December 28. The good
s are not expected to reach White until January 12. The
goods were not included in the physical inventory because they were not in the
2. The physical count of the inventory did not include goods co
sting $95,000 that
were shipped to Fallen FOB destination on December 27 and were still in transit
at year end.
3. Fallen received goods costing $15,000 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. Fallen sold good
s costing $51,000 to Benet of Canada FOB destination on
December 30. The goods were received in Canada on January 8. They were not
included in Fallen physical inventory.
5. Fallen received goods costing $32,000 on January 2 that were shipped FOB
destination on Decemb
er 29. The shipment was a rush order that was supposed
to arrive December 31. This purchase was included in the ending inventory of
Determine the correct inventory amount on December 31.
- 5 years agoFavorite Answer
1. The $55k is not included
2. Don't include the $95k
3. Include the $15k
4. Include the $51k
5. Don't include the $32k
Starting with the ending inventory of $375k, add $15k ($390k), add $51k ($441k), subtract $32k ($409k).
I believe that's right. It's been a while since I've done this kind of accounting, but things have an affect on inventory based on when a sale happens. If it's FOB shipping point, the sale happens when it's shipped. If it's FOB destination, it happens upon delivery. If a sale happens on or before Dec 31, it's accounted for in the year end inventory.
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