Question

Determining Merchandise to be Included or Excluded from Ending Inventory

The unadjusted inventory balance of Sara Ann Corp. is $500,000 on December 31, 2020, based on a physical inventory count. The following items must be considered before the inventory valuation is finalized.

a. On December 31, the physical inventory excluded $500 of merchandise inventory shipped to Sara Ann Corp. from a vendor f.o.b. destination that arrived on January 1, 2021.

b. On December 31, the physical inventory included $18,000 of merchandise inventory held on consignment by a customer. Sara Ann Corp. is the consignor.

c. On December 31, the physical inventory included $800 of merchandise held on consignment. The consignor is Sara Ann’s largest vendor.

d. $18,000 of in-transit merchandise was shipped f.o.b. shipping point to a customer and was excluded from the physical inventory count. The merchandise was shipped on December 28, 2020, and is expected to arrive at the customer on December 31, 2020.

e. Goods are in-transit from a vendor to Sara Ann on December 31, 2020. The invoice cost was $12,000 and the goods were shipped f.o.b. shipping point on December 28, 2020. The merchandise was excluded from the physical inventory count because they had not been delivered.

f. Merchandise with a cost of $300 is held in the receiving department for return. The merchandise was excluded from the physical inventory count.

Required

Considering items a through f, determine the adjusted inventory balance for Sara Ann Corp.

Adjusted inventory balance on December 31, 2020: $Answer

Answer 1

Based on the information available in the question, we can calculate the adjusted inventory balance for Sara Ann corp as follows:-

S.No	Particulars	Amount	Rationale
	Initial assessment	500,000
a.)	Goods from vendor fob destination	-	This has been rightly excluded since it is FOB Destination and it was received only on January 1
b.)	Goods on consignment	-	This has been rightly included since the goods has been held on consignment and Sara is the consignor
c.)	Goods on consignment	(800)	This should be reduced because under consignment accounting, the goods held on consignment will reported by the consignor. As such, it should be excluded from Sara Ann's records
d.)	Goods sent to customer	-	This has been rightly excluded since it is FOB Shipping point and it was shipped on December 28, 2020
e.)	Goods from vendor fob shipping point	12,000	This should be included in Sara's inventory as they have been shipped FOB Shipping point and should be reported as of year end.
f.)	Merchandise for return	300	Should be included because it is still held within the purchasing department of the company for return. Hence this shoud be added back.
	Updated Inventory balance	511,500

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