Question

Sheridan Company took a physical inventory on December 31 and determined that goods costing $225,000 were on hand. Not included in the physical count were $24,200 of goods purchased from Pelzer Corporation, FOB shipping point, and $21,200 of goods sold to Alvarez Company for $29,200, FOB destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end.

Answer 1

Answer:

$270,400

Explanation:

FOB shipping point: (transfer of risk and reward takes place when the goods are shipped for transfer.

The purchased inventory that was not included are under FOB shipping point, which means that the risks and rewards associated with the inventory has been transferred at the year end. Hence the ownership has been shifted. This means the purchase must be included in the inventory.

FOB destination: The transfer of ownership takes place once the other party receives the order.

As the sold inventory are under FOB destination, which means that the risks and rewards assoiciated with the inventory are not yet transferred. Hence the ownership has not been shifted. This means the sold inventory must be included in the inventory.

Calculation:

Goods on Hand                                             $225,000

Goods Purchased FOB Shipping Point         $24,200

Goods Sold on FOB Destination                  $21,200  

Goods on Hand on December 31                 $270,400