Question

A Company is closing its books on December 31, 2019. On January 3, 2020, a monthly freight bill of $15,000 was received. The bill specifically related to merchandise purchased in December 2019, one-third of which was still in inventory at December 31, 2019. The freight charge was not included in either the inventory or accounts payable at December 31, 2019. For both items below, indicate whether the adjustment needed is an increase or decrease by putting an “X” over increase or decrease; also enter the amount of the adjustment in the space provided.

Inventory increase decrease $_________

accounts payable increase decrease $__________

Answer 1

Inventory (15000 x 1/3)	Increase	5000
accounts payable	Increase	15000
Since   one-third   of   the   freight-in   cost   ($15,000)   pertains   to merchandise   properly   included   in   inventory   as   of   12/31/19 $5,000 should be added to the inventory column. The remaining $10,000  debit  should  be  reflected  in  cost  of  goods  sold.  The  full $15,000 must be added to accounts payable since the liability was not  recorded.