In your audit of Garcia Company, you find that a physical inventory on December
ID: 2670712 • Letter: I
Question
In your audit of Garcia Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the following items were all excluded from the $441,000 . 1. Merchandise of $61,000 which is held by Garcia on consignment. The consignor is the Bono Company. 2. Merchandise costing $33,000 which was shipped by Garcia f.o.b. destination to a customer on December 31, 2010. The customer expected to receive the merchandise on January 6, 2011. 3. Merchandise costing $46,000 which was shipped by Garcia f.o.b. shipping point to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011. 4. Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30, 2010 and received by Garcia on January 4, 2011. 5. Merchandise costing $51,000 shipped by a vendor f.o.b. seller on December 31, 2010 and received by Garcia on January 5, 2011. Instructions: Based on the above information, calculate the amount that should appear on Garcia’s balance sheet at December 31, 2010, for inventory. Text Title Amount Text Title Amount Text Title Amount Text Title Formula Enter text explain as desired here. Enter text explain as desired here. Enter text explain as desired here.
In your audit of Garcia Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the following items were all excluded from the $441,000 . 1. Merchandise of $61,000 which is held by Garcia on consignment. The consignor is the Bono Company. 2. Merchandise costing $33,000 which was shipped by Garcia f.o.b. destination to a customer on December 31, 2010. The customer expected to receive the merchandise on January 6, 2011. 3. Merchandise costing $46,000 which was shipped by Garcia f.o.b. shipping point to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011. 4. Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30, 2010 and received by Garcia on January 4, 2011. 5. Merchandise costing $51,000 shipped by a vendor f.o.b. seller on December 31, 2010 and received by Garcia on January 5, 2011. Instructions: Based on the above information, calculate the amount that should appear on Garcia’s balance sheet at December 31, 2010, for inventory. Text Title Amount Text Title Amount Text Title Amount Text Title Formula Enter text explain as desired here. Enter text explain as desired here. Enter text explain as desired here.
Explanation / Answer
When goods are purchased or sold FOB shipping point, title passes to the buyer when the goods are shipped. When the terms are FOB destination, title passes to the buyer when the goods are received. Any merchandise sold by Garcia FOB destination is still Garcia’s inventory even if it is in transit to the buyer on December 31. FOB Seller (or FOB Seller's plant) means that the seller is responsible for the product until it leaves their dock. At the point that it is loaded on the trailer/container/etc, the buyer owns the product and is responsible for the freight (including transportation cost) and any damages. In your audit of Garcia Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $441,000 was on hand at that date. You also discover the following items were all excluded from the $441,000 . 1. Merchandise of $61,000 which is held by Garcia on consignment. The consignor is the Bono Company. THis will be excluded from Garica (Consignee) inevntory. This will appear in Bono's inventory. 2. Merchandise costing $33,000 which was shipped by Garcia f.o.b. destination to a customer on December 31, 2010. The customer expected to receive the merchandise on January 6, 2011. Title passes to Buyer when he rxs goods ie 6 Jan'11. So Garcia has to record this in his Inventory on 31 Dec'10 3. Merchandise costing $46,000 which was shipped by Garcia f.o.b. shipping point to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011. Title passes to buyer on 29 Dec'10. SO Garcia will not show these goods in his Inventory 4. Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30, 2010 and received by Garcia on January 4, 2011. Garcia will record this when he rxs goods on Jan 4, 2011 5. Merchandise costing $51,000 shipped by a vendor f.o.b. seller on December 31, 2010 and received by Garcia on January 5, 2011. SO Garcia has to record $51,000 in his Inventory on 31 Dec'10. So Now the Inventory of Garcia on 31 Dec'11 will be as below :- Physical inventory $441,000 1. NIL 2. FOB dest $33,000 3. NIL 4. NIL 5. FOB Seller : $51,000 ------------------------------ Inventory to be recorded in Bal Sheet on 31 Dec'11 = $525,000