Indicate whether the following merchandise in transit should be included or excluded from the company's inventory at year end, December 31.
1. $2,000 of merchandise purchased from a supplier, shipped FOB shipping point on December 29, in transit at year-end.
2. $1,000 of merchandise shipped to a customer on December 30, FOB destination. The goods arrived at the customer's location on January 5.
Homework Answers
Inclusion of certain inventory in stock depends on whether the ownership is transferred or not, which depends on the FOB conditions as to when the sale is complete, if the condition is FOB shipping point, then the ownership will be transferred as soon as the goods are shipped, whereas in case of FOB destination, ownership will get transferred when the goods reach the destination.
In the given cases,
- $2,000 worth of goods are shipped, whose terms are FOB shipping point, this means that ownership is already transferred, therefore this inventory should be Included.
- Goods worth $1,000 are shipped by us, whose conditions are FOB destination, here ownership will lie with us till the goods reach the destination, therefore this inventory must be Included.
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Indicate whether the following merchandise in transit should be included or excluded from the company's inventory at year end, December 31.
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