Question

Marigold Corp. took a physical inventory on December 31 and determined that goods costing $209,500 were on hand. Not included in the physical count were $28,000 of goods purchased from Concord Corporation, FOB, shipping point, and $27,500 of goods sold to Skysong, Inc. for $31,000, FOB destination. Both the Concord purchase and the Skysong sale were in transit at year-end. What amount should Marigold report as its December 31 inventory

Answer 1

Answer:

Marigold should report an inventory amount of $265,000.

Explanation:

The term FOB (Free On Board) describes at what point the ownership of goods is transferred from the seller to the buyer. In case of FOB shipping point, the ownership of the goods is transferred to the buyer once the goods are shipped for transit. In case of FOB destination, the ownership of the goods is transferred to the buyer once the goods are received by the buyer.

Therefore, the goods in transit purchased by Marigold on FOB shipping point basis should be added to its inventory. The goods in transit sold by Marigold on FOB destination are also currently owned by Marigold so they shall also be added to its inventory.

The inventory amount to be reported by Marigold is computed as follows.

Physical inventory in hand                                          $209,500

Add: Purchases on FOB shipping point basis           $28,000

Add: Cost of goods sold on FOB destination basis  $27,500

Inventory amount to be reported                              $265,000