ACCT 203 Lecture 23: GMU ACCOUNTING 203 Lecture 23

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brownduck883

25 May 2018

School

George Mason University

Department

Accounting

Course

ACCT 203

Professor

Harley

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GMU ACCOUNTING 203 Lecture 23

Damaged and obsolete goods

(and deteriorated) goods are not reported in inventory if they cannot be sold.

Net realizable value

is sales price minus the cost of making the sale.

Costs to include in merchandise inventory

includes costs of expenditures necessary, directly or indirectly, to bring an item to

a salable condition and location.

FOB shipping point vs FOB destination-

• Goods purhased FOB shippig poit are iluded i the uyer's ietory he

the items are shipped. Goods purchased FOB destination are not included in the

buyer's inventory until they arrive at their destination.

When to include in purchaser's inventory

The answer is that if ownership has passed to the purchaser, the goods are

included in the purchaser's inventory

FIFO

o When sales occur, the costs of the earliest units acquired are charged to cost of

goods sold. This leaves the costs from the most recent purchases in ending

inventory.

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Document Summary

Damaged and obsolete goods (and deteriorated) goods are not reported in inventory if they cannot be sold. Net realizable value is sales price minus the cost of making the sale. Costs to include in merchandise inventory includes costs of expenditures necessary, directly or indirectly, to bring an item to a salable condition and location. Fob shipping point vs fob destination: goods pur(cid:272)hased fob shippi(cid:374)g poi(cid:374)t are i(cid:374)(cid:272)luded i(cid:374) the (cid:271)uyer"s i(cid:374)(cid:448)e(cid:374)tory (cid:449)he(cid:374) the items are shipped. Goods purchased fob destination are not included in the buyer"s inventory until they arrive at their destination. The answer is that if ownership has passed to the purchaser, the goods are included in the purchaser"s inventory. Fifo: when sales occur, the costs of the earliest units acquired are charged to cost of goods sold. This leaves the costs from the most recent purchases in ending inventory. Lifo: we assign the most recent costs to the units sold.

Related Questions

On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available:

Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000.

Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.

Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.)

Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end.

Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:

Multiple Choice

A $194,000

B $209,000

C $200,000

D $171,000

E $156,000

amethystcheetah49

Travis Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $66,500. During the audit, the independent CPA developed the following additional information: Goods costing $910 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year. Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the âRequiredâ section), cost $1,400. Because these goods had not yet arrived, they were excluded from the physical inventory count. On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $1,800 (expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical inventory count. On December 28 of the current year, a customer purchased goods for cash amounting to $3,050 and left them âfor pickup on January 3 of next year.â Travis Company had paid $1,720 for the goods and, because they were on hand, included the latter amount in the physical inventory count. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $4,000 had been delivered to the transportation company on December 27 of the current year; the terms were FOB shipping point. Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical inventory count. On December 31 current year, the company shipped $1,700 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical inventory count. One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Travis Company to continue carrying the item, the manufacturer-supplier provided the item on a âconsignment basis.â This means that the manufacturer-supplier retains ownership of the item, and Travis Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Travis Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Travis Company had seven of these items on hand; therefore, they were included in the physical inventory count at $780 each. Required: Assume that Travisâs accounting policy requires including in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the sales contract. When goods are shipped âFOB shipping point,â title changes hands at shipment and the buyer normally pays for shipping. When they are shipped âFOB destination,â title changes hands on delivery, and the seller normally pays for shipping. Begin with the $66,500 inventory amount and compute the correct amount for the ending inventory. (Deductible amounts should be entered with a minus sign. If no adjustment is necessary, enter a 0 in the cell.)

blushwater-buffalo929

Exercise 6-1

Umatilla Bank and Trust is considering giving Blossom Company aloan. Before doing so, it decides that further discussions withBlossom Companyâs accountant may be desirable. One area ofparticular concern is the Inventory account, which has a year-endbalance of $250,820. Discussions with the accountant reveal thefollowing. 1. Blossom Company sold goods costing $54,230 to HemlockCompany FOB shipping point on December 28. The goods are notexpected to reach Hemlock until January 12. The goods were notincluded in the physical inventory because they were not in thewarehouse. 2. The physical count of the inventory did not includegoods costing $91,590 that were shipped to Blossom Company FOBdestination on December 27 and were still in transit at year-end.3. Blossom Company received goods costing $24,420 on January 2. Thegoods were shipped FOB shipping point on December 26 by Yanice Co.The goods were not included in the physical count. 4. BlossomCompany sold goods costing $56,030 to Ehler of Canada FOBdestination on December 30. The goods were received in Canada onJanuary 8. They were not included in Blossom Company physicalinventory. 5. Blossom Company received goods costing $39,190 onJanuary 2 that were shipped FOB destination on December 29. Theshipment was a rush order that was supposed to arrive December 31.This purchase was included in the ending inventory of $250,820.Determine the correct inventory amount on December 31. The correctinventory amount on December 31 $Enter a dollar amount

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ACCT 203 Lecture 23: GMU ACCOUNTING 203 Lecture 23

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