Question

The following inventory transactions took place near December 31, 2019, the end of the Dixon Company’s fiscal year-end:

1. On December 27, 2019, 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 2019 ending inventory.
2. On January 5, 2020, merchandise costing $8,000 was received from a supplier and recorded as a purchase on that date and not included in the 2019 ending inventory. The invoice revealed that the shipment was made f.o.b. destination on December 28, 2019.
3. On December 29, 2019, 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, 2020, were included in Dixon’s 2019 ending inventory. The sale was recorded in 2020.
4. Merchandise costing $4,000 was received on December 28, 2019, on consignment from the Haskins Company. A purchase was recorded and the merchandise was included in 2019 ending inventory.
5. Merchandise costing $6,000 was received and recorded as a purchase on January 8, 2020. The invoice revealed that the merchandise was shipped from the supplier on December 28, 2019, f.o.b. shipping point. The merchandise was not included in 2019 ending inventory.

Which of the five situations above was accounted for correctly by Dixon Company?

Answer 1

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1	The transaction is not correctly accounted for. Inventory held on consignment by another company should be included in the inventory of the consignor. Dixon should include this merchandise in its 2019 ending inventory.
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.
	Dixon should record the purchase and corresponding account payable in 2019 and include the merchandise in its 2019 ending inventory.
3	The transaction is not correctly accounted for. Since the merchandise was shipped f.o.b. destination and did not arrive at the customer's location until 2020, it should be included in Dixon’s 2019 ending inventory. The sale should be recorded in 2020.
4	The transaction is correctly accounted for. Merchandise held on consignment from another company belongs to the consignor and should be excluded from the inventory of the consignee.
5	The transaction is correctly accounted for. Since the merchandise was shipped f.o.b. destination and did not arrive at Dixon’s location until 2020, it should not be included in Dixon’s 2019 ending inventory. The purchase is correctly recorded in 2020.