Multiple Choice Question 48 As a result of a thorough physical inventory, Swifty

Question

Multiple Choice Question 48 As a result of a thorough physical inventory, Swifty Company determined that it had inventory worth $319100 at December 31, 2020. This count did not take into consideration the following facts: Walker Consignment currently has goods worth $46800 on its sales floor that belong to Swifty but are being sold on consignment by Walker. The selling price of these goods is $74400. Swifty purchased $21400 of goods that were shipped on December 27, FOB destination, that will be received by Swifty on January 3. Determine the correct amount of inventory that Swifty should report. $340500 $319100 $365900 800

Explanation / Answer

48.

Physical inventory at December 31, 2020

$319,100

Add: Cost of inventory kept by Walker on consignment

$46,800

Correct amount of inventory that swift should report

$365,900

Justification:

Cost of inventory kept by the consignee, should be considered as the cost of inventory of consignor, until it is sold by the consignee to a customer, because consignment is not a sale, it is arrangement to sell the goods through consignee.

Under FOB destination, the title of the goods is rest with the seller until the goods reaches the buyer’s location. In this case, goods will be received by Swifty after December 31. Hence, $21,400 of goods purchased on FOB destination would not be considered as inventory till January 2.

55.

Under FIFO method of inventory, items purchased first is sold first.

It is given that 2 units are sold. So, for calculating the cost of goods sold, first purchase and second purchase should be considered.

Cost of goods sold = First purchase + Second purchase

                                  = $69 + $66

                                  = $135

Now, calculate the gross profit as follows:

Gross profit = Sales – Cost of goods sold

                       = $202 – $135

                        = $67

Hence, using FIFO costing, the gross profit for the period would be $67.

Physical inventory at December 31, 2020

$319,100

Add: Cost of inventory kept by Walker on consignment

$46,800

Correct amount of inventory that swift should report

$365,900

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