Question

E6.1 (LO 1) Premier Bank and Trust is considering giving Alou Company a loan. Before doing so, management decides that further discussions with Alou's accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of £297,00o. Discussions with the accountant reveal the following. Determine the correct inventory amount 1. Alou sold goods costing £38,000 to Comerico Company, FOB shipping point, on December 28. The goods are not expected to arrive at Comerico until January 12. The goods were not included in the physical inventory because they were not in the warehouse 2. The physical count of the inventory did not include goods costing £91,000 that were shipped to Alou FOB destination on December 27 and were still in transit at year-end. 3. Alou received goods costing £25,000 on January 2. The goods were shipped FOB shipping point on December 26 by Grant Co The goods were not included in the physical count. 4. Alou sold goods costing £35,000 to Emerick Co., FOB destination, on December 30. The goods were received at Emerick on January 8. They were not included in Alou's physical inventory 5. Alou received goods costing £44,00o on January 2 that were shipped FOB shipping point on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of £297,00o Instructions Determine the correct inventory amount on December 31

Answer 1

The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller’s shipping dock while Term FOB Destination indicates that the sale will occur when it arrives at the destination—at the buyer’s receiving dock and untill Sales does not occur, Inventory belongs to seller.

Hence Correct Inventory Amount = 297000 + 25000 + 35000 = 357000