Question

1. Ashton agrees to purchase certain inventory items from Duart, who is to ship the goods

F.O.B. destination. At Ashton's fiscal year-end, Duart called to say that the goods had

been shipped and Ashton could expect to receive them within a week.

A. Ashton should include the goods in inventory.

B. Ashton should not include the goods in inventory.

C. Ashton may optionally include the goods in inventory.

D. Ashton may optionally exclude the goods from inventory.

E. None of these

2. Inventory was destroyed in a fire. Limited data suggest the normal gross profit rate is 40% of sales. Sales to the date of the fire were $1,500,000. Beginning inventory and purchases were $500,000 and $700,000 in the period prior to the fire. The inventory loss is a. $300,000; b. $1,200,000; c. $500,000; d. 600,000

Answer 1

Answer-1)- Ashton agrees to purchase certain inventory items from Duart, who is to ship the goods F.O.B. destination. At Ashton's fiscal year-end, Duart called to say that the goods had been shipped and Ashton could expect to receive them within a week = Ashton should not include the goods in inventory (Option B).

2)- The inventory loss is a = $300000 (Option a).

Explanation- Inventory loss = Sales- (Beginning inventory+ Purchases+ Gross profit)

= ($500000+$700000)+($1500000*40%)-$1500000

= $1800000-$1500000

= $300000