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Question 3 Case 1: Otter Co. is valuing its inventory at year-end. The company has on...

Question 3

Case 1: Otter Co. is valuing its inventory at year-end. The company has on hand $22,000 in inventory in its warehouse. The company purchased $4,500 of inventory, which was shipped on December 29 with FOB shipping terms. The company didn’t receive the items until after year-end. The company also shipped $6,900 of merchandise inventory to customers on December 27 with FOB shipping terms. The customers all received the items after year-end. What should the company record as inventory at year-end?
Case 2: Otter Co. has $16,700 of merchandise inventory in its warehouse as of the year-end. Included in this amount is $1,400 of cosigned inventory, for which Otter Co. acts as a consignee. Otter Co. did not include $2,400 of inventory that was shipped on December 29 to customers FOB destination. The customers received the items after year-end. What should the company record as inventory on its balance sheet?
Case 3: Otter Co. acts as a consigner for $5,000 of merchandise inventory at retail locations. The company has $8,900 of inventory in its warehouse. The company also has a purchase with shipping terms FOB destination in transit as of year-end that includes $1,500 of merchandise. The company has sales of $1,100 of merchandise in transit at year-end that was shipped FOB destination. What should the company record as inventory on its balance sheet?

Solutions

Expert Solution

Solution -

Here we have explained valuation of inventory , when Goods are in transit and how Consigner and consignee value their inventory in their books.

Case 1 : The company has $ 22000 in hand at the year end . In Case Goods shiiped with Fob destination , transfer of ownerships get transfered when the the goods are received by the buyer , then only tittle foe ownership gets transfered . Accordingly , goods purchased but in transit should not be included since not received and Goods sold but not received by customer will not fulfill the sale criteria , hence should form part for the inventory .

Inventory at year end: $22000+ $6900=28900

we have assumed that $22000 is inventory without any adjustments.

Case 2: Otter Co. has $16,700 of merchandise inventory in its warehouse as of the year-end.Otter company should exclude the consignement from its inventory , because the title of ownership remains with the consigner till actual sales .Company should not include $1400 in its inventory . Otter Co. did not include $2,400 of inventory that was shipped on December 29 to customers FOB destination which should be included since it has not reached the Fob Destination .

The Final Inventory : $16700-$1400+$2400=$17700

Case 3:

The company has $8,900 of inventory in its warehouse. Since being the Consigner , the owner ship remains tills the actual sale of Consignement by the Consignee ,  $5,000 of merchandise inventory at retail locations.should be included in the inventory .. The companyshould include the sales in transit since ithe goods have not reached tje FOB destination .

Therefore ,adjusted inventory will be $8900+$5000+$1100=$15000

ekkarill92 answered 1 year ago
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