Question

1. Following information is inventory status of AAA corporation. The company uses physical inventory method.

(1) Balance of Beginning Inventory of Merchandise: $70000; (2) Net Purchased Amount : $580,000

(3) Cost of goods sent for consignment sale During The Year: $100,000 (75% percents of them were sold)

(4) Cost of goods sold with Redemption Agreement (price of the Agreement: $20,000): $15,000

(5) Balance of Ending Inventory of Merchandise in the company's warehouse: $150,000

(6) Loss on valuation of inventories During The Year: $35,000 (Allowance for valuation of inventories: $0)

1) Calculate the correct cost of the Ending Inventory of Merchandise.

2) What will be the balance of Ending Inventory of Merchandise on the company's Financial Statement?

3) What will be the total inventory cost on the Statement of Comprehensive income?

Answer 1

  

Step 1

1. For calculating correct cost of ending inventory, cost of goods sold has to be find out. In this question cost of goods sold has not been give. Hence it is to be worked out.

Step 2

Cost of goods sold would be worked out as below

Cost of goods sold = Beginning inventory + Net purchases - ending inventory -Loss on valustion of inventry

Thus Cost of Goods sold = 70,000 +580,000-150,000 - 35,000 = $465,000

Step 3

Correct cost of inventory will be Beginning inventory + net purchases-Cost of goods sold

Correct cost of inventory= 70,000+580,000-465000 =$185,000

2 Balance of ending inventory as per financial Statement

Step 1

For financial statement ending inventory has to be worked out after making adjustment of loss in valuation of inventory and adjustment for inventory lying unsold on consignment basis

Step 2

Thus ending inventory in the financial statement would be

150,000+25,000= $175,000 ( as 75% of consignment has been sold)

3 Total Inventory Cost

Thus total inventory cost would be $ 175,000 + $35,000(Loss on valuation) =$210,000.