Question

Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $83,000 and Cost of Goods Sold of $446,000. Included in Inventory (and Accounts Payable) are $12,600 of lenses SLC is holding on consignment. Included in SLC’s Inventory balance are $6,300 of office supplies held in SLC’s warehouse. Excluded from SLC’s Inventory balance are $9,300 of lenses in the warehouse, ready to send to customers on January 2. SLC reported these lenses as sold on December 31, at a price of $17,600. Included in SLC’s Inventory balance are $3,650 of lenses that were damaged in December and will be scrapped in January, with zero realizable value. Required: Prepare the table showing the balances presently reported for Inventory and Cost of Goods Sold, and then displaying the adjustment(s) needed to correctly account for each of items (a)-(d), and finally determining the appropriate Inventory and Cost of Goods Sold balances. (Enter any decreases to account balances with a minus sign.)

Answer 1

Answer:

Note:

(i) Consigned inventory is the property of the consignor, not the consignee, until it is sold by the consignee. Hence, inventory of $12,600 held on consignment which is included in inventory, has been excluded from inventory to reflect correct inventory balance.

(ii) Inventory should include only those inventory which is meant for sale in the ordinary course of business or for use in the production process.Hence, office which is not meant for use in the production process or held for sale in the ordinary course of business, has been excluded from inventory to reflect correct inventory balance.

(iii) Inventory related to sale to take place at future date, can not be excluded from inventory until goods sold finally and ownership, risk & obligation pass on to the buyer.

(iv) At the end of the month, damaged inventory is written off by debiting the cost of goods sold account and crediting the inventory account to write off the loss. Hence it has been adjusted accordingly.