The Constance Corporation’s inventory at December 31, 2018, was $125,000 (at cos

Question

The Constance Corporation’s inventory at December 31, 2018, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following: Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2019, was received by Constance on January 5, 2019. Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2018, arrived at the customer’s location on January 6, 2019. Merchandise costing $21,000 was being held on hand for Jess Company on consignment. Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%. What amount should Constance Corporation report as inventory in its December 31, 2018, balance sheet? $160,250. $145,250. $187,250. $190,250.

Explanation / Answer

Answer: $160,250

Inventory to be reported in December 31, 2018 balance sheet = Per physical count $125,000 + Shipped FOB by vendor $15,000 - Consignment inventory $21,000 + Estimated sales returns inventory $41,250 = $160,250.

Estimated sales returns inventory:

Sales = $550,000; Gross profit ratio = 25%

Cost of goods sold = 75% x $550,000 = $412,500

Estimated sales returns inventory = 10% x $412,500 = $41,250

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