In your audit of Henry Company, you find that a physical inventory on December 3
ID: 2340059 • Letter: I
Question
In your audit of Henry Company, you find that a physical inventory on December 31, 2017, showed merchandise with a cost of $400,350 was on hand at that date. You also discover the following items were all excluded from the $400,350. 1. Merchandise of $63,540 which is held by Henry on consignment. The consignor is the Max Suzuki Company. 2. Merchandise costing $39,530 which was shipped by Henry f.o.b. destination to a customer on December 31, 2017. The customer was expected to receive the merchandise on January 6, 2018. 3. Merchandise costing $43,150 which was shipped by Henry f.o.b. shipping point to a customer on December 29, 2017. The customer was scheduled to receive the merchandise on January 2, 2018. 4. Merchandise costing $90,100 shipped by a vendor f.o.b. destination on December 30, 2017, and received by Henry on January 4, 2018. 5. Merchandise costing $50,500 shipped by a vendor f.o.b. shipping point on December 31, 2017, and received by Henry on January 5, 2018. Based on the above information, calculate the amount that should appear on Henry’s balance sheet at December 31, 2017, for inventory.
Explanation / Answer
Particulars
Amount ($)
Remarks
Physical inventory on December 31, 2017
$400,350
Merchandise of $63,540 which is held by henry on consignment.
$63,540
Merchandise held at end of period by consignee is considering inventory for consignor.
Merchandise costing $39,530 which was shipped by henry f.o.b. Destination to a customer on December 31, 2017. The customer was expected to receive the merchandise on January 6, 2018.
$39,530
Sales revenue recognized on shipping point (in fob contract.) Here, inventory at end on account period is destination point. Inventory would not ship at date of Dec 31, 2017. It means it is not sales revenue so consider as inventory for henry. Date of expected to receive the merchandise by customer is useless information in fob contract.
Merchandise costing $43,150 which was shipped by henry f.o.b. Shipping point to a customer on December 29, 2017. The customer was scheduled to receive the merchandise on January 2, 2018
Sales revenue recognized on shipping point (in fob contract.) Here, inventory at end on account period is shipping point. Inventory would ship at date of Dec 31, 2017. It means it is sales revenue so not consider as inventory for henry. Date of expected to receive the merchandise by customer is useless information in fob contract.
Merchandise costing $90,100 shipped by a vendor f.o.b. Destination on December 30, 2017, and received by henry on January 4, 2018
This transaction should not consider as purchase of inventory in year 2017 because point of transaction is shipping point. It means it is not consider as inventory for henry. Date of expected to receive the merchandise by henry from vendor is useless information in fob contract.
Merchandise costing $50,500 shipped by a vendor f.o.b. Shipping point on December 31, 2017, and received by henry on January 5, 2018
$50,500
This transaction should consider as purchase of inventory in year 2017 because point of transaction is shipping point. It means it is consider as inventory for henry. Date of expected to receive the merchandise by henry from vendor is useless information in fob contract.
Amount that should appear on henry’s balance sheet at December 31, 2017, for inventory (total)
$553,920
Particulars
Amount ($)
Remarks
Physical inventory on December 31, 2017
$400,350
Merchandise of $63,540 which is held by henry on consignment.
$63,540
Merchandise held at end of period by consignee is considering inventory for consignor.
Merchandise costing $39,530 which was shipped by henry f.o.b. Destination to a customer on December 31, 2017. The customer was expected to receive the merchandise on January 6, 2018.
$39,530
Sales revenue recognized on shipping point (in fob contract.) Here, inventory at end on account period is destination point. Inventory would not ship at date of Dec 31, 2017. It means it is not sales revenue so consider as inventory for henry. Date of expected to receive the merchandise by customer is useless information in fob contract.
Merchandise costing $43,150 which was shipped by henry f.o.b. Shipping point to a customer on December 29, 2017. The customer was scheduled to receive the merchandise on January 2, 2018
Sales revenue recognized on shipping point (in fob contract.) Here, inventory at end on account period is shipping point. Inventory would ship at date of Dec 31, 2017. It means it is sales revenue so not consider as inventory for henry. Date of expected to receive the merchandise by customer is useless information in fob contract.
Merchandise costing $90,100 shipped by a vendor f.o.b. Destination on December 30, 2017, and received by henry on January 4, 2018
This transaction should not consider as purchase of inventory in year 2017 because point of transaction is shipping point. It means it is not consider as inventory for henry. Date of expected to receive the merchandise by henry from vendor is useless information in fob contract.
Merchandise costing $50,500 shipped by a vendor f.o.b. Shipping point on December 31, 2017, and received by henry on January 5, 2018
$50,500
This transaction should consider as purchase of inventory in year 2017 because point of transaction is shipping point. It means it is consider as inventory for henry. Date of expected to receive the merchandise by henry from vendor is useless information in fob contract.
Amount that should appear on henry’s balance sheet at December 31, 2017, for inventory (total)
$553,920