Tri-State Bank and Trust is considering giving Josef Company a loan. Before doin

Question

Tri-State Bank and Trust is considering giving Josef Company a loan. Before doing so, management decides that further discussions with Josef’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $325,810. Discussions with the accountant reveal the following.

1. Josef sold goods costing $42,730 to Sorci Company, FOB shipping point, on December 28. The goods are not expected to arrive at Sorci until January 12. The goods were not included in the physical inventory because they were not in the warehouse.

2. The physical count of the inventory did not include goods costing $98,400 that were shipped to Josef FOB destination on December 27 and were still in transit at year-end.

3. Josef received goods costing $28,810 on January 2. The goods were shipped FOB shipping point on December 26 by Solita Co. The goods were not included in the physical count.

4. Josef sold goods costing $47,550 to Natali Co., FOB destination, on December 30. The goods were received at Natali on January 8. They were not included in Josef's physical inventory.

5. Josef received goods costing $42,280 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $325,810.

Determine the correct inventory amount on December 31.

The correct inventory amount $

Explanation / Answer

The correct inventory amount is calculated with the use of following table:

Remarks Incorrect Inventory Balance 325,810 Transaction 1 0 The treatment is correct. The goods sold as FOB shipping point will not form part of ending inventory. It is so because, the ownership of the goods will pass to the buyer at the time of sale. Transaction 2 0 The treatment is correct. The goods shipped to Joseph as FOB destination will not form part of ending inventory. It is so because the ownership of goods will continue to be with the seller as the goods have not been received by Josef at year end. Transaction 3 28,810 The treatment is wrong. The goods shipped to Joseph as FOB shipping point will form part of ending inventory. It is so because the ownership of goods will pass to Josef at year end even if the goods have not been so received at year end. Transaction 4 47,550 The treatment is wrong. The goods sold as FOB destination will form part of ending inventory. It is so because, the ownership of the goods will continue to be with Josef at year end. Transaction 5 -42,280 The treatment is wrong. The goods shipped to Joseph as FOB destination will not form part of ending inventory. It is so because the ownership of goods will continue to be with the seller as the goods have not been received by Josef at year end. Correct Inventory Balance $359,890 (answer)

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