Question

Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet. Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not be reported as inventory, indicate how it should be reported in the financial statements. Item in Financial Statement Financial Statement 1. Goods out on consignment at another company’s store. 2. Goods sold on an installment basis (bad debts can be reasonably estimated). 3. Goods purchased f.o.b. shipping point that are in transit at December 31. 4. Goods purchased f.o.b. destination that are in transit at December 31. 5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory. 6. Goods sold where large returns are predictable. 7. Goods sold f.o.b. shipping point that are in transit at December 31. 8. Freight charges on goods purchased. 9. Interest costs incurred for inventories that are routinely manufactured. 10. Costs incurred to advertise goods held for resale. 11. Materials on hand not yet placed into production by a manufacturing firm. 12. Office supplies. 13. Raw materials on which a manufacturing firm has started production but which are not completely processed. 14. Factory supplies. 15. Goods held on consignment from another company. 16. Costs identified with units completed by a manufacturing firm but not yet sold. 17. Goods sold f.o.b. destination that are in transit at December 31. 18. Short-term investments in stocks and bonds that will be resold in the near future.

Answer 1

Solution:

From the given data we need to Indicate which of these items would typically be reported as inventory in the financial statements.

Item in Financial Statement	Financial Statement	Items
This item can be reported as Inventory	This item can be reported in  Balance sheet	1. Goods out on consignment at another company’s store.
This item can be reported as Cost of goods sold	This item can be reported in Income statement	2. Goods sold on an installment basis (bad debts can be reasonably estimated).
This item can be reported as Inventory	This item can be reported in Balance sheet	3. Goods purchased f.o.b. shipping point that are in transit at December 31.
Not reported	Not reported	4. Goods purchased f.o.b. destination that are in transit at December 31.
This item can be reported as Inventory	This item can be reported in Balance sheet	5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory.
This item can be reported as Cost of goods sold	This item can be reported in Income statement	6. Goods sold where large returns are predictable.
This item can be reported as Cost of goods sold	This item can be reported in Income statement	7. Goods sold f.o.b. shipping point that are in transit at December 31.
This item can be reported as Inventory	This item can be reported in Balance sheet	8. Freight charges on goods purchased.
This item can be reported as Interest expense	This item can be reported in Income statement	9. Interest costs incurred for inventories that are routinely manufactured.
This item can be reported as Advertising expense	This item can be reported in Income statement	10. Costs incurred to advertise goods held for resale.
This item can be reported as Inventory	This item can be reported in Balance sheet	11. Materials on hand not yet placed into production by a manufacturing firm.
This item can be reported as Office supplies	This item can be reported in Balance sheet	12. Office supplies.
This item can be reported as Inventory	This item can be reported in Balance sheet	13. Raw materials on which a manufacturing firm has started production but which are not completely processed.
This item can be reported as Inventory	This item can be reported in Balance sheet	14. Factory supplies.
Not reported	Not reported	15. Goods held on consignment from another company.
This item can be reported as Inventory	This item can be reported in Balance sheet	16. Costs identified with units completed by a manufacturing firm but not yet sold.
This item can be reported as Inventory	This item can be reported in Balance sheet	17. Goods sold f.o.b. destination that are in transit at December 31.
This item can be reported as  Inventory	This item can be reported in Balance sheet	18. Short-term investments