Question

In: Accounting

Sam’s Surplus Supply had the following inventory situations to consider at January 31, its year end:...

Sam’s Surplus Supply had the following inventory situations to consider at January 31, its year end:

Which of the following items should Sam’s Surplus Supply include in its inventory?


1. Goods held on consignment for MailBoxes Etc. since December 22

2. Goods that are still in transit and were shipped to a customer, FOB destination, on January 28

3. Goods that are still in transit and were purchased from a supplier, FOB destination, on January 25

4. Goods that are still in transit and were purchased from a supplier, FOB shipping point, on January 29

5. Freight costs due on goods in transit from item 4 above

6. Freight costs due on goods in transit from item 2 above


Solutions

Expert Solution

S.no Description Included/Not Include Remarks
1 Goods held on consignment for Mail Boxes Etc. since December 22 Not Include When goods hold on consignment the ownership of the goods will remain with the consignor hence it will not included in the consignee inventory. Therefore, Sam's surplus supply will not include the stock held on consignment for Mail boxes Inc.
2 Goods that are still in transit and were shipped to a customer, FOB destination, on January 28 Include FOB Destination means buyer accepts the goods when the goods reached at his destination. And ownership for damages during the transit will remain with the supplier. Hence, goods supplied by Sam's surplus supply on FOB destination will be included in his inventory because it is still in transit.
3 Goods that are still in transit and were purchased from a supplier, FOB destination, on January 25 Not Include As the goods purchased from supplier on FOB destination. Hence the ownership of the goods till it reaches the sam's surplus supply place will remain with the supplier. Therefore, it will not be included in the inventory of Sam surplus supply.
4 Goods that are still in transit and were purchased from a supplier, FOB shipping point, on January 29 Include As the goods purchased from supplier on FOB Shipping. Hence the ownership of the goods will be with the Sam surplus supply when the goods left the place of supplier. Therefore, it will be included in the inventory of Sam surplus supply.
5 Freight costs due on goods in transit from item 4 above Include As the shipping terms as FOB shipping point. Therefore the Freight cost bear by the Sam surplus supply because ownership of the inventory is with Buyer as soon as goods left the supplier place. Therefore, it will be included in the cost of Inventory
6 Freight costs due on goods in transit from item 2 above Include As the shipping terms as FOB Destination point. Therefore the Freight cost bear by the Sam surplus supply because ownership of the inventory is with supplier till the goods reached the customer place. Therefore, it will be included in the cost of Inventory

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