Question

The CAL Company maintains a perpetual inventory system. The following information is available related to its December 31, 2020 year end: 1. Inventory costing $5,500 was received on December 20, 2020, on consignment from PPC. No journal entry has been made. 2. An invoice for $2,500, terms f.o.b. shipping point, was received and entered on December 30, 2020. The receiving report shows that the inventory was received on January 4, 2021, and the bill of lading shows that the inventory was shipped on January 2, 2021. 3. An invoice for $1,800, terms f.o.b. destination, was received and entered on January 2, 2021. The receiving report shows that the inventory was received on December 28, 2020.

Required: Prepare any correcting journal entries that are required at December 31, 2020, assuming that the books have not been closed. If no correction is needed, explain why

Answer 1

Point 1
	Correct treatment has been done
	Inventory received on consignment from consignor does not form the part of inventory of consignee
Point 2
	It was wrong entry booked by CAL Co.. Although, Incoterm of this shipment is FOB Shipping point but Bill of lading shows that it is shipped on 02th Jan 2021.
	So new entry requires to book to make correction againnst wrong receipt of inventory
	Correct Entry to be booked on 31st Dec 2020
	Account Payable	Dr	$ 2,500.00
		To Inventory	Cr		$ 2,500.00
	Being wrongly booked as receipt of material , Now rectified
Point 3
	This entry need to be VOID as it was wrong entry made by CAL CO.Since Receiving report shows that inventory received on 28th Dec 2020, So it is form part of inventory for the year ended 31st Dec 2020
	Correct entry to be made on 31st Dec 2020
	Inventory		Dr	$ 1,800.00
		To Account Payable	Cr		$ 1,800.00
	Being Inventory purchased on FOB destination