You are in charge of the year-end inventory count for OMG Luggage’s December 31, 2017 year-end....

You are in charge of the year-end inventory count for OMG Luggage’s December 31, 2017 year-end. OMG Luggage is known for its crazy luggage colours and designs. Assume the company uses a perpetual inventory system. Determine whether to include or exclude the following items.

a. On December 25, 2017, OMG Luggage purchased neon green luggage, FOB shipping from Baggage Co. The order had a purchase price of $2,500, shipping charges of $400, import duties of $300, and shipping insurance of $133. The products have not yet arrived at OMG Luggage, but Baggage Co. confirmed that the company shipped the order on December 27, 2017.
b. On December 31, 2017, OMG Luggage shipped leopard print luggage to a customer for a retail price of $777. This luggage had a cost of $500 and was shipped FOB destination. The shipping charges of $55 were paid by the appropriate party. Assume the products are delivered to customer in first week of January.
c. During the year, OMG luggage shipped inventory with a cost of $5,000 to a retailer on consignment. On December 31, 2017, the consignment store had sold $3,000 of the inventory and had paid OMG Luggage for the inventory sold.
d. On December 30, 2017, OMG Luggage sold yellow luggage to a customer with a price of $2,222 and a cost of $1,111. The customer paid for the luggage and arranged to pick up the inventory in person on January 4, 2018. As the inventory was still at the warehouse on December 31, 2017, the staff included this inventory in the final inventory listing.

Solutions

Expert Solution

A. Since the terms are Fob, thus the ownership have already been transferred once they reach the port whether or not it has been physically received in the godown. Now a the risks associated with the luggage lies with the OMG luggage and thus should form part of the inventory. It should be included while calculating inventory.

B. Since the contract terms are FOB and the ownership /risks associated with the luggage will remain with OMG till goods reach the destination port of the customer. On Dec 31, goods are still in ownership of OMG and thus will be included in the inventory count. It should be included.

C. Since the consignment agent has sold the goods and have been paid, ownership have already been transferred to the customer. $3000 goods should not be included in the inventory.

D. Even though the goods have already been sold and the ownership have been transferred even though they have not been physically transferred but the risk associated with the luggage have been transferred to the customer. Thus, it should not be included while inventory count.

Do give your feedback !! Happy learning :) :)

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

The Sheffield Company has just completed a physical inventory count at year end, December 31, 2022....

The Sheffield Company has just completed a physical inventory count at year end, December 31, 2022. Only the items on the shelves, in storage, and in the receiving area were counted and costed on the FIFO basis. The inventory amounted to $75,500. During the audit, the independent CPA discovered the following additional information: (a) There were goods in transit on December 31, 2022, from a supplier with terms FOB destination, costing $10,500. Because the goods had not arrived, they were...

he Monty Company has just completed a physical inventory count at year end, December 31, 2022....

he Monty Company has just completed a physical inventory count at year end, December 31, 2022. Only the items on the shelves, in storage, and in the receiving area were counted and costed on the FIFO basis. The inventory amounted to $81,600. During the audit, the independent CPA discovered the following additional information: (a) There were goods in transit on December 31, 2022, from a supplier with terms FOB destination, costing $9,800. Because the goods had not arrived, they were...

Question 2 Erik Gordon is observing the inventory count for NBA Inc. on December 31, year...

Question 2 Erik Gordon is observing the inventory count for NBA Inc. on December 31, year 1. The company reports a physical count of $835,000 of inventory on hand. Erik noted the following while he was observing the count: Inventory that cost $3,800 was included in the count and was shipped from the NBA warehouse later on the afternoon of December 31, FOB destination. The sales price was $4,500. The inventory was received on January 2, year 2. NBA purchased...

Ayayai Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2017 December...

Ayayai Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2017 December 31, 2018 Ending inventory $10,500 understated $8,200 overstated Depreciation expense $2,400 understated — An insurance premium of $69,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017. In addition, on December 31, 2018, fully depreciated machinery was sold for $16,000 cash, but the entry was not recorded until 2019. There were no other...

The December 31, 2018, year-end inventory balance of the Raymond Corporation is $234,000. You have been...

The December 31, 2018, year-end inventory balance of the Raymond Corporation is $234,000. You have been asked to review the following transactions to determine if they have been correctly recorded. Goods shipped to Raymond f.o.b. destination on December 26, 2018, were received on January 2, 2019. The invoice cost of $42,000 is included in the preliminary inventory balance. At year-end, Raymond held $26,000 of merchandise on consignment from the Harrison Company. This merchandise is included in the preliminary inventory balance....

The company takes a physical inventory count at the end of the year and adjusts their...

The company takes a physical inventory count at the end of the year and adjusts their inventory and cost of goods sold if there is a difference between the inventory value determined from the actual count compared to the value in the general ledger. The information below includes the number of units counted in inventory at the end of the year and the purchases of inventory during the month. Number of units held in the company's inventory at 12/31/2016 based...

The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to...

The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to be $460,000. Included in that count was a shipment of goods received from a supplier at the end of the month that cost $60,000. The purchase was recorded and paid for in 2019. Another supplier shipment costing $25,000 was correctly recorded as a purchase in 2018. However, the merchandise, shipped FOB shipping point, was not received until 2019 and was incorrectly omitted from the...

The December 31, 2021, inventory of Tog Company, based on a physical count, was determined to...

The December 31, 2021, inventory of Tog Company, based on a physical count, was determined to be $465,000. Included in that count was a shipment of goods received from a supplier at the end of the month that cost $65,000. The purchase was recorded and paid for in 2022. Another supplier shipment costing $27,500 was correctly recorded as a purchase in 2021. However, the merchandise, shipped FOB shipping point, was not received until 2022 and was incorrectly omitted from the...

The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to...

The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to be $461,000. Included in that count was a shipment of goods received from a supplier at the end of the month that cost $61,000. The purchase was recorded and paid for in 2019. Another supplier shipment costing $25,500 was correctly recorded as a purchase in 2018. However, the merchandise, shipped FOB shipping point, was not received until 2019 and was incorrectly omitted from the...

The unadjusted trial balance for Sunland Engineering at its year end, December 31, 2017, is as...

The unadjusted trial balance for Sunland Engineering at its year end, December 31, 2017, is as follows: SUNLAND ENGINEERING Trial Balance December 31, 2017 Debit Credit Cash $8,400 Accounts receivable 5,850 Supplies 4,750 Prepaid insurance 7,560 Notes receivable 12,300Equipment 27,400Accumulated depreciation—equipment $8,220 Accounts payable 4,600 H. Duguay, capital 39,440 H. Duguay, drawings 52,500 Service revenue 106,000 Salaries expense 39,500 $158,260 $158,260 Additional information: 1. Revenue of $10,550 was earned but unrecorded and uncollected as at December 31, 2017. 2. On...

Subjects