Question

Problem 6-1B Inventory ownership—perpetual LO1
On November 30, 2020, York + Robin Shoes (Y+R) performed the annual inventory count and determined the

year-end ending inventory value to be $49,222. It is now December 3, 2020, and you have been asked to double-
check the inventory listing. Y+R uses a perpetual inventory system. Note: Only relevant items are shown on

the inventory listing.

York + Robin Shoes
Inventory Listing
Year-Ended November 30, 2020

#
Inventory
Number Inventory Description Quantity (units) Unit Cost ($) Total Value ($)
1 A20 Men’s brown dress shoes 74 $50 $ 3,700
2 B30 Women’s black boots 50 30 1,500
. . . . . .
Total Inventory $49,222

CHAPTER 6 Inventory Costing and Valuation

456
The following situations have been brought to your attention:
a. On November 28, 2020, Y+R received a customer order for men’s sneakers (Item # D50) with a sale price
of $1,000 and cost of $600, FOB shipping. The order was shipped on November 30, 2020. Y+R did not
include this inventory.
b. On December 2, 2021, Y+R received a shipment of $1,500 women’s black boots (Item # B30). The inventory
was purchased November 22, 2020, FOB destination from Global Threads. This inventory was included in
Y+R’s inventory count and inventory listing.
c. Women’s sandals (Item # C40) were purchased and shipped from International Sole Co. on November 30,
2020 for $2,300, FOB shipping. The shipment arrived December 5, 2020 and the appropriate party paid for
the shipping charges of $230. Additional costs were $161 for import duties and $86 for insurance during
shipment.
d. On November 30, 2020, Y+R shipped women’s flip flops (Item #E60) to a customer for $2,520, FOB
destination. The inventory cost $1,800 and the customer received the goods on December 3, 2020. Y+R has
not included this inventory.
e. Y+R had been holding $3,700 of men’s brown dress shoes (Item #A20) on consignment for designer Blue
Co. as at November 30, 2020. This inventory was included in Y+R’s inventory count and inventory listing.
Required
1. In situations (a) to (e), determine whether each of the following should be included or excluded in
inventory as at November 30, 2020 and explain why. If the inventory should be included, determine
the inventory cost.

2. Determine the correct ending inventory value at November 30, 2020. Starting with the unadjusted inven-
tory value of $49,222, add or subtract any errors based on your analysis in Part 1. Assume all items that are

not shown in the inventory listing or discussed in situations (a) to (e) are recorded correctly.

Answer 1

1.

a.

Exclude – With FOB shipping terms, Y+R no longer owns the inventory on November 30, 2020 when the goods are shipped. The company has correctly excluded these goods.

b.

Exclude – With the shipping terms of FOB destination, Y+R does not take ownership of the inventory until December 3, 2020. Therefore, Y+R does not own the inventory (women’s black suede boots item # RU633) as at November 30, 2020.

c.

Include –With shipping terms of FOB shipping, Y+R takes ownership of the inventory as at November 30, 2020, when the inventory was shipped. The inventory should be included at a cost of $2,777 ($2,300+$230+$161+$86)

d.

Include – With shipping terms of FOB destination, Y+R still owns the inventory until the goods reach the customer on January 3, 2021. Thus, Y+R owns the inventory as at November 30, 2020 and should include the goods in the final inventory listing. The inventory should be included at a cost of $1,800.

e.

Exclude – The inventory held on consignment for Hughe Black should be excluded from Y+R’s inventory. Y+R does not own the consigned goods.

2.

Merchandise Inventory
Unadjusted Balance 49,222	1,500 (b)
(c) 2,777	3,700 (e)
(d)1,800
Bal $48,599

Y+R has corrected excluded the inventory in (a). No correction required.