Question

The following inventory transactions took place near December 31, 2021, the end of the Dixon Company’s fiscal year-end:

A.	On December 27, 2021, merchandise costing $2,000 was shipped to the Myers

Company on consignment. The shipment arrived at Myers’s location on December 29, but none of the merchandise was sold by the end of the year. The merchandise was included in the 2021 ending inventory.

B.	On January 5, 2022, merchandise costing $8,000 was received from a supplier

and recorded as a purchase on that date and not included in the 2021 ending inventory. The invoice revealed that the shipment was made f.o.b. destination on December 28, 2021.

C.	On December 29, 2021, the company shipped merchandise costing $12,000 to a

customer f.o.b. destination. The goods, which arrived at the customer’s location on January 4, 2022, were included in Dixon’s 2021 ending inventory. The sale was recorded in 2022.

D.	Merchandise costing $4,000 was received on December 28, 2021, on

consignment from the Haskins Company. A purchase was recorded and the merchandise was included in 2021 ending inventory.

E.	Merchandise costing $6,000 was received and recorded as a purchase on January

8, 2022. The invoice revealed that the merchandise was shipped from the supplier on December 28, 2021, f.o.b. shipping point. The merchandise was not included in 2021 ending inventory.
Which of the five situations above was accounted for  correctly by Dixon Company?

		a.Only situations D and E
		b.Only situations A and B
		c.Only situations A, C and E
		d.Only situations A, B, and C

Answer 1

SOLUTION

Option C is correct i.e. Only situations A, C and E

1. The transaction is correctly accounted for, Inventory held on consignment by another company should be included in the inventory of the consignor.

2. The transaction is not correctly accounted for, Legal title to merchandise shipped f.o.b shipping point changes hands when the goods are shipped.

3. The transaction is correctly accounted for, Since the merchandise was shipped f.o.b. destination and did not arrive at the customer's location until 2022, it should be included in Rasul's 2021 ending inventory. The sale should be recorded in 2022.

4. The transaction is not correctly accounted for, it should not be included in ending inventory.

5. The transaction is correctly accounted for, Since the merchandise was shipped f.o.b. destination and did not arrive at the Rasul's location until 2022, it should be included in Rasul's 2021 ending inventory. The purchase is correctly recorded.