Question: Stallman Company took a physical inventory on December 31 and determined that goods costing $200,000 were on hand. Not included in the physical count were $25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $22,000 of goods sold to Alvarez Company for $30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale werein transit at year-end. What amount should Stallman report as its December 31 inventory?
The ending inventory of $247,000 should be reported on the balance sheet on Dec 31.
There are two shipping terms namely FOB destination and FOB shipping point. Under f.o.b. destination the title of the goods remains with the supplier or seller unless the goods are delivered to the buyer. Whereas in f.o.b. shipping point, the supplier or seller transfers the title as soon as the goods are shipped.
As the purchases were made on the terms f.o.b. shipping point, the Stallman Company has received the title of the goods. Thus it should report this inventory on Dec 31.
The ending inventory would increase by $25,000.
As the selling term was f.o.b. destination, the Stallman Company possesses the title of the goods unless the goods are received by the Alvarez company. Thus this inventory should be included in the closing inventory.
The ending inventory would increase by $22,000.
Question: Craig Company asks you to review its December 31, 2017, inventory values and prepare the necessary adjustments to the books. The following information is given to you.
1. Craig uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2017.
2. Not included in the physical count of inventory is $13,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Champy on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Champy received it on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchased from Glowser Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Craig on consignment from Jackel Industries.
7. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped on December 31 after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $10,520, and Kemp received the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged; Craig will honor the return.
(a) Determine the proper inventory balance for Craig Company at December 31, 2017.
(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2017. Assume the books have not been closed.
Presented below is information related to Kaisson Corporation for the last 3 years.
Quantities Base-Year Cost Current-Year Cost
Item Inventories Unit Cost Amount Unit Cost Amount
December 31, 2016
A 9,000 $2.00 $18,000 $2.20 $19,800
B 6,000 3.00 18,000 3.55 21,300
C 4,000 5.00 20,000 5.40 21,600
Totals $56,000 $62,700
December 31, 2017
A 9,000 $2.00 $18,000 $2.60 $23,400
B 6,800 3.00 20,400 3.75 25,500
C 6,000 5.00 30,000 6.40 38,400
Totals $68,400 $87,300
December 31, 2018
A 8,000 $2.00 $16,000 $2.70 $21,600
B 8,000 3.00 24,000 4.00 32,000
C 6,000 5.00 30,000 6.20 37,200
Totals $70,000 $90,800
Compute the ending inventories under the dollar-value LIFO method for 2016, 2017, and 2018. The base period is January 1, 2016,and the beginning inventory cost at that date was $45,000. Compute indexes to two decimal places.
On January 1, 2017, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continuedto use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanzauses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items aregrouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A andB, for the 2 years following the adoption of LIFO.
FIFO Basis per Records
Units Cost Cost
Product A 10,000 $30 $300,000
Product B 9,000 25 225,000
Product A 17,000 36 $612,000
Product B 9,000 26 234,000
Product A 13,000 40 $520,000
Product B 10,000 32 320,000
(a) Prepare a schedule to compute the internal conversion price indexes for 2017 and 2018. Round indexes to two decimal places.
(b) Prepare a schedule to compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method.
Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Mike Wilkens tells the plant accountant to take the unusual step of recommending to the purchasing department a large purchase of inventory at year-end. The price of the item to be purchased has nearly doubled during the year,and the item represents a major portion of inventory value.
Answer the following questions.
(a) Identify the major stakeholders. If the plant accountant recommends the purchase, what are the consequences?
(b) If Wilkens Company were using the FIFO method of inventory costing, would Mike Wilkens give the same order? Whyor why not?
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