Question

Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $81,000 and Cost of Goods Sold of $442,000.

a. Included in Inventory (and Accounts Payable) are $12,200 of lenses held on consignment.
b. Included in the Inventory balance are $6,100 of office supplies held in SLC’s warehouse.
c.

Excluded from the Inventory balance are $9,100 of lenses in the warehouse, ready to send to customers on January 1. SLC reported these lenses as sold on December 31, at a price of $17,200.

d.

Included in the Inventory balance are $3,550 of lenses that were damaged in December and will be scrapped in January, with no recoverable value.

Required:

Prepare the table showing the balances presently reported for Inventory and Cost of Goods Sold, and then displaying the adjustment(s) needed to correctly account for each of items (a)-(d), and finally determining the appropriate Inventory and Cost of Goods Sold balances. (Enter any decreases to account balances with a minus sign.)

Answer 1

		Inventory	Costs of goods sold
31-Dec	Reported Balance	81000	442000
	Inventory held for consignment	-12200
b	Office suppliess held in inventory	-6100
c	Inventory in Warehouse	9100	-9100
d	Inventory damaged with no recoverable value	-3550	3550
		68250	436450
	Under inventory held for consignment, consignor continues to own the goods until they are sold, so the goods appear as inventory in the accounting records of the consignor, not the consignee

If the goods lying in warehouse is treated as sold, the entries passed would also be costs of goods sold Dr, Inventory Cr. Thus since the sales are FOB, goods lying in warehouse needs to be accounted as not sold and entry need to be reversed.