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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

The following independent situations relate to inventory accounting.

1. Kim Co. purchased goods with a list price of \(175,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. How much should Kim Co. record as the cost of these goods?

2. Keillor Company鈥檚 inventory of \)1,100,000 at December 31, 2017, was based on a physical count of goods priced at cost and before any year-end adjustments relating to the following items.

(a) Goods shipped from a vendor f.o.b. shipping point on December 24, 2017, at an invoice cost of \(69,000 to Keillor Company were received on January 4, 2018.

(b) The physical count included \)29,000 of goods billed to Sakic Corp. f.o.b. shipping point on December 31, 2017. The carrier picked up these goods on January 3, 2018.

What amount should Keillor report as inventory on its balance sheet?

3. Zimmerman Corp. had 1,500 units of part M.O. on hand May 1, 2017, costing \(21 each. Purchases of part M.O. during May were as follows.

Units Unit Cost

May 9 2,000 \)22.00

17 3,500 23.00

26 1,000 24.00

A physical count on May 31, 2017, shows 2,000 units of part M.O. on hand. Using the FIFO method, what is the cost of part M.O. inventory at May 31, 2017? Using the LIFO method, what is the inventory cost? Using the average-cost method, what is the inventory cost?

4. Ashbrook Company adopted the dollar-value LIFO method on January 1, 2017 (using internal price indexes and multiple pools). The following data are available for inventory pool A for the 2 years following adoption of LIFO.

At Base- At Current-

Inventory Year Cost Year Cost

1/1/17 \(200,000 \)200,000

12/31/17 240,000 264,000

12/31/18 256,000 286,720

Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory be reported at December 31, 2018?

5. Donovan Inc., a retail store chain, had the following information in its general ledger for the year 2018.

Merchandise purchased for resale $909,400

Interest on notes payable to vendors 8,700

Purchase returns 16,500

Freight-in 22,000

Freight-out (delivery expense) 17,100

Cash discounts on purchases 6,800

What is Donovan鈥檚 inventoriable cost for 2018?

Instructions

Answer each of the preceding questions about inventories, and explain your answers.

Norman鈥檚 Televisions produces television sets in three categories: portable, midsize, and flat-screen. On January 1, 2017, Norman adopted dollar-value LIFO and decided to use a single inventory pool. The company鈥檚January 1 inventory consists of:

Category Quantity Cost per Unit Total Cost

Portable 6,000 \(100 \) 600,000

Midsize 8,000 250 2,000,000

Flat-screen 3,000 400 1,200,000

17,000 \(3,800,000

During 2017, the company had the following purchases and sales.

QuantitySelling Price

Category Purchased Cost per Unit Sold per Unit

Portable 15,000 \)110 14,000 $150

Midsize 20,000 300 24,000 405

Flat-screen 10,000 500 6,000 600

45,000 44,000

Instructions

(Round to four decimals.)

(a) Compute ending inventory, cost of goods sold, and gross profit.

(b) Assume the company uses three inventory pools instead of one. Repeat instruction (a).

Distinguish between product costs and period costs as they relate to inventory.

Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on physical count of goods in Dimitri鈥檚 plant, at cost, on December 31, 2017) \(1,520,000

Accounts payable at December 31, 2017 1,200,000

Net sales (sales less sales returns) 8,150,000

Additional information is as follows.

1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2017. These tools had a cost of \)31,000 and were billed at \(40,000. The shipment was on Dimitri鈥檚 loading dock waiting to be picked up by the common carrier.

2. Goods were in transit from a vendor to Dimitri on December 31, 2017. The invoice cost was \)76,000, and the goods were shipped f.o.b. shipping point on December 29, 2017.

3. Work in process inventory costing \(30,000 was sent to an outside processor for plating on December 30, 2017.

4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2017, were not included in the physical count. On January 8, 2018, the tools costing \)32,000 were inspected and returned to inventory. Credit memos totaling \(47,000 were issued to the customers on the same date.

5. Tools shipped to a customer f.o.b. destination on December 26, 2017, were in transit at December 31, 2017, and had a cost of \)26,000. Upon notification of receipt by the customer on January 2, 2018, Dimitri issued a sales invoice for \(42,000.

6. Goods, with an invoice cost of \)27,000, received from a vendor at 5:00 p.m. on December 31, 2017, were recorded on a receiving report dated January 2, 2018. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2017.

7. Goods received from a vendor on December 26, 2017, were included in the physical count. However, the related \(56,000 vendor invoice was not included in accounts payable at December 31, 2017, because the accounts payable copy of the receiving report was lost.

8. On January 3, 2018, a monthly freight bill in the amount of \)8,000 was received. The bill specifically related to merchandise purchased in December 2017, one-half of which was still in the inventory at December 31, 2017. The freight charges were not included in either the inventory or in accounts payable at December 31, 2017.

Instructions

Using the format shown below, prepare a schedule of adjustments as of December 31, 2017, to the initial amounts per Dimitri鈥檚 accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31, 2017, amounts. If the transactions would have no effect on the initial amount shown, enter NONE.

Accounts Net

Inventory Payable Sales

Initial amounts \(1,520,000 \)1,200,000 \(8,150,000

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(decrease)

1

2

3

4

5

6

7

8

Total adjustments

Adjusted amounts \) \( \)

How might a company obtain a price index in order to apply dollar-value LIFO?
See all solutions

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