Question

Travis Company has just completed a physical Inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $65,700. During the audit, the independent CPA developed the following additional Information a Goods costing $870 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year. b. Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the "Required" section), cost $1.450. Because these goods had not yet anved, they were excluded from the physical Inventory count. c On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $2,000 (expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical Inventory count. d. On December 28 of the current year, a customer purchased goods for cash amounting to $2,750 and left them "for pickup on January 3 of next year." Travis Company had paid $1,710 for the goods and, because they were on hand, included the latter amount in the physical Inventory count. e. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $4,350 had been delivered to the transportation company on December 27 of the current year, the terms were FOB shipping point, Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical Inventory count. On December 31 of the current year, the company shipped $1,650 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical Inventory count. g. One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Travis Company to continue carrying the item, the manufacturer-supplier provided the item on a "consignment basis. This means that the manufacturer-supplier retains ownership of the item, and Travis Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Travis Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Travis Contpany had five of these items on hand, therefore, they were included in the physical Inventory count at $860 each Required: Assume that Travis's accounting policy requires including in Inventory all goods for which it has title. Note that the point where titie ownership changes hands is determined by the shipping terms in the sales contract. When goods are shipped "FOB shipping point," title changes hands at shipment, and the buyer normally pays for shipping. When they are shipped "FOB destination,"title changes hands on delivery, and the seller normally pays for shipping Compute the correct amount for the ending Inventory (Deductible amounts should be entered with a minus sign. If no adjustment is necessary, enter a O In the cell.)

Answer 1

1. Here the first thing to see is the accounting policy of travis company on valuation of inventory. The accounting policy is to include all the goods in the inventory on which company has title i.e. company owns that goods. So title of goods is most relevant in this question.

2. Second thing to note here is FOB shipping (title of goods will be transferred on shipment) and FOB destination (title of goods will be transferred on delivery).

Based on above, the solution is as follows:

Particulars	Amount	Remarks
Physical inventory count	65,700	Given in question
a) goods on trail basis	870	The title has not passed to customer since goods are given on trail basis.Since these goods were excluded from physical count, they should be added to arrive at correct inventory.
b) Goods in transit from supplier	0	Goods have been purchased on FOB destination basis. Since the goods are not delivered, title is not transferred from supplier. Since they are already excluded from physical count, no adjustment is required.
c) Goods in transit to customer	0	Goods have been sold on FOB shipping point. Since goods have been shipped, title has transferred to customer. Since these are already excluded from physical count, no adjustment is required.
d) Goods held for customer pickup	-1710	Goods have been already sold to customer which means title of goods is transferred. We are just holding the goods on behalf of customer. So it will not form part of inventory. Since it is included in physical count, it will now be deducted.
e) Goods purchased and in transit	4350	Goods are purchased at FOB shipping. Supplier has shipped the goods and hence title of goods is transferred. Since these are not included in physical count, it will now be added.
f) Goods sold and in transit	1650	Goods have been sold at FOB destination terms. Since we have just shipped the goods and delivery has not yet been made, title of goods remains with us. Since they were excluded from physical count, it will now be added.
g) Goods held on consignment	-4300	There are no ownership rights on goods held on consignment.Therefore it will not form part of inventory. Since they are included in physical count, they are now excluded (860*5).
Correct inventory as on Decemberr 31.	66.560