During the annual audit of your client for the fiscal year ending December 31,20

Question

During the annual audit of your client for the fiscal year ending December 31,20X3 you found the following transactions related to inventory. Assume that all amounts are considered material. Merchandise costing $2,000 was received on January 3, 20X4, and the related vendor invoice recorded January 5. The invoice showed the shipment was made on December 29, J 20X3, FOB destination. Merchandise costing $800 was received on December 28, 20X3, and the invoice was not recorded. You located it in the hands of the purchasing agent. It was marked A packing case containing products costing $ 1,250 was standing in the shipping room when J the physical inventory was taken. It was not included in the inventory because it was J marked HOLD FOR SHIPPING INSTRUCTIONS. Your investigation revealed that the customer's order was dated December 18, 20X3, but that the case was shipped and the ' customer billed on January 10, 20X4. The product was a stock item of your client. Merchandise received on January 6, 20X4, costing $1,500 was entered in the purchases journal on January 7, 20X4. The invoice showed shipment was made FOB shipping point on December 31, 20X3. This was not included in the physical count or inventory number as of December 31, 20X3. A special machine, made to order for a customer, was finished and in the shipping room on December 31,20X3. The customer was billed on that date and the machine was excluded from inventory. It was not shipped to the customer until January 4,20X4. REQUIRED: For each of the items discussed above, indicate whether the amount should be included in inventory for the fiscal year ending December 31, 20X3. Provide an explanation for your answer.

Explanation / Answer

(A) This amount of $ 2000 should not be included in the inventory for the fiscal year ending December 31, 20X3 because the goods not received by the client. (B) Yes this should be included in closing inventory, because physical goods received by client.   (C ) This goods should be included in closing stock , because the customer is neither billed and nor the physical goods are moved from client . (D) This should not be included in closing inventory ,because even though the goods are shipped this is not received by client . (E ) Since this already billed to customer so it should be excluded from closing stock.

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