Question

Diana Gomez Corporation, a manufacturer of cowboy boots, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on a physical count of goods on December 31, 2017)	$	1,700,000
Accounts payable at December 31, 2017		1,150,000
Net sales (sales less returns and allowances) Additional information is as follows: A- Work-in-process inventory costing $30,000 was sent to an outside processor for hand-tooling on December 30, 2017, and was therefore not included in physical inventory. B- Goods received from Smith, Inc., a vendor, on December 27, 2017, were included in the physical count; however, the invoice from Smith ($43,000) was not included in accounts payable at December 31, 2017, because the accounts payable department never received its copy of the receiving report. C- Goods received from another vendor just before the plant closed on December 31, 2017, were reported on a receiving report dated January 2, 2018. The goods, invoiced to Gomez at $83,000, were not included in the physical count, but the invoice was included in the December 31, 2017, accounts payable balance. D- Included in the physical count were boots billed to a customer f.o.b. shipping point (title transfers when goods are shipped) on December 31, 2017. These boots had a cost of $25,000 and were recorded as sales of $35,000. The shipment was on Gomez’s loading dock waiting to be picked up by the trucking company. E- Boots shipped to a customer f.o.b. destination (title transfers when goods are received) on December 28, 2017, were in transit at December 31, 2017, and had a cost of $40,000. Gomez issued a sales invoice for $58,000 on January 3, 2018, upon notification of receipt by the customer. F- Boots returned by customers and held on December 31, 2017, in the returned goods area pending inspection were not included in the physical count. On January 5, 2018, after inspection, the boots were returned to inventory and credit memos were issued to the customers. The boots, costing $27,000, were originally invoiced for $39,000. Required: Using the following format, prepare a schedule of adjustments as of December 31, 2017, to the amounts Gomez initially reported in its accounting records. Show separately the effect, if any, of each of the six transactions on the December 31, 2017, amounts. (Amounts to be deducted must be entered with a minus sign) Inventory Accounts Payable Net sales Initial amounts $1,700,000 $1,150,000 $9,500,000 Adjustments—increase (decrease) a. Off-site Work-in-process b. Excluded invoice c. Goods omitted from count d. F. O. B. shipping point e. F. O. B. destination f. Returned goods Total adjustments Adjusted amounts $ $ $

Answer 1

		Inventory	Accounts Payable	Net sales
	Initial amounts	$1,700,000	$1,150,000	$9,500,000
	Adjustments—increase (decrease)
A	Off-site Work-in-process	$ 30000
B	Excluded invoice		$ 43000
C	Goods omitted from count	$ 83000
D	F. O. B. shipping point			($ 35000)
E	F. O. B. destination	$ 40000
F	Returned goods	$ 27000		($ 39000)
	Total adjustments	$ 180000	$ 43000	($ 74000)
	Adjusted amounts	$ 1880000	$ 1193000	$ 9426000

Notes: -

A - Goods sent for Job Work should be included in Closing Inventory as Goods Sent on Job Work.

B - Goods were received before 31 Dec so it should be included in closing Inventory, as the same is already counted in Physical Count no need to adjust in Inventory. However Accounts Payable need to be increase as party bill is not booked.

C - Goods were received before 31 Dec so it should be included in closing Inventory, as the same is not counted in Physical Count so need to adjust in Inventory. However Accounts Payable is already updated so no need for further adjustments.

D – Goods lying at loading dock should be counted as inventory, as the same is already counted in Physical Count no need to adjust in Inventory. However the same is also recorded as sales so sales need to be reversed.

E – Goods tittle is not transferred as the same is in transit on 31 December and tittle will be transferred on receipt by the party as goods are sold on FOB destination basis. This should be included in inventory and sales should not be recorded until receipt by the party. Inventory should be adjusted to as these goods are not counted in physical count and there is no need to adjust sale as the same is booked on 3^rd January.

F – Goods returned by customer before 31 December should be included in closing inventory at cost (i.e. $ 27000 ) and reduced from sales as sales return at invoice price (i.e. $ 39000).