The December 31, 2016, year-end inventory balance of the Raymond Corporation is

Question

The December 31, 2016, year-end inventory balance of the Raymond Corporation is $232,000. You have been asked to review the following transactions to determine if they have been correctly recorded. 1. Goods shipped to Raymond f.o.b. destination on December 26, 2016, were received on January 2, 2017. The invoice cost of $41,000 is included in the preliminary inventory balance. 2. At year-end, Raymond held $25,000 of merchandise on consignment from the Harrison Company. This merchandise is included in the preliminary inventory balance. 3. On December 29, merchandise costing $7,100 was shipped to a customer f.o.b. shipping point and arrived at the customer’s location on January 3, 2017. The merchandise is not included in the preliminary inventory balance. 4. At year-end, Raymond had merchandise costing $26,000 on consignment with the Joclyn Corporation. The merchandise is not included in the preliminary inventory balance. Determine the correct inventory amount to be reported in Raymond’s 2016 balance sheet.

Explanation / Answer

Point No.1 Goods shipped to Raymond f.o.b. destination on December 26, 2016, were received on January 2, 2017 The goods were shipped FOB destination , so the Raymond took the ownership as soon as goods were received at destination. But the goods are still in transit on 31st December, hence goods doesn't belong to Raymond on 31st December. The treatment that Invoice cost $41000 included in preliminary Inventory balance is incorrect. $41000 must be reduced from Inventory balance. Point No.2 At year-end, Raymond held $25,000 of merchandise on consignment from the Harrison Company This merchandise is included in the preliminary inventory balance The treatment is correct. Point No.3 On December 29,merchandise costing $7,100 was shipped to a customer f.o.b. shipping point and arrived at the customer’s location on January 3, 2017. The merchandise is not included in the preliminary inventory balance The goods were shipped FOB shipping point , so the customer is the owner of goods once the goods are delivered on ship. The treatment is correct. Point No.4 At year-end, Raymond had merchandise costing $26,000 on consignment with the Joclyn Corporation The merchandise is not included in the preliminary inventory balance The treatment is correct. The correct inventory balance = $232000 - $41000 = $191000

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