Question

In: Accounting

On December 31, 2020, Jen & Mink Clothing (J&M) performed the inventory count and determined the...

On December 31, 2020, Jen & Mink Clothing (J&M) performed the inventory count and determined the year-end ending inventory value to be $75,500. It is now January 8, 2021, and you have been asked to double-check the year-end inventory listing. J&M uses a perpetual inventory system. Note: Only relevant items are shown on the inventory listing.

Jen & Mink Clothing
Inventory Listing
December 31, 2020
# Inventory Number Inventory Description Quantity (units) Unit Cost ($) Total Value ($)
1 7649 Blue jackets 100 20 2,000
2 10824 Black pants 300 16.67 5,000
... ...
Total Inventory $ 75,500


The following situations have been brought to your attention:

  1. On January 3, 2021, J&M received a shipment of 100 blue jackets, for $2,000 (Item #7649). The inventory was purchased December 23, 2020, FOB destination from Global Threads. This inventory was included in J&M’s inventory count and inventory listing.
  2. On December 29, 2020, J&M sold scarves (Item #5566) to a customer with a sale price of $700 and cost of $500, FOB shipping. The order was shipped on December 30, 2020. J&M has not included this inventory.
  3. Red Blazers (Item #6193) were purchased and shipped from International Co. on December 30, 2020, for $3,300, FOB shipping. The shipment arrived January 5, 2021, and the appropriate party paid for the shipping charges of $320. Additional costs were $220 for import duties and $60 for insurance during shipment. J&M has not included this inventory.
  4. At year-end, J&M is holding $5,000 of black pants (Item #10824) on consignment for designer Duke Co. This inventory was included in J&M’s inventory count and inventory listing.
  5. On December 31, 2020, J&M shipped white shirts (Item #4291), FOB destination costing $1,000 to a customer. The customer was charged $1,400 and the customer received the goods on January 3, 2021. J&M has not included this inventory.


Required:
1.
In situations (a) to (e) determine whether inventory should be included or excluded in inventory at December 31, 2020. If the inventory should be included, determine the correct inventory cost. (Do not leave any empty spaces; input a 0 wherever it is required.)




2. Determine the correct ending inventory value at December 31, 2020. Starting with the unadjusted inventory value of $75,500, add or subtract any errors based on your analysis in Part 1. Assume all items that are not shown in the inventory listing are recorded correctly.

Next

Solutions

Expert Solution

1
(a) Under FOB destination,Ownership of goods lies with the seller until it is received by the buyer.
Here,shipment received on Jan 3,2021
Hence,it should not be included in the inventory of J&M (Buyer).
Correct inventory cost=$ 2000
(b) Under FOB shipping,Ownership of goods lies with the seller until it is shipped to the buyer.
Here,shipment was on Dec 30,2020.
Hence,it should not be included in the inventory of J&M (Seller).
Correct treatment has been made by the company and hence no adjustment required
(c ) Under FOB shipping,Ownership of goods lies with the seller until it is shipped to the buyer.
Here,shipment was on Dec 30,2020.
Hence,it should be included in the inventory of J&M (Buyer).
Under FOB shipping,shipping charges is the responsibility of the buyer.
Correct inventory cost=3300+320+220+60=$ 3900
(d) Ownsership of consigned goods lies with the consignor (Duke Co.)
Hence,it should not be included in the inventory of J&M (Consignee).
Correct inventory cost=$ 5000
(e) Under FOB destination,Ownership of goods lies with the seller until it is received by the buyer.
Here,shipment received on Jan 3,2021
Hence,it should be included in the inventory of J&M (Seller).
Correct inventory cost=$ 1000
2 Correct ending inventory value:
$
Unadjusted inventory value 75500
(a) -2000
(b) 0
(c ) 3900
(d) -5000
(e) 1000
Correct ending inventory value 73400

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