Question

Nash Company asks you to review its December 31, 2020, inventory values and prepare the necessary adjustments to the books. The following information is given to you.

1.		Nash uses the periodic method of recording inventory. A physical count reveals $258,379 of inventory on hand at December 31, 2020.
2.		Not included in the physical count of inventory is $14,762 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3.		Included in inventory is merchandise sold to Champy on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $14,080 on December 31. The merchandise cost $8,085, and Champy received it on January 3.
4.		Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $17,193. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5.		Not included in inventory is $9,394 of merchandise purchased from Glowser Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6.		Included in inventory was $11,482 of inventory held by Nash on consignment from Jackel Industries.
7.		Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped on December 31 after it was counted. The invoice was prepared and recorded as a sale for $20,790 on December 31. The cost of this merchandise was $11,572, and Kemp received the merchandise on January 5.
8.		Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,650 which had been sold to a customer for $2,860. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged; Nash will honor the return. Determine the proper inventory balance for Nash Company at December 31, 2020 & Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2020. Assume the books have not been closed

Answer 1

1. Determine the proper inventory balance for Nash Company at December 31, 2020

Answer:

Inventory balance as on December 31, 2020

260,981

Calculation:

We need to add the inventory additions to the unadjusted balance of 258,379 as of December 31, 2020. From that we also need to deduct the inventory transferred or not held.

Inventory December 31, 2020	258,379
Add: Transaction 2	14,762
Add: Transaction 3	0
Add: Transaction 4	0
Add: Transaction 5	9,394
Less: Transaction 6	-11,482
Less: Transaction 7	-11,572
Add: Transaction 8	1,500
Inventory December 31, 2020 (adjusted)	260,981

Notes:

Transaction 2 : Inventory added in Dec 2020

Transaction 3 : No change in inventory

Transaction 4 :No change in inventory

Transaction 5 : Purchase not included in the inventory balance. So need to add it to the balance

Transaction 6 :Consignment not held on inventory. So need to be deducted.

Transaction 7: Merchandise was sold to a shipping point common carrier. So need a deduction in inventory balance.

Transaction 8: Inventory is returned which as not having any damage and was sold on credit.

2. Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2020.

Answer:

Journal Entries

No.	General Journal	Debit	Credit
1	No entry required
2	No entry required
3	Sales Revenue	14,080
	Accounts Receivable		14,080
	To record the adjustment to match the period as the transfer took place in 2021.
4	Purchases (Inventory)	17,193
	Accounts Payable		17,193
	To record the adjustment to match the period as the transfer took place in 2020.
5	No entry required
6	No entry required
7	No entry required
8	Sales Returns and Allowances	2,860
	Accounts Receivable		2,860
	To record the adjustment to account the credit returned merchandise