For each of the following, calculate the cost of inventory reported on the balan
ID: 2544082 • Letter: F
Question
For each of the following, calculate the cost of inventory reported on the balance sheet.
(a) The total merchandise on hand at the end of the year is $62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier.
$
(b) The total merchandise inventory at the end of the year was $63,000. Excluded from the amount were purchases of $6,000 in transit under FOB shipping point terms.
$
(c) The total merchandise inventory at the end of the year was $75,000. Excluded from the amount were purchases of $5,000 in transit under FOB destination terms.
$
Explanation / Answer
FOB shipping point - The title of the goods passes from seller to the buyer when goods are delivered by seller to the common carrier.
FOB destination - The title of goods passes from seller to the buyer when goods are received by the buyer (when the goods reach destination)
(a)
Inventory reported on the Balance sheet = $62,000
($8,000 to be included in inventory because they are treated as sales only when they reach buyer)
(b)
Inventory reported on the Balance sheet = $63,000 +$6,000 = $69,000
($6,000 to be included in inventory as it is purchased under FOB shipping point terms)
(c)
Inventory reported on the Balance sheet = $75,000
($5,000 to be excluded in inventory as it is purchased under FOB destination terms)
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