In: Accounting
The Kwok Company’s inventory balance on December 31, 2021, was $245,000 (based on a 12/31/2021 physical count) before considering the following transactions:
Required:
Determine the correct inventory amount to be reported in Kwok’s
2021 balance sheet.
Answer :-
First we discussed the F.O.B destination and F.O.B Shipping point.
F.O.B. destination :- It means when goods reached to buyer location then only ownership of goods transferred from vendor to buyer. Here ,the vendor have responsibilities to transfer goods to buyer.
F.O.B Shipping point :- It means that when goods shipped from vendor then only ownership is transferred to buyer.
Now we calculate the the correct inventory amount to be reported in Kwok’s 2021 balance sheet.
Particular | Amount |
Inventory balance on December 31, 2021 | $245,000 |
Add :- | |
Good shipped to Kwok on F.O.B Shipping point | $33,000 |
Good shipped from Kwok on F.O.B destination | $38,000 |
Correct inventory amount to be reported in Kwok’s 2021 balance sheet. | $316,000 |
Explanation :-
1) Goods shipped to Kwok f.o.b. destination on December 20, 2021, were received on January 4, 2022. The invoice cost was $46,000.
In will not included in Inventory as on December 31,2021 as Goods shipped to kwok on F.O.B destination it mean ownership will transfer to Kwok company when it receives.
2) Goods shipped to Kwok f.o.b. shipping point on December 28, 2021, were received on January 5, 2022. The invoice cost was $33,000.
It will included in Inventory as on December 31,2021 as Goods shipped to kwok on F.O.B shipping point it mean ownership will transfer to Kwok company when it shipped from vendor location.
3) Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2021, were received by the customer on January 3, 2022.
It will include in Inventory as on December 31,2021 as Goods shipped from kwok on F.O.B destination it mean ownership will remain to Kwok company. As good received by customer on January 3,2020. And we include in inventory on merchandise cost.
4)Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2021, were received by the customer on December 30, 2021.
In will not included in Inventory as on December 31,2021 as Good shipped from Kwok and reached to customer before year end.
5)Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2021
It will not included in Inventory as it shipped on F.O.B Shipping point it mean at the time of shipped of goods ownership will transfer to customer.