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, FOB shipping point, and $22,000 of goods sold to Alvarez Company for $30,000, FOB destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. 

What amount should Stallman report as its December 31 inventory? 

Inventory, December 31 _______ 

In its first month of operations, Bethke Company made three purchases of merchandise in the following sequence: (1) 300 units at $6, (2) 400 units at $7, and (3) 200 units at $8. Assuming there are 360 units on hand, compute the cost of the ending inventory under the (a) FIFO method and (b) LIFO method. Bethke uses a periodic inventory system.

(a) Cost of the ending inventory 

(b) Cost of the ending inventory

Answer 1

The ending inventory for December 31 is calculated as follows:

Ending inventory = Inventory count as per physical count + Inventory in transit FOB Shipping point (Purchases) + Inventory in transit FOB destination (Sales)

= $200,000 + $25,000 $22,000

= $247,000

Note: Under the FOB shipping point, the ownership of the inventory immediately transferred to the buyer of the goods after goods left the seller place, therefore, inventory in transit at FOB shipping point included in the inventory of Stallman Company.

Under FOB Destination, The ownership of the inventory transferred to the buyer when goods reached the buyer place, Therefore, under FOB destination when goods are in transit the ownership will remain with the seller, therefore, sale of $22,000 included in the Stallman company.

(a) The cost of ending inventory under FIFO method is calculated as follows:

Cost of ending inventory = 200 units * $8 + 160 units * $7

= $1,600 + $1,120

= $2,720

(b) The cost of ending inventory under the LIFO method is calculated as follows:

ost of ending inventory = 300 units * $6 + 60 units * $ 7

= $1,800 + $420

= $2,220