Question

Exercise 6-1 Tri-State Bank and Trust is considering giving Josef Company a loan. Before doing so, management decides that further discussions with Josef’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $348,500. Discussions with the accountant reveal the following. 1. Josef shipped goods costing $38,900 to Sorci Company, FOB shipping point, on December 28. The goods are not expected to arrive at Sorci until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $93,500 that were shipped to Josef FOB destination on December 27 and were still in transit at year-end. 3. Josef received goods costing $27,600 on January 2. The goods were shipped FOB shipping point on December 26 by Solita Co. The goods were not included in the physical count. 4. Josef shipped goods costing $47,000 to Natali Co., FOB destination, on December 30. The goods were received at Natali on January 8. They were not included in Josef's physical inventory. 5. Josef received goods costing $43,100 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $348,500. Determine the correct inventory amount on December 31

Answer 1

1. Josef shipped goods costing $38,900 to Source Company, FOB shipping point, on December 28. The goods are not expected to arrive at Source until January 12. The goods were not included in the physical inventory because they were not in the warehouse

: Treatment is correct, should not be included in the inventory. So no further treatment is required.

1. The physical count of the inventory did not include goods costing $93,500 that were shipped to Josef FOB destination on December 27 and were still in transit at year-end.

: Treatment is correct, should not be included in the inventory. So no further treatment is required.

1. Josef received goods costing $27,600 on January 2. The goods were shipped FOB shipping point on December 26 by Solitary Co. The goods were not included in the physical count.

         Treatment is wrong, should be included in the inventory. So $27600 should be added

1. Josef shipped goods costing $47,000 to Natalia Co., FOB destination, on December 30. The goods were received at Natalia on January 8. They were not included in Josef's physical inventory.

Treatment is wrong, should be included in the inventory. So $47,000 should be added

1. Josef received goods costing $43,100 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $348,500.

Treatment is wrong, should be included in the inventory. So $43100 should be deducted.

Determine the correct inventory amount on December 31
	$
Given year end account Balance	348500
Add: Receipt of goods	27600
Add: Goods shipped to Natalia co	47000
Less: Receipt of goods on Jan 02	-43100
Correct inventory amount	380000