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Topic - Inventories Subject - Intermediate Accounting I

- Sunset Co's ending inventory for 20x1 was $276,000 - Key adjustments to Sunset's inventory included adding $10,000 for a purchase and $1,000 in freight for goods purchased FOB shipping point, adding $5,000 in received inventory, subtracting $16,000 and $4,000 for goods sold and obsolete inventory. - Gordon Co's ending inventory for 2002 was correctly reported as $75,000, with no adjustments needed for goods sold FOB shipping point that were picked up in July or goods purchased FOB destination that were received in July.

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Nhorelajne Manaog
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146 views4 pages

Topic - Inventories Subject - Intermediate Accounting I

- Sunset Co's ending inventory for 20x1 was $276,000 - Key adjustments to Sunset's inventory included adding $10,000 for a purchase and $1,000 in freight for goods purchased FOB shipping point, adding $5,000 in received inventory, subtracting $16,000 and $4,000 for goods sold and obsolete inventory. - Gordon Co's ending inventory for 2002 was correctly reported as $75,000, with no adjustments needed for goods sold FOB shipping point that were picked up in July or goods purchased FOB destination that were received in July.

Uploaded by

Nhorelajne Manaog
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Sunset Co.

Problem
- B. 276,000
Gordon Company Problem
- C. 75,000
Step-by-step explanation
For Sunset Co. Problem:
Inventory, before adjustments 260,000

Purchase: FOB Shipping Point 10,000

Freight 1,000

Received inventory 5,000

Sold: FOB Shipping Point (16,000)

Sold: FOB Destination 20,000

Obsolete inventory (4,000)

Inventory, December 31, 20x1 276,000

Let's explain per bullet for easier understanding.


● A If goods are sold or purchased at FOB Shipping Point, ownership is transferred
upon shipment. That is why the purchase of 10,000 rightfully belongs to Sunset
Co. already, and shall be included as the company's inventory. Since the company
is already the owner of the goods, the freight is now his responsibility and
should be paid by him. Sunset Co. will pay the supplier the freight of
1,000 and should be included as cost of his inventory.
● B The goods costing 5,000 were received by the company in December but were
accounted for on January. The goods should be included in his
December inventory.
● C As mentioned in Bullet A, goods sold at FOB Shipping Point, the ownership is
transferred upon shipment. The goods costing 16,000 is now owned by the
buyer, thus should be excluded from the company's inventory account.
● D The goods were sold at FOB Destination. In FOB Destination, ownership is
transferred once the buyer receives the goods. Therefore, the seller still is the
owner of the goods while it is still in transit. The company did not include the goods,
but they should include it as Sunset is still the owner of the goods worth
20,000.
● E Obsolete goods of 4,000 is no longer sellable because it has no resale value.
The inventory should be excluded and is part of Cost of Goods Sold.

For Gordon Company:


Inventory, before adjustment 75,000

Sold: FOB Shipping Point -

Purchase: FOB Destination -

Inventory, June 30, 2002 75,000

Let's explain per bullet for easier understanding.


● A The goods were sold at FOB Shipping Point. As mentioned earlier, the transfer of
ownership is upon shipment. However, the carrier picked it up in July, thus as of
June 30, there was no shipment yet. Thus, Gordon company is still the rightful owner
of the goods costing 1,500. The goods were properly accounted, no adjustment
needed.
● B The goods were purchased by the company at FOB Destination. As mentioned,
goods purchased at FOB Destination, the ownership is transferred upon buyer's
receipt of goods. Since the goods were received in July, Gordon Company does not
own the goods as of June 30. The goods were properly accounted, no adjustment
needed.
●

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