Question

1. EMO Company had the following inventory items at 12/31/xx
Inventory items purchased from another company that cost $3,300 and were in transit on December 31 with shipping terms of FOB Shipping Point.
Inventory items purchased from another company that cost $2,800 and were in transit on December 31 with shipping terms of FOB Destination.
Inventory items sold to another company that had cost $3,500 and were in transit on December 31 with shipping terms FOB Shipping Point.
Inventory items sold to another company that had cost $3,000 and were in transit on December 31 with shipping terms FOB Destination.
How much of the above items should be included in the company's inventory on the December 31 Balance Sheet?

2. Tagit Inc. had the following inventory items on 12/31/xx
Goods for sale in the store of another retailer on consignment from Tagit Inc. that had a cost of $3,300.
Goods in the store of Tagit Inc. placed on consignment from another company with a cost of $2,600.
Goods owned by Tagit Inc. that cost $3,300 have been damaged by water. The goods can be sold for $3,800 if $2,900 is spent cleaning and repairing them.
How much of the above items should be included in the company's inventory on the December 31 Balance Sheet?

Answer 1

1)

The terms FOB destination and FOB shipping point indicate a specific location at which title to the ownership of goods is transferred.If goods are shipped FOB shipping point, these goods are part of the buyer’s inventory while in transit. If goods are shipped FOB destina­tion, these goods are part of the seller’s inventory while in transit.

From the above discussion, we will determine the the value of inventory to be included in the balance sheet as on December 31:

Inventory has been purchased with terms of FOB shipping point, these goods are part of the buyer’s inventory while in transit. So, value of inventory includes $3300

Inventory has been purchased with terms of FOB destination, these goods are not part of the buyer’s inventory while in transit. These goods are part of the seller’s inventory while in transit.

Inventory has been purchased with terms of FOB shipping point, these goods are part of the buyer’s inventory while in transit. So, value of inventory includes $3500

Inventory has been purchased with terms of FOB destination, these goods are not part of the buyer’s inventory while in transit. These goods are part of the seller’s inventory while in transit.

Total value of inventory to be included = $3300 + $3500 = $6800

2)

The amount of inventory, that Tagit  Inc. should indicate on its Dec.31 balance sheet, can be computed as follows;

Goods on consignment for resale on the store of another retailer $3,300

NRV of damaged goods in hands ($3,800-2,900) = 900

Thus, inventory as on Dec. 31 balance sheet of Tagit Inc.    $4,200