Mishima, Inc. indicated in a recent annual report that approximately $19 million of merchandise was received on consignment. Should Mishima, Inc. report this amount on its balance sheet? Explain.
No, Mishima Inc. cannot report the consigned merchandise into its balance sheet as it has no control over it.
A consignment sale is a type of sale agreement in which the title and ownership of the merchandise remain with the seller (consignor). The consignee only takes responsibility for selling them.
In the given case, Mishima Inc. is a consignee who has taken the responsibility of selling the goods. But the title and the ownership of merchandise do not belong to Mishima Inc.
Thus Mishima Inc. cannot report merchandise amounting to $19 million on its balance sheet.
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.
Question: Where, if at all, should the following items be classified on a balance sheet?
(a) Goods out on approval to customers.
(b) Goods in transit that were recently purchased f.o.b. destination.
(c) Land held by a realty firm for sale.
(d) Raw materials.
(e) Goods received on consignment.
(f) Manufacturing supplies.
Zonker Inc. purchases 500 units of an item at an invoice cost of $30,000. What is the cost per unit? If the goods are shipped f.o.b. shipping point and the freight bill was$1,500, what is the cost per unit if Zonker Inc. pays the freight charges? If these items were bought on 2/10, n/30terms and the invoice and the freight bill were paid within the 10-day period, what would be the cost per unit?
Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.
August 10 Purchased merchandise on account, $12,000, terms 2/10, n/30.
13 Returned part of the purchase of August 10, $1,200, and received
credit on account.
15 Purchased merchandise on account, $16,000, terms 1/10, n/60.
25 Purchased merchandise on account, $20,000, terms 2/10, n/30.
28 Paid invo
ice of August 15 in full.
(a) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken:
(1) Prepare general journal entries to record the transactions.
(2) Describe how the various items would be shown in the financial statements.
(b) Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses:
(1) Prepare general journal entries to enter the transactions.
(2) Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.
(3) Describe how the various items would be shown in the financial statements.
(c) Which of the two methods do you prefer and why?
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