Question

The Constance Corporation’s inventory at December 31, 2021, was $125,000 (at cost) based on a physical...

The Constance Corporation’s inventory at December 31, 2021, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following:

  • Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2021, was received by Constance on January 5, 2022.
  • Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2021, arrived at the customer’s location on January 6, 2022.
  • Merchandise costing $21,000 was being held on hand for Jess Company on consignment.
  • Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%.

What amount should Constance Corporation report as inventory in its December 31, 2021, balance sheet?

Multiple Choice

a. $160,250

b. $145,250

c. $187,250

d. $190,250

Homework Answers

Answer #1

Answer : a. $160,250.

Explanation :

Cost of sales return to be included in inventory = [$550,000 * 1 % * (100 % - 25 %)] = $41,250.

Corporation report as inventory in its December 31, 2021 :

Inventory based on physical count   $125,000
Add : Merchandise purchased shipped f.o.b $15,000
Less : Goods held on hand for Jess Company on consignment. ($21,000)
Add : Cost of sales return $41,250
Corporation report as inventory in its December 31, 2021 $160,250.
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