Question

The Mateo Corporation's inventory at December 31, 2019, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following: Merchandise costing $30,000, shipped F.o.b. shipping point from a vendor on December 30, 2019, was received on January 5, 2020. Merchandise costing $22,000, shipped F.o.b. destination from a vendor on December 28, 2019, was received on January 3, 2020. Merchandise costing $38,000 was shipped to a customer F.o.b. destination on December 28, 2019, arrived at the customer's location on January 6, 2020. Merchandise costing $12,000 was being held on consignment by Traynor Company. What amount should Mateo Corporation report as inventory in its December 31, 2019, balance sheet? (Show your reasoning!)

Answer 1

Mateo Corporation Inventory, December 31, 2019 405,000 Working Notes: Physical Inventory on December 31 Add: Goods purchased FOB Shipping point from a vendor 325,000 30,000 Add: Goods sold FOB Destination to customer 38,000 Add: Goods held on consignment by Traynor 12,000 $ Inventory at December 31 405,000 1) Goods purchased from Vendor on FOB shipping point that means ownership of the goods has been transferred to the buyer i.e.Mateo when the goods leave the supplier's shipping dock. And the stock was in transit before the month end therefore ownership will pass on to the Mateo that's why it was added to the physical count to arrive at the actual cost of the inventory 2) Goods purchased from Vendor on FOB Destination that means ownership of the goods has been transferred to the buyer i.e.Mateo when the goods reached the buyer's location. And the stock was reached on Jauary 3,2020 therefore it was not included in the current physical count. 3) Goods sold to customer on FOB Destination and in that case ownership will be transferred when the goods actually received by buyer. So the goods in transit on December 31 and therefore ownership will remain with the Mateo that's why it is also added to the physical count to arrive the correct cost of Inventory. 4) When the goods sold on consigment basis the ownership remains with the consignor. Therefor goods hold by Traynor as on consigment but the ownership remains with Mateo