Question

Tri-State Bank and Trust is considering giving Sunland Company a loan. Before doing so, management decides that further discussions with Sunland’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $341,000. Discussions with the accountant reveal the following.

1. Sunland shipped goods costing $32,000 to Lilja Company, FOB shipping point, on December 28. The goods are not expected to arrive at Lilja until January 12. The goods were not included in the physical inventory because they were not in the warehouse.

2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Sunland FOB destination on December 27 and were still in transit at year-end.

3. Sunland received goods costing $20,000 on January 2. The goods were shipped FOB shipping point on December 26 by Brent Co. The goods were not included in the physical count.

4. Sunland shipped goods costing $31,000 to Jesse Co., FOB destination, on December 30. The goods were received at Jesse on January 8. They were not included in Sunland's physical inventory.

5. Sunland received goods costing $41,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $341,000.

Determine the correct inventory amount on December 31.

Answer 1

	Ending inventory−physical count	341000
1	No effect−title passes to purchaser upon shipment when terms are FOB shipping Point	0
2	No effect−title does not transfer to Madsen until goods are received	0
3	Add to inventory: Title passed to Madsen when goods were shipped	20000
4	Add to inventory: Title remains with Madsen until purchaser receives goods	31000
5	The goods did not arrive prior to year-end. The goods, therefore, cannot be included in the inventory	-41000
	The correct inventory amount on December 31	351000