Exercise 8-2 In your audit of Steve Company, you find that a physical inventory

Question

Exercise 8-2

In your audit of Steve Company, you find that a physical inventory on December 31, 2017, showed merchandise with a cost of $426,690 was on hand at that date. You also discover the following items were all excluded from the $426,690.

Based on the above information, calculate the amount that should appear on Steve’s balance sheet at December 31, 2017, for inventory.

1. Merchandise of $60,810 which is held by Steve on consignment. The consignor is the Max Suzuki Company. 2. Merchandise costing $38,100 which was shipped by Steve f.o.b. destination to a customer on December 31, 2017. The customer was expected to receive the merchandise on January 6, 2018. 3. Merchandise costing $47,790 which was shipped by Steve f.o.b. shipping point to a customer on December 29, 2017. The customer was scheduled to receive the merchandise on January 2, 2018. 4. Merchandise costing $77,180 shipped by a vendor f.o.b. destination on December 30, 2017, and received by Steve on January 4, 2018. 5. Merchandise costing $46,400 shipped by a vendor f.o.b. shipping point on December 31, 2017, and received by Steve on January 5, 2018.

Explanation / Answer

The consigned goods of $60,810 are not owned by Steve company and were properly excluded.

The goods in transit to a customer of $47,970 shipped f.o.b. shipping point, are properly excluded from the inventory because the title to the goods passed when they left the seller (Steve)and therefore a sale and related cost of goods sold should be recorded in 2017.

The goods in transit from a vendor of $77,180, shipped f.o.b. destination, are properly excluded from the inventory because the title to the goods does not pass to Steve company until the buyer (Steve) receives them.

Inventory per physical count $4,26,690 Goods in transit to customer,f.o.b destination $38,100 Goods in transit from vendor ,f.o.b seller $46,400 Inventory yo be reported on balance sheet $5,11,190

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