Question

Novak Limited is trying to determine the amount of its ending inventory as at February 28, the company’s year end. The accountant counted everything in the warehouse in early March, which resulted in an ending inventory amount of $200,800. However, the accountant was not sure how to treat the following transactions, so he did not include them in the count. He has asked for your help in determining whether or not the following transactions should be included in inventory:

1.		Feb	1		Novak shipped $1,760 of inventory on consignment to Banff Corporation. By February 28, Banff had sold half of this inventory for Novak.
2.			19		Novak was holding merchandise that had been sold to a customer on February 19 but needed adjustments before the customer would take possession. The merchandise cost $960 and alterations cost $140. The customer plans to pick up the merchandise on March 2 after the alterations are complete.
3.			22		Novak shipped goods FOB shipping point to a customer. The merchandise cost $1,510. The appropriate party paid the freight costs of $9. The receiving report indicates that the goods were received by the customer on March 2.
4.			23		Novak received $1,590 of inventory on consignment from Craft Producers Ltd. By February 28, Novak had not sold any of this inventory.
5.			25		Novak purchased goods FOB shipping point from a supplier. The merchandise cost $1,370. The appropriate party paid the freight costs of $9. The goods were shipped by the supplier on February 26 and received by Novak on March 3.
6.			26		Novak purchased goods FOB destination from a supplier. The merchandise cost $1,520. The appropriate party paid the freight costs of $170. The goods were shipped by the supplier on February 27 and received by Novak on March 4.
7.			27		Novak shipped goods FOB destination costing $1,930 to a customer. The appropriate party paid the freight costs of $210. The receiving report indicates that the customer received the goods on March 7.
8.		Mar.	5		Novak had $1,940 of inventory isolated in the warehouse. The inventory is designated for a customer who has requested that the goods not be shipped until March 5.

(a)

For each of the situations, specify whether the item should be included in ending inventory, and if so, at what amount. For each item that is not included in ending inventory, indicate who owns it and what account, if any, it should have been recorded in. (Round answers to 0 decimal places, e.g. 25.)

												Include/Do not include			Amount	Ownership	Account
1.			Feb		1		Novak shipped $1,760 of inventory on consignment to Banff Corporation. By February 28, Banff had sold half of this inventory for Novak.
2.				19						Novak was holding merchandise that had been sold to a customer on February 19 but needed alteration before the customer would take possession. The merchandise cost $960 and alterations cost $140. The customer plans to pick up the merchandise on March 2 after the alterations are complete.
3.				22					Novak shipped goods FOB shipping point to a customer. The merchandise cost $1,510. The appropriate party paid the freight costs of $9. The receiving report indicates that the goods were received by the customer on March 2.
4.				23			Novak received $1,590 of inventory on consignment from Craft Producers Ltd. By February 28, Novak had not sold any of this inventory.							Do not includeInclude
5.				25			Novak purchased goods FOB shipping point from a supplier. The merchandise cost $1,370. The appropriate party paid the freight costs of $9. The goods were shipped by the supplier on February 26 and received by Novak on March 3.
.

Answer 1

Feb 1 - Goods are in possession of the customer and the inventory has been partly sold by the customer.

Feb 19 - The inventory is still under the owner ship and control of Novak so needs to be included in the inventory.

Feb 22 - In FOB shipping point, the ownership and control is transferred to customer when the goods have shipped and on board. The customer is responsible to pay for transport.

Feb 23 - Novak has received the inventory and is still unsold.

Feb 25 - The supplier had shipped the goods with the FOB shipping point, the ownership is transferred to Novak at the point of shipment. The transport is the responsibility of Novak and he had pad $9.

Feb 26,- The ownership transfers to Novak only when it reaches the destination i.e. Novak's warehouse. It hasn't reached yet.

Feb 27 - The ownership is still with Novak until the inventory is delivered to customer. The transportation charges is not included in the inventory as it is a selling expense.

Mar 7 - Even if the sale has occurred, good is under our possession and shipping terms are not referred to the transaction. Possession and control is still with Novak and will be responsible for any damages.

Date	Include / Do not include	Amount	Ownership	Account
Feb 1	Do not Include		Banff corporation	Cost of goods sold / inventory
Feb 19	Include	$1,100
Feb 22	Do not Include		Customer	Inventory / goods in transit
Feb 23	Include	$1,590
Feb 25	Include	$1379
Feb 26	Do not include		Supplier	Goods in transit
Feb 27	Include	$1930
Mar 5	Include	$1940