Question

You are engaged to audit the Ferrick Corporation for the year ended December 31, 2015. Only merchandise shipped by the Ferrick Corporation to customers up to and including December 30, 2015, has been eliminated from inventory. The inventory as determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an FOB–shipping point basis. You are to assume that all purchase invoices have been correctly recorded.

The following lists of sales invoices are entered in the sales journal for the months of December 2015 and January 2016, respectively.

		Sales Invoice Amount			Sales Invoice Date		Cost of Merchandise Sold			Date Shipped
December 2015
a.		$	3,000		Dec. 21		$	2,000		Dec. 31
b.			2,000		Dec. 31			800		Dec. 13
c.			1,000		Dec. 29			600		Dec. 30
d.			4,000		Dec. 31			2,400		Jan. 9
e.			10,000		Dec. 30			5,600		Dec. 29*
January 2016
f.		$	6,000		Dec. 31		$	4,000		Dec. 30
g.			4,000		Jan. 2			2,300		Jan. 2
h.			8,000		Jan. 3			5,500		Dec. 31
*Shipped to consignee.

Required:

Prepare necessary adjusting entries for the following events.

Event	General Journal	Debit	Credit
a. b. c. d. e. f. h.

Answer 1

a. Since the goods were shipped on December 31, the sale should be recognized in 2015. Because the inventory balance at 31 Dec 2015 was included this shipment, the adjusting entry is:

COGS $2,000
  Inventory $2,000

b. This transaction is correctly recorded. No adjusting entry.

c. This transaction is correctly recorded. No adjusting entry.

d. The sale should be recorded in 2016 since the goods were shipped on January 9.The adjusting entry should be made:
Accounts Receivable (4,000)
  Sales (4,000)

e. No sales is recorded since goods was shipped to a consignee. Goods are transferred from Inventory account to Goods on Consignment. Adjusting entries are:

Accounts receivable (10,000)
Sales (10,000)

COGS (5,600)
Inventory (5,600)

Goods on Consignment 5,600
  Inventory 5,600

f. Since the shipment was on Dec 30, it was not included in the physical inventory .The sale should be recorded in 2015. The adjusting entry is:

Accounts receivable $6,000
  Sales $6,000

g. This transaction is correctly recorded. No adjusting entry.

h. Similar to transaction a, the shipment was on Dec 31 so the sales should be recorded in 2015. Because the inventory balance at 31 Dec 2015 was included this shipment, the adjusting entry is:

Accounts receivable $8,000
  Sales $8,000

Cost of merchandise sold $5,500
  Inventory $5,500