On December 31 of the current year, Plunkett Company reported an ending inventor
ID: 2573978 • Letter: O
Question
On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available:
Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000.
Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.
Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.)
Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end.
Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:
Multiple Choice
A $194,000
B $209,000
C $200,000
D $171,000
E $156,000
Explanation / Answer
Answer: E) $156,000
Plunkett beginning inventory of $215,000.
The information in the 1st point was handled correctly, although the explanation for why is incorrect. No adjustment is required for that.
For the 2nd point, the $44,000 of goods should not have been included in ending inventory, since the goods were shipped FOB destination. Subtract $44,000 from the ending inventory.
For the 3rd point, the ending inventory should not include goods held on consignment from another company. Subtract $15,000from the ending inventory.
The information in the 4th point was handled correctly. No adjustment required.
Hence, $215,000 - $44,000 - $15,000 = $156,000
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