Question

Valuation of Inventory

The inventory on hand at the end of 2016 for Reddall Company is valued at a cost of $94,000. The following items were not included in this inventory:

1. Purchased goods in transit, under terms FOB shipping point, invoice price $4,000, freight costs $200.
2. Goods out on consignment to Marlman Company, sales price $5,600, shipping costs of $300.
3. Goods sold to Grina Co. under terms FOB destination, invoiced for $1,900 which included $178 freight charges to deliver the goods. Goods are in transit.
4. Goods held on consignment by Reddall at a sales price of $2,700 which included sales commission of 20% of sales price.
5. Purchased goods in transit, shipped FOB destination, invoice price $2,100 which included freight charges of $190.

Required:

Determine the cost of the ending inventory that Reddall should report on its December 31, 2016, balance sheet, assuming that its selling price is 140% of the cost of the inventory.

Answer 1

	Unadjusted Balance - Inventory	94000
1)	Add: Invoice price + Shipping cost	4200
2)	Add: (5600/1.4) + 300	4300
3)	Add: (1900 - 178) / 1.4	1230
4)	No adjustment required	0
5)	No adjustment required	0
	Adjusted Balance	103730

Explanations:

1) Goods purchased on FOB shipping, which is still in transit should be included in ending inventory and freight cost should be included as well.

2) Goods sent on consignment should be included in ending inventory.

3) Goods sold on FOB Destination should be included in ending inventory because it is still in transit.

4) Goods held on consignment should not be included in inventory

5) Goods purchased on FOB destination should not be included in inventory as it is still in transit.