/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q3BE Question:聽Stallman Company took... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 8: Q3BE (page 422)

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?

Short Answer

Expert verified

The ending inventory of $247,000 should be reported on the balance sheet on Dec 31.

Step by step solution

01

Step-by-step-solutionStep1: FOB destination and FOB shipping point

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.

02

Treatment for purchases from Pelzer

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.

03

Treatment for sale to Alvarez

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.

04

Value of ending inventory

Valueofendinginventory(asonDec31)=Inventoryonhand+FOBshippingpointpurchase+FOBdestinationsales=$200,000+$25,000+$22,000=$247,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Ann M. Martin Company makes the following errors during the current year.

(Evaluate each case independently and assume ending inventory in the following year is correctly stated.)

1. Ending inventory is overstated, but purchases and related accounts payable are recorded correctly.

2. Both ending inventory and purchases and related accounts payable are understated. (Assume this purchase was recordedand paid for in the following year.)

3. Ending inventory is correct, but a purchase on account was not recorded. (Assume this purchase was recorded and paidfor in the following year.)

Instructions

Indicate the effect of each of these errors on working capital, current ratio (assume that the current ratio is greater than 1), retained earnings, and net income for the current year and the subsequent year.

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.

Instructions

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?

Question:Presented below is a list of items that may or may not be reported as inventory in a company鈥檚 December 31 balance sheet.

1. Goods out on consignment at another company鈥檚 store.

2. Goods sold on an installment basis (bad debts can be reasonably estimated).

3. Goods purchased f.o.b. shipping point that are in transit at December 31.

4. Goods purchased f.o.b. destination that are in transit at December 31.

5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that coversall costs related to the inventory.

6. Goods sold where large returns are predictable.

7. Goods sold f.o.b. shipping point that are in transit at December 31.

8. Freight charges on goods purchased.

9. Interest costs incurred for inventories that are routinely manufactured.

10. Costs incurred to advertise goods held for resale.

11. Materials on hand not yet placed into production by a manufacturing firm.

12. Office supplies.

13. Raw materials on which a manufacturing firm has started production but which are not completely processed.

14. Factory supplies.

15. Goods held on consignment from another company.

16. Costs identified with units completed by a manufacturing firm but not yet sold.

17. Goods sold f.o.b. destination that are in transit at December 31.

18. Short-term investments in stocks and bonds that will be resold in the near future.

Instructions

Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not bereported as inventory, indicate how it should be reported in the financial statements.

Case 1: T J International

T J International was founded in 1969 as Trus Joist International. The firm, a manufacturer of specialty building products, has its headquarters in Boise, Idaho. The company, through its partnership in the Trus Joist MacMillan joint venture, develops and manufactures engineered lumber. This product is a high-quality substitute for structural lumber and uses lower-grade wood and materials formerly considered waste. The company also is majority owner of the Outlook Window Partnership, which is a consortium of three wood and vinyl window manufacturers.

Following is T J International鈥檚 adapted income statement and information concerning inventories from its annual report.

T J International

Sales \(618,876,000

Cost of goods sold 475,476,000

Gross profit 143,400,000

Selling and administrative expenses 102,112,000

Income from operations 41,288,000

Other expense 24,712,000

Income before income tax 16,576,000

Income taxes 7,728,000

Net income \) 8,848,000

Inventories.Inventories are valued at the lower of cost or market and include material, labor, and production overhead costs. Inventories consisted of the following:

Current Year Prior Year

Finished goods \(27,512,000 \)23,830,000

Raw materials and

work-in-progress 34,363,00033,244,000

61,875,000 57,074,000

Reduction to LIFO cost (5,263,000) (3,993,000)

\(56,612,000 \)53,081,000

The last-in, first-out (LIFO) method is used for determining the cost of lumber, veneer, Microllamlumber, TJI joists, and open web joists. Approximately 35 percent of total inventories at the end of the current year were valued using the LIFO method. The first-in, first-out (FIFO) method is used to determine the cost of all other inventories.

Instructions

(a) How much would income before taxes have been if FIFO costing had been used to value all inventories?

(b) If the income tax rate is 46.6%, what would income tax have been if FIFO costing had been used to value all inventories ? In your opinion, is this difference in net income between the two methods material? Explain.

(c) Does the use of a different costing system for different types of inventory mean that there is a different physical flow of goods among the different types of inventory? Explain.

Clay Mattews, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Clay understands the more sophisticated computer inventory control systems, he has littleknowledge of how inventory cost is determined. In studying the records of Strider Enterprises, which sells normal brand-namegoods from its own store and on consignment through Chavez Inc., he asks you to answer the following questions.

Instructions

(a) Should Strider Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yetreceived if the terms of purchase are f.o.b. shipping point (manufacturer鈥檚 plant)? Why?

(b) Should Strider Enterprises include freight-in expenditures as an inventory cost? Why?

(c) If Strider Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross or net? Why?

(d) What are products on consignment? How should they be reported in the financial statements?
See all solutions

Recommended explanations on Business Studies Textbooks

Change Management

Read Explanation

Organizational Communication

Read Explanation

Introduction to Business

Read Explanation

Organizational Behavior

Read Explanation

Strategy

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.