Question

Houghton Limited is trying to determine the value of its ending inventory as of February 28, 2017, the company's year-end. The following transactions occurred, and the accountant asked your help in determining whether they should be recorded or not.
a. On February 26, Houghton shipped goods costing $800 to a customer and charged the customer $1,000. The goods were shipped with terms FOB shipping point and the receiving report indicates that the customer received the goods on March 2.
b. On February 26, Crain Inc. shipped goods to Houghton under terms FOB shipping point. The invoice price was $450 plus $30 for freight. The receiving report indicates that the goods were received by Houghton on March 2.
c. Houghton had $720 of inventory isolated in the warehouse. The inventory is designated for a customer who has requested that the goods be shipped on March 10.
d. Also included in Houghton's warehouse is $700 of inventory that Korenic Producers shipped to Houghton on consignment.
e. On February 26, Houghton issued a purchase order to acquire goods costing $900. The goods were shipped with terms FOB destination on February 27. Houghton received the goods on March 2.
f. On February 26, Houghton shipped goods to a customer under terms FOB destination. The invoice price was $390; the cost of the items was $240. The receiving report indicates that the goods were received by the customer on March 2.

Required:
For each of the above transactions, specify whether the item in question should be included in ending inventory, and if so, at what amount.

Answer 1

Solution and Explanation:

a) No, it should not be included as the goods were shipped on 26th March and the terms were FOB shipping, it does not matter that customer receives it on 2 March .

b) Yes, as the title of goods passes to houghton on 26th March as the terms were FOB shipping hence (450+30) $480 should be included.

c) Yes, $720 should be included in ending inventory as the goods will be shipped on 10th march .

d) No, as the goods were on consignment .

e) No, as the terms are FOB destination hence totle of goods passes to Houghton on March 2 hence shouls not be included.

f) Yes, as terms include FOB destination so titke passes to customer on March 2 hence is included at cost of $240.