\"CA8-1 (Inventoriable Costs) You are asked to travel to Milwaukee to observe an
ID: 2454716 • Letter: #
Question
"CA8-1 (Inventoriable Costs) You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inven- tory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.”
Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The book- keeper affirms the fact that this invoice is to be held for recording in January.
Instructions
(a) Does your client have a liability that should be recorded at December 31? Discuss.
(b) Prepare a journal entry(ies), if required, to reflect any accounting adjustment required. Assume a
perpetual inventory system is used by your client.
(c) For what possible reason(s) might your client wish to postpone recording the transaction?"
Explanation / Answer
The shipment of the goods is fob. fob shipments contain two impacts. If the freight till destination is paid by the seller, the ownership of the goods comes to the buyer once the goods arrive at the buyers place. In other case, the seller woud bear the cost of transport till the point of shipment. From the point of shipment, the risk and reward on the goods move to the buyer. In this case, it is imminent that the goods have been shipped on Dec 24 and it has arrived the place of the buyer on Dec 30 even before the close of the year. Hence, the accounting sense implies that the goods in the car needs to be ncluded in the inventory for the year.
Assume that the freight is paid by the buyer, since it is fob Albuquerque, the journal entry for recording the transaction would be
Under perpetual inventory system, the count of inventory are constantly updated. The purchases are accounted to Inventory account apart from the purchase acocunt used in periodic inventory system. The inventory record would be closed in a periodic inventory system while taking stock countinorder to avoid confusion by adding purchased materials in to the scene. Under perpetual inventory systme, the records are constantly updated and there seems to be no reason to postpone the recording of the transaction
Particulars Debit Credit Purchase 35300 Accounts Payable 35300 Freight Inward 1500 Freight payable 1500Related Questions
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