Question

The Constance Corporation’s inventory at December 31, 2021, was $133,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following: Merchandise costing $23,000, shipped f.o.b. shipping point from a vendor on December 27, 2021, was received by Constance on January 5, 2022.
Merchandise costing $53,000 was shipped to a customer f.o.b. shipping point on December 28, 2021, arrived at the customer’s location on January 6, 2022. Merchandise costing $29,000 was being held on hand for Jess Company on consignment. Estimated sales returns are 15% of annual sales. Sales revenue was $566,000 with a gross profit ratio of 20%.

Required:
What amount should Constance Corporation report as inventory in its December 31, 2021, balance sheet?

Answer 1

Answer:

The amount should Constance Corporation report as inventory in its December 31, 2021, balance sheet is $194,920

Explanation:

Cost of sales return to be included in inventory

= [$566,000 × 15 % × (100 % - 20 %)]

= $67,920

Corporation report as inventory in its December 31, 2021 :

Inventory based on physical count                                                   $133,000

Add : Merchandise purchased shipped f.o.b                              $23,000

Less : Goods held on hand for Jess Company on consignment.   ($29,000)

Add : Cost of sales return                                                              $67,920

Corporation report as inventory in its December 31, 2021              $194,920