Question

The Phoenix Corporation's fiscal year ends on December 31. Phoenix determines inventory quantity by a physical count of inventory on hand at the close of business on December 31. The company's controller has asked for your help in deciding if the following items should be included in the year-end inventory count. Required: Determine if each of the items below should be included or excluded from the company's year-end inventory.
1. Merchandise held on consignment for Trout Creek Clothing.
2. Goods shipped f.o.b. destination on December 28 that arrived at the customer's location on January 4.
3. Goods purchased from a vendor shipped f.o.b. shipping point on December 26 that arrived on January 3.
4. Goods shipped f.o.b. shipping point on December 28 that arrived at the customer's location on January 5.
5. Phoenix had merchandise on consignment at Lisa's Markets, Inc.
6. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 3.
7. Freight charges on goods purchased in 3.

Required:
Determine if each of the items above should be included or excluded from the company's year-end inventory.

Answer 1

Answer:

1. Merchandise held on consignment for Trout Creek Clothing.

• Excluded from the company's year-end inventory because they belong to another company.

2. Goods shipped f.o.b. destination on December 28 that arrived at the customer's location on January 4.

• Included in the company's year-end inventory because FOB destination shipments transfer ownership only after they are delivered, not while on transit.

3. Goods purchased from a vendor shipped f.o.b. shipping point on December 26 that arrived on January 3.

• Included in the company's year-end inventory because FOB shipping point shipments transfer ownership after they leave the seller's facilities.

4. Goods shipped f.o.b. shipping point on December 28 that arrived at the customer's location on January 5.

• Excluded from the company's year-end inventory because FOB shipping point shipments transfer ownership after they leave the seller's facilities, so they belong to the buyer now.

5. Phoenix had merchandise on consignment at Lisa's Markets, Inc.

• Included in the company's year-end inventory because merchandise on consignment belong to the company, not to Lisa' Market.

6. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 3.

• Excluded from the company's year-end inventory because FOB destination shipments transfer ownership only after they have been delivered, not while in transit.

7. Freight charges on goods purchased in 3.

• Included in the company's year-end inventory because freight costs under FOB shipping point are paid by the buyer.