Question

Presented below is a list of items that may or may not be reported as inventory in a company's December 31 balance sheet. Indicate which of these items would typically be reported as inventory in the financial statements, and if an item should not be reported as inventory, indicate how it should be reported in the financial statements. 1. Goods sold where large returns are predictable. 2. Short-term investments in stocks and bonds that will be resold in the near future. 3. Office supplies. 4. Goods sold f.o.b. shipping point that are in transit at December 31. 5. Goods sold on an installment basis (bad debts can be reasonably estimated). 6. Factory supplies. 7. Freight charges on goods purchased. 8. Goods out on consignment at another company's store. 9. Goods sold f.o.b. destination that are in transit at December 31. 10. Interest costs incurred for inventories that are routinely manufactured. 11. Goods purchased f.o.b. shipping point that are in transit at December 31. 12. Goods held on consignment from another company. 13. Materials on hand not yet placed into production by a manufacturing firm. 14. Costs identified with units completed by a manufacturing firm, but not yet sold. 15. Goods purchased f.o.b. destination that are in transit at December 31. 16. Costs incurred to advertise goods held for resale. 17. Raw materials on which a manufacturing firm has started production, but which are not completely processed. 18. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory.

Answer 1

	Reporting	Supporting explanations
1)	Reported as Cost of Goods Sold	It appears as a deduction in inventory account due to decrease of inventory due to sale.
2)	Reported as Short-term Investmentts under Current Assets of balance sheet	It is a short-term investment in stocks so it is not reported under inventory
3)	Typically reported as Inventory	Usually inventory is purchased to resale but office supplies are typically treated as inventory because they are purchased to use within the organization producting no final product.
4)	Reported as Inventory	The seller reports as inventory as seller is responsible till the buyer takes the delivery.
5)	Reported as Inventory	When the goods are sold on installment basis, it is still reported as inventory until the completion of the sale.
6)	Reported as Inventory	Factory supplies are consumed during the production of the final product, hence, factory supplies are reported as inventory.
7)	Reported as Expenses	These are not reported as inventory because these are charges levied during the purchase of inventory.
8)	Reported as Inventory	Goods sent out is still treated as inventory until the completion of sale.
9)	Reported as Inventory	The seller reports as inventory as seller is responsible till the buyer takes the delivery.
10)	Reported as Expenses	These interest costs are not treated as inventory as these are expenses.
11)	Reported as Inventory	The buyer is responsible from the shipping point so treated as inventory.
12)	Reported as Consignment Goods	These are reported as consignment goods because these are held on temporary purpose but the consignor reports it as inventory but the not consignee.
13)	Reported as Inventory	These are called raw materials inventory which are part of inventories.
14)	Reported as Inventory	These are called finished goods inventory which are part of inventories.
15)	Not reported	The seller reports as inventory but the buyer is not responsible unti the goods reaches to the buyer. Hence, these are not reported as inventory.
16)	Reported as Expenses	These are not part of inventories as these are costs incurred in order to sell the goods.
17)	Reported as Inventory	Raw materials are part of inventories, hence, they report under inventory.
18)	Reported as Cost of Goods Sold	These are not part of inventories as these are costs incurred in order to sell the goods.