Question

Questions 11-13 IONS: Answer Questions 11 through 13 on the basis of the following information amination of the books and records of the Kay May Corporation, a machinery wholesaler, reveals the following facts to Pals the following facts for the year ended December 31, 2015: a. Merchandise was sold and ndise was sold and billed F.O.B. shipping point on December 31, 2015 at a es price of $7,500. Although the merchandise costing $6,000 was ready for ship- on that date, the trucking company did not call for the merchandise until January 2, 2016. It was not included in the inven as not included in the inventory count taken on December 31, 2015. chandise with a sales price of $5,500 was billed and shipped to the customer on December 31, 2015. The merchandise costing $4,800 was not included in the inven- count taken on that day. Terms of sale were F.O.B. destination. e costing $5,000 was recorded as a purchase on December 26, 2015. The merchandise was not included in chandise was not included in the inventory count taken on December 31, 2015 since, upon examination, it was found to be defective and was in the process of being returned to the vendor. Merchandise costing $2,500 was received on December 31, 2015. It was included in the inventory count on that date. Although the invoice was dated January 3, 2016, the purchase was recorded in the December 2015 Purchases Journal. Merchandise costing $4,000 was received on January 3, 2016. It was shipped F.O.B. destination, and the invoice was dated December 30, 2015. The invoice was recorded in the December 2015 Purchases Journal, and the merchandise was included in the December 31, 2015 inventory.

Answer 1

a.Since the inventory did not reach the shipping point, the inventory is the property of the seller as on December, 31 . Hence it should be added to the closing inventory and the sales entry should be reversed.

Net Change to correct the inventory value is to increase the inventory cost ie, $6,000

b.Term of sale FOB destination. The item will lies in inventory till it reaches destination. Hence $4,800 should be added

c.No increase or decrease needed

d.No increase or decrease needed

e.Inventory should not be recorded , since it is FOB destination and received after December,31.$4,000 should be decreased.

Net Effect: INCREASE ($6,000+$4,800-$4000)=$6800

ANSWER: C. Increase $6,800