Question

The Kwok Company’s inventory balance on December 31, 2018, was $255,000 (based on a 12/31/18 physical count) before considering the following transactions:

1. Goods shipped to Kwok f.o.b. destination on December 20, 2018, were received on January 4, 2019. The invoice cost was $48,000.
2. Goods shipped to Kwok f.o.b. shipping point on December 28, 2018, were received on January 5, 2019. The invoice cost was $35,000.
3. Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2018, were received by the customer on January 3, 2019. The sales price was $58,000 and the merchandise cost $40,000.
4. Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2018, were received by the customer on December 30, 2018. The sales price was $38,000 and the merchandise cost $31,000.
5. Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2018, were received by the customer on January 4, 2019. The sales price was $43,000 and the merchandise cost $30,000.

Required:
Determine the correct inventory amount to be reported in Kwok’s 2018 balance sheet.

Answer 1

Correct inventory balance = $330,000

Explanation:-

Inventory balance before additional transactions	$255,000
Add :- Goods shipped to Kwok f.o.b. shipping point on December 28	$35,000
Add :- Goods shipped to customer f.o.b destination on December 27	$40,000
Correct inventory balance	$330,000

Notes:-

1) No acction needed. Goods only belong to Kwok on January 4.

2) Add $35,000

3) Add $40,000. The goods left Kwok wareshouse on December 27, so it could not have been included in the physical count , but it has to be added because the term were f.o.b destination.And inventory is valued at cost or market value whichever is lower. Hence it will valued at $40,000

4) No action needed. As good were correctly excluded from inventory.

5) No action needed. As good were correctly excluded from inventory and belong to customer on December 28