Umatilla Bank and Trust is considering giving Martinez Corp. a loan. Before doin

Question

Umatilla Bank and Trust is considering giving Martinez Corp. a loan. Before doing so, it decides that further discussions with Martinez Corp.’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $289,130. Discussions with the accountant reveal the following.

Determine the correct inventory amount on December 31.

1. Martinez Corp. sold goods costing $52,300 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock 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 $99,960 that were shipped to Martinez Corp. FOB destination on December 27 and were still in transit at year-end. 3. Martinez Corp. received goods costing $23,710 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count. 4. Martinez Corp. sold goods costing $47,170 to Ehler of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Martinez Corp. physical inventory. 5. Martinez Corp. received goods costing $41,810 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 $289,130.

Explanation / Answer

Remarks Action 1 Sold goods costing $52,300 FOB shipping point on Dec 28 Sale occurred at shipping pointGoods should not be included in inventory No change 2 Goods costing $99960 FOB destination Sale will occur after goods reaching destination. Should not be included in inventory No change add 3 Goods costing $23710 shipped to Maetinez FOB shipping point Goods belongs to Martinez and should be accounted in inventory $23,710 add 4 sold goods costing $47,170FOB destination on Dec 30 Sale will occur on January8, should be included in inventory $47,170 add 5 Received goodscosting $41810 FOB destination on January2 Should not be included in inventory ($41,810) Reduce Net Change in inventory $29,070 Year end balance as per inventory account $289,130 Correct Inventory account $318,200 The Correct inventory amount on December 31 $318,200

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