Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year en
ID: 2454006 • Letter: S
Question
Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $71,000 and Cost of Goods Sold of $422,000.
Excluded from the Inventory balance are $8,100 of lenses in the warehouse, ready to send to customers on January 1. SLC reported these lenses as sold on December 31, at a price of $15,200.
Included in the Inventory balance are $3,050 of lenses that were damaged in December and will be scrapped in January, with no recoverable value.
Prepare the table showing the balances presently reported for Inventory and Cost of Goods Sold, and then displaying the adjustment(s) needed to correctly account for each of items (a)-(d), and finally determining the appropriate Inventory and Cost of Goods Sold balances. (Enter any decreases to account balances with a minus sign.)
Present Balance - Inventory - Cost of Goods Sold
a
b
c
d
Appropriate Balance for each $
Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $71,000 and Cost of Goods Sold of $422,000.
Explanation / Answer
Inventory Cost of goods sold Balance as on 31st December 2014 71000 422000 Item a) Goods held on consignment -10200 Note 1 Item b) Office supplies -5100 Note 2 Item c) goods sold but not despatched 8100 -8100 Note 3 Item d) Note 4 Damaged goods -3050 Total 60750 413900 Appropriate balance of Inventory 60750 Appropriate balance of COGS 413900 Note 1 Goods held on consignment are a part of inventory of the consignor till they are sold and then they are transferred to Cost of goods sold. Hence item a) the lenses are part of inventory of the consignor and not part of inventory of SLC Note 2 Office supplies are not inventory as they are not to be sold, hence they have been deducted from the inventory of SLC Note 3 Goods sold and not despatched are technically not sales as only when the goods are despatched they can be termed as sales , hence they cannit be deducted from inventory and so have been added back in inventory and deducted from cost of goods sold Note 4 As the goods have been damaged in December itself with no scrap value The inventory value should be adjusted for this damaged goods in December itself , even if they are scrapped in january