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(CO G) In your audit of Garza Company, you find that a physical inventory on December...

(CO G) In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost $541,000 was on hand at that date. You also discover the following items were all excluded from the inventory count.

  • Merchandise of $71,000, which is held by Garza on consignment. The consignee is the Bontemps Company.
  • Merchandise costing $33,000, which was shipped by Garza f.o.b. shipping point to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011.
  • Merchandise costing $46,000, which was shipped by Garza f.o.b. destination to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011.
  • Merchandise costing $73,000 shipped by a vendor f.o.b. shipping point on December 30, 2010, and received by Garza on January 4, 2011.
  • Merchandise costing $51,000 shipped by a vendor f.o.b. destination on December 31, 2010, and received by Garza on January 5, 2011.

Based on the above information, calculate the amount that should appear on Garza’s balance sheet at December 31, 2010, for inventory.

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Expert Solution

Answer. In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $541,000 was on hand at that date. You also discover the following items were all excluded from the $541,000.

1. Merchandise of $71,000 which is held by Garza on consignment. The consignor is the Bontemps Company.

The consignor owns the merchandise, and it was correctly excluded.


2. Merchandise costing $33,000 which was shipped by Garza f.o.b. destination to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011.

FOB destination means Garza (the shipper) owns it until it reaches its destination (the buyer). The 33,000 should have been included in inventory.


3. Merchandise costing $46,000 which was shipped by Garza f.o.b. shipping point to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011.

FOB shipping means that the ownership passes to the customer when the merchandise is picked up by the carrier. So the customer owns the merchandise on December 31 and was correctly excluded from inventory.


4. Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30, 2010, and received by Garza on January 4, 2011.

FOB destination means ownership will pass to Garza when it reaches its destination. So on December 31, the merchandise inventory is not owned by Garza and is correctly excluded.


5. Merchandise costing $51,000 shipped by a vendor f.o.b. seller on December 31, 2010, and received by Garza on January 5, 2011.

This should have been included in the inventory because ownership passed to Garza when it was picked up by the carrier for shipment.


Based on the above information, calculate the amount that should appear on Garza's balance sheet at December 31, 2010, for inventory.

541,000 + 33,000 + 51,000 = 525,000

Answer: $525,000

ekkarill92 answered 2 years ago
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