Buffalo’s Motors had the following inventory situations to consider at its December 31 year end. Physical...

Buffalo’s Motors had the following inventory situations to consider at its December 31 year end. Physical inventory count was $15,600.

1.		Pete’s Propellers had $1,000 of goods held on consignment that were included in Buffalo’s physical inventory count.
2.		Goods that cost $980 were sold to Walter’s Wings and shipped FOB destination on December 28. The goods were not expected to arrive at Walter’s until January 4. These goods were not included in the physical inventory count.
3.		Goods purchased from a supplier, Mike’s Motors, for $3,000 were not received until January 2. The goods were shipped FOB shipping point on December 29 and were not included in the physical count.

Determine the correct inventory balance.

Correct inventory amount

$

Expert Solution

Answer : Correct inventory amount = $19,580

Explanation :

1. Under consigment contract , goods on consignment are recoreded in inventory of consignor (Buffalo’s Motors) untill the goods are sold by consignee (Pete’s Propellers). Here being a consignor , the goods held on consignment must be included in Buffalo’s physical inventory count which is already considered . Thus no action for this point.

2. Under FOB destination , goods are included in inventory of seller unitill goods are received by buyer . Since Buffalo’s Motors sold goods and shipped FOB destination, the goods must be included in the inventory of Buffalo’s Motors as on December 31 as goods were not expected to arrive at buyer place until January 4

3. Under FOB shipping point , as soon as seller shipped the goods , the inventory 's ownership shifted to buyer & should be included in the inventory of buyer. Since Buffalo’s Motors purchased the goods at FOB shipping point , the goods must be included in the inventory of Buffalo’s Motors as on December 31 even though the goods were not recived till January 2.

Correct inventory amount = $15,600 + $980 + $3,000 =$19,580

ekkarill92 answered 2 years ago

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