Question

Culver Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on physical count of goods in Culver’s plant, at cost, on December 31, 2017)		$1,594,780
Accounts payable at December 31, 2017		1,165,100
Net sales (sales less sales returns)		8,629,100

Additional information is as follows.

1.		Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2017. These tools had a cost of $31,650 and were billed at $40,650. The shipment was on Culver’s loading dock waiting to be picked up by the common carrier.
2.		Goods were in transit from a vendor to Culver on December 31, 2017. The invoice cost was $76,650, and the goods were shipped f.o.b. shipping point on December 29, 2017.
3.		Work in process inventory costing $30,650 was sent to an outside processor for plating on December 30, 2017.
4.		Tools returned by customers and held pending inspection in the returned goods area on December 31, 2017, were not included in the physical count. On January 8, 2018, the tools costing $32,650 were inspected and returned to inventory. Credit memos totaling $47,650 were issued to the customers on the same date.
5.		Tools shipped to a customer f.o.b. destination on December 26, 2017, were in transit at December 31, 2017, and had a cost of $26,650. Upon notification of receipt by the customer on January 2, 2018, Culver issued a sales invoice for $42,650.
6.		Goods, with an invoice cost of $27,650, received from a vendor at 5:00 p.m. on December 31, 2017, were recorded on a receiving report dated January 2, 2018. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2017.
7.		Goods received from a vendor on December 26, 2017, were included in the physical count. However, the related $56,650 vendor invoice was not included in accounts payable at December 31, 2017, because the accounts payable copy of the receiving report was lost.
8.		On January 3, 2018, a monthly freight bill in the amount of $8,650 was received. The bill specifically related to merchandise purchased in December 2017, one-half of which was still in the inventory at December 31, 2017. The freight charges were not included in either the inventory or in accounts payable at December 31, 2017.

Prepare a schedule of adjustments as of December 31, 2017, to the initial amounts per Culver’s accounting records.

Answer 1

all adjustments are based on sales recognition in case of FOB shipping point and FOB destination point.

in FOB shipping point the title of goods usually passes from the buyer to the seller at the shipping point,and in case FOB destination point the title of goods wil transfer at destination point.so in case of sale at f.o.b at destination point goods in transit should include in the inventory of seller.

so in view of above discussion the given adjustment should be made under following

1.		Sales should not recognized because the goods are not yet shipped to a customer on December 31, 2017.
2.		Goods were in transit is considered as purchases even they are in transit. because the purchase is as per f.o.b shipping point So inventory should include $76,650. And corresponding accounts payable should also increase by $76,650.
3.		Work in process inventory costing $30,650 was sent to an outside processor for plating on December 30, 2017 should include in inventory because they are not sold.
4.		Good returned of costing 32,650 should include in inventory. And sales should decrease by its invoice value $47,650.
5.		Sale of $42,650 should not record because the Tools shipped to a customer on f.o.b. destination on December 26, 2017, and goods were in transit at December 31, 2017 so it should include in its inventory at cost of $26,650.
6.		Goods, with an invoice cost of $27,650, received from a vendor at 5:00 p.m. on December 31, 2017 should include ins inventory.
7.		Goods received from a vendor on December 26, 2017, were included in the physical count. Accounts payable should also include $56,650..
8.		The freight charges were related to purchase of inventor, so inventory should include $8,650 and accounts payable should also include$ 8,650.

so iafter adjusting abouve entries the figure will be following

Inventory at December 31, 2017 (based on physical count of goods in Culver’s plant, at cost, on December 31, 2017)		$1,797,680
Accounts payable at December 31, 2017		1,307,050
Net sales (sales less sales returns)		8,498,150