Question

Clay Mathews, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Clay understands the more sophisticated computer inventory control systems, he has little knowledge of how inventory cost is determined. In studying the records of Strider Enterprises, which sells normal brand-name goods from its own store and on consignment through Chavez Inc., he asks you to answer the following questions.

a.) should Strider Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yet received in the terms of purchase are f.o.b. shipping point (manufacturers plant)? Why?

b.) should Strider Enterprises include freight-in expenditures as an inventory cost? why?

c.) if Strider Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross of net? why?

Answer 1

a.) should Strider Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yet received in the terms of purchase are f.o.b. shipping point (manufacturers plant)? Why?

Answer: TRANSACTION SHOULD BE recognized when all the significant risks and rewards associated with ownership are transferred.

So, in above scenario, since the terms of purchase is F.O.B we will record the Inventory of all the risks and rewards transferred.  

b.) should Strider Enterprises include freight-in expenditures as an inventory cost? why?

Answer: The the necessary expenses incurred to bring the inventory to the present location and making them ready for sale should be included in the cost of the inventory.

So, Freight-in should be included in the cost of the inventory.

if Strider Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross of net? why?

Answer: We can record in both the ways. Generally, as per s a common business practice record the purchases at Gross value and record the Discount when we make an early payment.