The Kwok Company\'s inventory balance on December 31, 2016. was $220,000 (based

Question

The Kwok Company's inventory balance on December 31, 2016. was $220,000 (based on a 12/31/16 physical count) before considering the following transactions: 1. Goods shipped to Kwok f.o.b destination on December 20, 2016, were received on January 4, 2017. The invoice cost was $41,000. 2. Goods shipped to Kwok f.o.b. shipping point on December 28, 2016, were received on January 5, 2017. The invoice cost was $28,000. 3. Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2016, were received by the customer on January 3, 2017. The sales price was $51,000 and the merchandise cost $33,000. 4. Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2016, wore received by the customer on December 30, 2016. The sales price was $31,000 and the merchandise cost $24,000. 5. Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2016, were received by the customer on January 4, 2017. The sales price was $36,000 and the merchandise cost $23,000. Required: Determine the correct inventory amount to be reported in Kwok's 2016 balance sheet

Explanation / Answer

The correct inventory balance is calculated as follows:

_____

Notes:

1) Transaction No. 1 will not form part of inventory as the shipping term is "f.o.b." destination to Kwok. In this case, the physical ownership of the inventory will not get transferred to Kwok till the goods have been received. The goods have been received on January 4, 2017 and will, therefore, will not be included in the inventory as on December 31, 2016.

2) Transaction No. 4 will not require any adjustment as the physical count was performed on December 31, 2016 and would have already been accounted for.

3) Transaction No. 5 will not form part of inventory as the shipping term is "f.o.b." shipping point to the customer. In this case, the physical ownership of the inventory will get transferred to the customer immediately and will not be considered as a part of Kwok's inventory on December 31, 2016.

Inventory Balance before Additional Transactions 2,20,000 Add Goods Shipped to Kwok f.o.b Shipping Point on December 28, 2016 28,000 Goods Shipped to Customer f.o.b. Destination on December 27,2016 33,000 Correct Inventory Balance $2,81,000

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