Question 1 Jaeco Corporation asks you to review its December 31, 2014 inventory

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Question 1 Jaeco Corporation asks you to review its December 31, 2014 inventory values and prepare the necessary adjustments to the books. The following information is given to you. 1. Jaeco uses the periodic method of recording inventory. A physical count reveals $234,400 of inventory on hand at December 31, 2014, although the books have not yet been adjusted to reflect the ending inventory. 2. Not included in the physical count of inventory is $10,600 of merchandise purchased on December 15 from Shamsi. This merchandise was shipped FOB shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31. 3. Included in inventory is merchandise sold to Sage on December 30, FOB destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,200 on December 31. The merchandise cost $7,790, and Sage received it on January 3. 4. Included in the count of inventory was merchandise received from Dutton on December 31 with an invoice price of $15,700. The merchandise was shipped FOB destination. The invoice, which has not yet arrived, has not been recorded. 5. Not included in inventory is $8,900 of merchandise purchased from Growler Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30. 6. Included in inventory was $10,900 of inventory held by Jaeco on consignment from Jackel Industries. 7. Included in inventory is merchandise sold to Kemp, FOB shipping point. This merchandise was shipped after it was counted on December 31. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $11,500, and Kemp received the merchandise on January 5. 8. Excluded from inventory was a carton labelled "Please accept for credit." This carton contains merchandise costing $2,000, which had been sold to a customer for $2,500. No entry had been made to the books to record the return, but none of the returned merchandise seemed damaged. 9. Jaeco has sold $12,000 of inventory to Simply Corp. on December 15, 2014. These items were shipped FOB shipping point. The terms of sale indicate that Simply Corp. will be permitted to return an unlimited amount until May 15, 2015. Jaeco has never provided unlimited returns in the past and is not able to estimate the amount of any potential returns that Simply may make. Collapse question part (a) Determine the proper inventory balance for Jaeco Corporation at December 31, 2014.

Explanation / Answer

Inventory balance arrived is as follows:

S.No Particulars Closing balance Reason for action 1 Closing balance $234,400.00 2 Add: Inventory purchased on December 15, FOB Shipping point $10,600.00 FOB shipping point indicates that the owner ship passes on to the buyer once the goods are shipped at the shipping point 3 Included in inventory, goods that were sold FOB destination No action required because they are correctly included in the stock, because under FOB destination clause, ownership passes on to the buyer once they are delivered at the destination. 4 Included in inventory, goods that were received FOB destination No action required as the goods are received at destination and so ownership of the goods is tranfered to the receiver. 5 Add:Merchandise received and not included $8,900.00 This needs to be included as the ownership lies with the company and invoice also recorded, in the books 6 Held on consignment No action is required as these are correctl included in the stock, because the ownership still lies until they are sold by the consignee 7 Minus:Merchandise sold after counting with FOB shipping as the term of sale $11,500.00 This needs to be deducted as these are shipped on December31, and the ownership got transferred once these are shipped. 8 Add:Sales return $2,000.00 Sales return not included. 9 FOB shipping with unlimited returns Need not be included unless any returns are received Corrected closing inventory $244,400.00

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