Question

5th Third Street Bank is considering giving Fallen Company a loan. Before doing so, it decides that further discussions with Fallen’s accountant may be desirable. One area of particular concern is the inventory account, which has a year‐end balance of $375,000. Discussions with the accountant reveal the following.

1. Fallen sold goods costing $55,000 to White Company FOB shipping point on December 28. The goods are not expected to reach White until January 12. The goods were not included in the physical inventory because they were not in the warehouse.

2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Fallen FOB destination on December 27 and were still in transit at year end.

3. Fallen received goods costing $15,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.

4. Fallen sold goods costing $51,000 to Benet of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Fallen physical inventory.

5. Fallen received goods costing $32,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $375,000.

Answer 1

Points of Discussion	Remarks/Solution
1. Fallen sold goods costing $55,000 to White Company FOB shipping point on December 28. The goods are not expected to reach White until January 12. The goods were not included in the physical inventory because they were not in the warehouse.	Under FOB shipping, title of goods transferred from seller to buyer at the time of shipping. Such goods when in transit are part of buyer inventory. These goods should not be included in the inventory of fallen
2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Fallen FOB destination on December 27 and were still in transit at year end.	Goods which are FOB Destination become part of buyers inventory once it reaches destination, as in the given case goods are still in transit it should not included in the inventory of fallen
3. Fallen received goods costing $15,000 on January 2. The goods were shipped FOB shipping point on December 26 by Lynch Co. The goods were not included in the physical count.	Under FOB shipping, title of goods transferred from seller to buyer at the time of shipping. Such goods when in transit are part of buyer inventory. These goods should be included in the inventory of fallen
4. Fallen sold goods costing $51,000 to Benet of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Fallen physical inventory.	Goods which are FOB Destination become part of buyers inventory once it reaches destination, as in the given case goods are still in transit it should be included in the inventory of fallen.
5. Fallen received goods costing $32,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $375,000.	Goods which are FOB Destination become part of buyers inventory once it reaches destination, as in the given case goods are still in transit as on Dec 31. it should not included in the inventory of fallen.