Question

At December 31, 2014 Mohling Company's inventory records indicated a balance of $602,000. Upon further investigation it was determined that this amount included the following:• $112,000 in inventory purchases made by Mohling shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd• $74,000 in goods sold by Mohling with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6• $6,000 of goods received on consignment from Dollywood CompanyWhat is Mohling's correct ending inventory balance at December 31, 2014?

Answer 1

Answer:

$484,000

Explanation:

The purchase of $112,000 must be deducted from the balance of $602,000 because it is still not yours. "FOB destination" means 'Free On Board Buyer" and Mohlig is the buyer. Mohlig will only own the inventory upon arrival on January 2nd. (Remember that the problem is talking as of December 31)

The sale of $74,000 needs no adjustment since you are the seller (see above explanation) and it is correct to still include that amount in the balance of $602,000.

Lastly, the consignment of $6,000 from Dollywood must be deducted since it is not the ownership of Mohlig. It is like Dollywood is just renting a shelfspace from Mohlig but Mohlig does not own the inventory.

Calculation: 602,000 - 112,000 - 6,000 = $484,000 correct ending inventory balance.