Question

Thomas Taylor, an auditor with Knapp CPAs, is performing a review of Vaughn Company's inventory account. Vaughn did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $638,000. However, the following information was not considered when determining that amount.

1.		Included in the company's count were goods with a cost of $207,000 that the company is holding on consignment. The goods belong to Agler Corporation.
2.		The physical count did not include goods purchased by Vaughn with a cost of $41,200 that were shipped FOB shipping point on December 28 and did not arrive at Vaughn's warehouse until January 3.
3.		Included in the inventory account was $20,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
4.		The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $41,200 and a cost of $30,900. The goods were not included in the count because they were sitting on the dock.
5.		On December 29, Vaughn shipped goods with a selling price of $90,000 and a cost of $70,000 to Central Sales Corporation FOB shipping point. The goods arrived on January 3. Central Sales had only ordered goods with a selling price of $10,500 and a cost of $8,400. However, a sales manager at Vaughn had authorized the shipment and said that if Central wanted to ship the goods back next week, it could.
6.		Included in the count was $47,200 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Vaughn's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."

Prepare a schedule to determine the correct inventory amount.

		Ending inventory-as reported				$enter a dollar amount
1.				Goods belong to Angler Corporation		enter a dollar amount
2.				Goods belong to Vaughn as soon as they are shipped		enter a dollar amount
3.				Office supplies should be carried in a separate account		enter a dollar amount
4.				Goods belong to Vaughn as soon as they are shipped		enter a dollar amount
5.				Goods shipped to Central Sales corporation FOB shipping point		enter a dollar amount
6.				Goods that were parts for a machine that the company no longer made		enter a dollar amount
		Correct inventory				$enter a total amount

Answer 1

Solution to question is as per below image:

Solution Sr No Statement showing correct Inventory Value Particulars Ending Inventory as Reported 1 Goods Belong to Angler Corporation (Refer Note 1) 2 Goods belong to Vaughn as soon as they are shipped (Refer Note 2) 3 Office supplies should be carried in a separate account (Refer Note 3) 4 Goods belong to Vaughn as soon as they are shipped ( Refer Note 4) 5 Goods shipped to Central Sales corporation FOB shipping point (Refer Note 5) 6 Goods that were parts for a machine that the company no longer made ( Refer Note 6) Amount $638,000.00 ($207,000.00) $41,200.00 ($20,000.00) $30,900.00 $61,600.00 ($47,200.00) Correct inventory $497,500.00 Working Notes: 1) In Consignment sells Consigner Continues to be the owner of the goods until they are sold, So the goods appear as a inventory in the accounting records of Consigner (Angler Corporation) in our case. Hence it is deducted from Inventory Value 2) FOB means free on Board. If goods are shipped FOB shipping point, transportation costs are paid by the buyer of goods and title passes when the carrier takes possession of the goods. Such goods are part of buyer's inventory while in transit. In our case goods were shipped FOB Shipping point on December 28 Hence it will be the part of our inventory on December 31 3) Office supplies are treated as Expenses because they do not generate any revenue. Hence it is not a part inventory 4) if goods are shipped FOB shipping point, transportation costs are paid by the buyer of goods and title passes when the carrier takes possession of the goods. Such goods are part of buyer's inventory while in transit. In our case goods picked by shipper on January 1 hence title is transferred to buyer only on January 1. Hence it will be the part of our inventory on December 31. 5) If goods are shipped FOB shipping point, transportation costs are paid by the buyer of goods and title passes when the carrier takes possession of the goods. Such goods are part of buyer's inventory while in transit. In our case goods were shipped on December 29 hence title is transferred to buyer only on December 29. Hence it will not be the part of our inventory on December 31. However out of inventory costing $ 70000, tiltle for Goods costing $ 8400 is only transferred to Central Sales corporation because central sales had given order for goods costing $8400 only. Remaining goods costing $ 61600 will be included in Inventory 6)Obsolete inventory means products that a company had purchased or produced which cannot be sold. or it can not be use for any other pupose. Hence Cost of obsolete goods should be reduced to net realizable Value. Hence it does not form a part of Inventory cost with