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Chapter 8: Question 6Q (page 421)

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.

Short Answer

Expert verified

Item 1, 3, and 4 would be recognized as inventory. Item 2 would not be recognized inventory unless received. Item 5 and 6 do not come under inventory.

Step by step solution

01

Goods out on approval to the customer

Goods sent to approval do not constitute sale as the seller retains the title and control unless the customer accepts them.

Sothe goods sent out on approval must be shown under inventory on the balance sheet.

02

Goods in transit that were recently purchased f.o.b. destination

Under goods purchased on f.o.b. destination, the title is received after receiving the goods.

Soas the goods are in transit, the inventories should not be recognized on the balance sheet.

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Most popular questions from this chapter

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.

Presented below is information related to Dino Radja Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2014 $ 80,000 100

December 31, 2015 115,500 105

December 31, 2016 108,000 120

December 31, 2017 122,200 130

December 31, 2018 154,000 140

December 31, 2019 176,900 145

Instructions

Compute the ending inventory for Dino Radja Company for 2014 through 2019 using the dollar-value LIFO method.

Question:Included in the December 31 trial balance of Rivera Company are the following assets.

Cash \( 190,000 Work in process \)200,000

Equipment (net) 1,100,000 Accounts receivable (net) 400,000

Prepaid insurance 41,000 Patents 110,000

Raw materials 335,000 Finished goods 170,000

Prepare the current assets section of the December 31 balance sheet.A

The following information relates to the Jimmy Johnson Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2013 $ 70,000 100

December 31, 2014 90,300 105

December 31, 2015 95,120 116

December 31, 2016 105,600 120

December 31, 2017 100,000 125

Instructions

Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2013 through 2017.

Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye.

Date Transaction Quantity Price/Cost

1/1 Beginning inventory 1,000 $12

2/4 Purchase 2,000 18

2/20 Sale 2,500 30

4/2 Purchase 3,000 23

11/4 Sale 2,200 33

Instructions

Compute cost of goods sold, assuming Ehlo uses:

(a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow.

(b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average

cost flow.

(c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average

cost flow.
See all solutions

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