31. Hampton Co. took a physical count of its inventory on December 31. In additi

Question

31. Hampton Co. took a physical count of its inventory on December 31. In addition, it had to decide whether or not the following items should be added to this count. (10 points) a. Merchandise on hand had been sold earlier in the year but had been returned by b. Hampton Co. sent merchandise on a consignment basis on December 31 just prior to c. On December 22, Hampton Co. ordered merchandise on FOB destination terms. The customers for various warranty repairs. the physical count merchandise was shipped by the supplier on December 30 but had not been received by December 31 d. On December 27, Hampson Co. ordered merchandise on FOB shipping point terms. e. Merchandise sold FOB shipping point on December 31 was picked up by the freight f. Merchandise shipped to a customer FOB shipping point was picked up by the freight The merchandise was shipped on December 29 but had not been received by December 31 company just before closing on December 31 company on December 28 but had not arrived as its destination as of December 31. Indicate which items should be added to (answer: yes) and which items should not be added to (answer: no) the December 31 inventory count.

Explanation / Answer

Hampton Co

Determination of whether the given items to be added to the inventory:

Explanation: Merchandise returned for various warranty repairs are NOT to be added as the goods are already sold and are returned for repairs under warranty terms and the customer is still the owner of such merchandise.

Merchandise sent on consignment is not treated as a sale until the actual sale takes place, and the Hampton is the owner the merchandise till the actual sale takes place. Consignment agreement is more like an agency contract where the consignor pays the consignee some percentage as commission for sale of goods.

Since the purchase is on FOB destination terms, Hampton does not own the merchandise until the merchandise reaches the destination or Hampton’s warehouse. The seller pays for the freight and retains the ownership of the merchandise until the same is delivered at destination.

Since the terms of order include FOB shipping point terms, Hampton becomes the owner of the merchandise once the goods are shipped on December 29. Hampton pays the freight and owns the merchandise immediately once they are shipped regardless of whether the merchandise has been received or not as on December 31.

Since the terms of sale include FOB shipping point and since the merchandise is already picked by the freight company, Hampton no more owns the merchandise as the same is treated as sold as soon as the freight company collects the merchandise on December 31. As per FOB shipping point terms, the buyer pays for the freight and owns the merchandise immediately as the same is being shipped.

Explanation: Since the terms of sale include FOB shipping point the sale is assumed to be complete once the goods are picked up by the freight company. Hence the point of sale is not destination and regardless of whether the merchandise has reached the destination or not, the sale is treated as completed on December 28th itself.

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