In your audit of Jose Oliva Company, you find that a physical inventory on Decem
ID: 2476644 • Letter: I
Question
In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2014, showed merchandise with a cost of $448,800 was on hand at that date. You also discover the following items were all excluded from the $448,800. 1. Merchandise of $68,510 which is held by Oliva on consignment. The consignor is the Max Suzuki Company. 2. Merchandise costing $41,230 which was shipped by Oliva f.o.b. destination to a customer on December 31, 2014. The customer was expected to receive the merchandise on January 6, 2015. 3. Merchandise costing $47,740 which was shipped by Oliva f.o.b. shipping point to a customer on December 29, 2014. The customer was scheduled to receive the merchandise on January 2, 2015. 4. Merchandise costing $83,720 shipped by a vendor f.o.b. destination on December 30, 2014, and received by Oliva on January 4, 2015. 5. Merchandise costing $51,120 shipped by a vendor f.o.b. shipping point on December 31, 2014, and received by Oliva on January 5, 2015. Based on the above information, calculate the amount that should appear on Oliva's balance sheet at December 31, 2014, for inventory.Explanation / Answer
Inventory to be reported on the balance sheet should be
441,000 + 41,230 + 51,120 = 533,350
1. These goods are not owned by the company. Hence should not be included in inventory.
3. These goods in transit to a customer shipped f.o.b. shipping point, should be excluded from the inventory. These goods passed when they left the seller and therefore a sale and related cost of goods sold should be recorded in 2014.
4. These goods which are in transit from a vendor , shipped f.o.b. destination also should be excluded from the inventory. The title is not passed to the buyer until the goods are delivered.