Question

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The unadjusted inventory balance of Ultim Corp. is $100,000 on December 31, 2020, based on a...

The unadjusted inventory balance of Ultim Corp. is $100,000 on December 31, 2020, based on a physical inventory count. The following items must be considered before the inventory valuation is finalized.

a. On December 31, the physical inventory excluded $250 of merchandise inventory set aside for shipment to a customer, which has not yet shipped.

b. On December 31, the physical inventory excluded $1,000 of merchandise inventory out on consignment in the customers’ showrooms.

c. On December 31, the physical inventory excluded $800 of merchandise held on consignment.

d. $750 of in-transit merchandise was shipped f.o.b. destination to a customer and was excluded from the physical inventory count. The merchandise was turned over to a common carrier on December 28, 2020, and is expected to arrive at the customer on January 2, 2021.

e. Ultim Corp. ordered merchandise on December 26, 2020. The merchandise ($800) was shipped to Ultim Corp. f.o.b. shipping point, and was expected to arrive January 2, 2021. The merchandise was not included in the physical inventory count.

f. A return to a vendor of merchandise for $1,000 was in-transit on December 31, 2020, and was excluded from the physical inventory count. The merchandise was shipped f.o.b. shipping point on December 30, 2020.

Required

Considering items a through f, determine the adjusted inventory balance for Ultim Corp.

Adjusted inventory balance on December 31, 2020:

Answer

Expert Solution

Solution

Ultim Corp

Adjusted inventory balance on December 31, 2020 –

Explanation –

a. $250 inventory set aside for shipment forms part of inventory until the shipment is made.

b. $1,000 of inventory out on consignment forms part of inventory until the sale is made.

The ownership of consignment goods remains with the Ultim, until the sale is made.

c. No adjustment is needed. The goods held on consignment do not form part of inventory, hence the goods should be excluded. Ultim was correct in excluding $800 from inventory count.

d. The ownership of goods in transit (fob destination) remains with Ultim until the goods reach the destination of the customer, hence $750 should be included since the goods are expected to reach customer on Jan 2, 2021. So, on December 31, 2020 Ultim is the owner of goods.

e. The ownership of goods in transit (fob shipping point) from supplier remains with Ultim, since the shipment has already been made on Dec 26^th. Hence, include $800.

f. The ownership of goods returned, fob shipping point transfers to the vendor once the shipping is started on Dec 30^th. Hence, Ultim was correct in excluding $1,000 from inventory.

ekkarill92 answered 1 year ago

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