Question

Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $85,000 and Cost of Goods Sold of $450,000. a) Included in Inventory (and Accounts Payable) are $13,000 of lenses SLC is holding on consignment. b) Included in SLC’s Inventory balance are $6,500 of office supplies held in SLC’s warehouse. c) Excluded from SLC’s Inventory balance are $9,500 of lenses in the warehouse, ready to send to customers on January 2. SLC reported these lenses as sold on December 31, at a price of $18,000. d) Included in SLC’s Inventory balance are $3,750 of lenses that were damaged in December and will be scrapped in January, with zero realizable value.Required:Prepare the table showing the balances presently reported for Inventory and Cost of Goods Sold, and then displaying the adjustment(s) needed to correctly account for each of items (a)-(d), and finally determining the appropriate Inventory and Cost of Goods Sold balances.

Answer 1

Answer and Explanation:

The Preparation of the table that shows the balances from a to d points is shown below:-

Particulars                     Inventory                   Cost of goods sold

For the year ended Reported

on December 31           $85,000                             $450,000

a. Less: Lenses held on

consignment               ($13,000)

b. Less: Office supplies ($6,500)

c. Add: Lenses in the

warehouse                   $9,500                                        ($9,500)

d. Less: Inventory which is damaged with

no scrap value              ($3,750)

Balance                           $71,250                                      $440,500

Therefore to reach the balance of inventory we simply added the reported ended on Dec 31 and lenses which is in warehouse and deduct the lenses held on consignment, office supplies and inventory which is damaged with no scrap value on the other hand to reach the cost of good sold we simply deduct the lenses in the warehouse from the year ended which is reported on Dec 31.

Also the explanation from a to d is shown below:-

a. Goods kept on consignment shall form part of the inventory of consignors until such time as they are sold. And when recording it should be removed from the inventory of consignees.

b. Office supplies are not part of an inventory firm

c. Sold items that are in the seller's hands and yet to be supplied (risk is still with the seller) are exempt from revenue and included in the inventory of companies.

d. Damaged, non-returnable items should be eliminated from inventory and reported as loss.