Question

Vaughn Manufacturing is trying to determine the value of its ending inventory as of February 28, 2022, the company’s year-end. The accountant counted everything that was in the warehouse as of February 28, which resulted in an ending inventory valuation of $54,000. However, she didn’t know how to treat the following transactions so she didn’t record them.

(a1)

For each of the transactions below, specify whether the item in question should be included in ending inventory, and if so, at what amount. (If item is not included in the ending inventory, then enter 0 for the amounts.)

A) Vaughn had $490 of inventory at a customer’s warehouse “on approval.” The customer was going to let Vaughn know whether it wanted the merchandise by the end of the week, March 4.

B)

Vaughn also had $390 of inventory at a Belle craft shop, on consignment from Vaughn.

C)

On February 26, Vaughn ordered goods costing $900. The goods were shipped FOB shipping point on February 27. Vaughn received the goods on March 1.

D)

On February 28, Vaughn packaged goods and had them ready for shipping to a customer FOB destination. The invoice price was $400 plus $20 for freight; the cost of the items was $335. The receiving report indicates that the goods were received by the customer on March 2.

Answer 1

A - Included in Ending Inventory at $ 490.

Reason- In case of Sale on Approval, Sale is to be effective at the time of Buyer's Approval. In given Transaction of Sale on Approval, Customer will approve the Merchandise on March 4 so, on February 28 Merchandise will be part of Seller's Ending Inventory that is Vaughn's Ending Inventory at $ 490. (Value of Inventory is Provided.)

B - Included in Ending Inventory at $ 390.

Reason- In case of Goods sent on Consignment, Ownership of unsold Goods on consignment will remain with the sender that is Consignor. In given Transaction Vaughn has sent good on Consignment to Belle Craft Shop. So, Unsold Goods on Consignment are part of Ending Inventory of Vaughn at $ 390. (Value of Inventory is Provided.)

C - Included in Ending Inventory at $ 900.

Reason- In case of Free on Board (FOB) shipping point, ownership is transferred to Buyer at time when Goods are shipped. In given transaction of Free on Board (FOB) shipping point Ownership of Goods is transferred to Buyer that is Vaughn on February 27 at time of Shipping of Goods. So, Goods are part of Ending Inventory of Vaughn at $ 900. (Value of Inventory is Provided.)

D - Included in Ending Inventory at $ 335.

Reason- In case of Free on Board (FOB) Destination Point, Ownership is transferred to buyer at time when Goods are reached at buyer's place. In Given Transaction of Free on Board (FOB) Destination Ownership will be transferred to buyer on March 2. So, on February 28 Goods are part of Vaughn's Ending Inventory.

Inventory at Valued at Lower of Cost or Market Value. Since COST $335 is less than Invoice Price (Assume Market Value) $400. So, Value of Ending Inventory is $335.