Question

Tamarisk, Inc. just took its physical inventory on December 31. The count of inventory items on hand at the companyâs business locations resulted in a total inventory cost of $289,000. In reviewing the details of the count and related inventory transactions, you have discovered the following items that had not been considered.
1. Tamarisk, Inc. has sent inventory costing $28,570 on consignment to Richfield Company. All of this inventory was at Richfield's showrooms on December 31
2. The company did not include in the count inventory(cost, $20,180) that was sold on December 28, terms FOB shipping point. The goods were in transit on December 31
3. The company did not include in the count inventory (cost, $13,190) that was purchased with terms of FOB shipping point. The goods were in transit on December 31.

Compute the correct December 31 inventory.

Answer 1

Answer:

Closing inventory = $289,000 + $13,190 = 302,190

Explanation:

Tamarisk inc.

In closing an inventory count consideration should be given to goods in transit. The agreements reached between buyer and seller will help in determining who is responsibility for the stock at each point in time.

An FOB (free on board) agreement means the seller of the goods is responsible for shipping the goods up to the port of destination and thereafter ownership, which includes risks and rewards for the goods is transferred to the buyer.

CIF (cost, insurance and freight). This implies the selling price of the seller already includes the cost of the product, the insurance and the freight getting it to the warehouse of the Buyer. In this instance, the ownership remains that of the seller until the products arrive the warehouse of the buyer

A. Richfield already has taken possession and even displayed it in his showroom as at Dec 31.

Action: do not add this to the closing inventory count

B. It is OK not to include the $20,180 goods in transit to the buyer as at DEC 31, because they were conditioned on an FOB agreement.

Action: do not add this to the closing inventory count

C. With a purchase consideration of FOB worth $13,190 still in transit as at Dec 31. The company needs to consider this as the risk and reward already transferred to it as agreed in the FOB terms

Action: add this to the closing inventory count

Answer 2

Answer:

The correct December 31 inventory is  $337,750

Explanation:

The task ahead of us is to compute the closing inventory considering the additional information:

The inventory consigned to Richfield company,belong to Tamarisk Inc, until the their eventual sale,hence should be included in the closing inventory.

Goods sold FOB shipping point are owned by the seller until delivered to buyer, as a result,should be added to inventory.

The goods purchased FOB shipping point are still being owned by the seller,Tamarisk cannot include  it in inventory yet since they are yet to be received.

The computation of closing inventory is shown below:

Total inventory cost              $289,000

Goods consigned                   $28,570

Good sold FOB                       $20,180

adjusted closing inventory  $ 337,750