Question

Farley Bains, an auditor with Nolls CPAs, is performing a review of Blossom Company’s Inventory account. Blossom Company did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $706,310. However, the following information was not considered when determining that amount.

Prepare a schedule to determine the correct inventory amount. (Show amounts that reduce inventory with a negative sign or parenthesis e.g. -45 or parentheses e.g. (45).)

		Ending inventory-as reported		$enter a dollar amount
1.		Included in the company’s count were goods with a cost of $229,430 that the company is holding on consignment. The goods belong to Nader Corporation.		enter a dollar amount
2.		The physical count did not include goods purchased by Blossom Companywith a cost of $38,280 that were shipped FOB shipping point on December 28 and did not arrive at Blossom Company’s warehouse until January 3.		enter a dollar amount
3.		Included in the Inventory account was $15,370 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.		enter a dollar amount
4.		The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $42,500 and a cost of $27,500. The goods were not included in the count because they were sitting on the dock.		enter a dollar amount
5.		Included in the count was $52,300 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Blossom Company’s products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, “since that is what we paid for them, after all.”		enter a dollar amount
		Correct inventory		$enter a total amount

Answer 1

Adjustment Sr. No.	Particulars	Amount
	Inventory balance (INCORRECT)	706,310
1	Less: Goods held on consignment basis	(229,430)
2	Add: Goods in transit FOB Shipping Point	38,280
3	Less: Office supplies are not part of company inventory	(15,370)
4	Add: Goods FOB Shipping point but not yet shipped (Upto 31ST)	27,500
5	Less: Obsolete inventory	(52,300)	Note: Obsolete inventory to be excluded. It should be taken on lower of cost or NRV . If it so obsolete, NRV is treated as zero.
	Correct Inventory value	474,990