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

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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