Question

Skysong, Inc. took a physical inventory on December 31 and determined that goods costing $235,000 were on hand. Not included in the physical count were $27,800 of goods purchased from Pelzer Corporation, FOB shipping point, and $21,800 of goods sold to Alvarez Company for $30,000, FOB destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Skysong report as its December 31 inventory?

Answer 1

Answer: Skysong should report $284,600 as it's December 31 inventory.

Firstly, FOB is a term meaning free on board and can be defined as without charge to the purchaser for delivery on board a carrier (originally a ship), at a specified location or point. It is often used in such phrases as FOB destination to specify the point where the title of goods passes from the seller to the buyer.

Skysong should report $284,600 because that's the total sum of the actual inventory. Summation of $235,000 goods at hand, $27,800 of goods purchased from Pelzer Corporation, and $21,800 of goods sold to Alvarez Company gives $284,000.