Question

In: Accounting

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 2 years ago
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