Analyzing Items to be included in inventory L07-1

E7-1 Analyzing Items to Be Included in Inventory LO7-1 Based on its physical count of inventory in its warehouse at year-end, December 31 of the current year, Madison Company planned to report inventory of $33,500. During the audit, the independent CPA developed the following additional a. Goods from a supplier costing $690 are in transit with UPS on December 31 of the current year. The terms are FOB shipping paint (explained in the "Required' section). Because these goods had not yet arrived, they were excluded b. Madison delivered samples costing $1,760 to a customer on December 27 of the current year, with the understanding that they would be returned to Madison on January 15 of the next year. Because these goods were not on hand, c. On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $5,800 (expected delivery date January 10 of the next year). Because the goods had been shipped, they were excluded d. On December 31 of the current year, goods in transit to customers, with terms FOB destination, amounted to $1,900 (expected delivery date January 10 of the next year). Because the goods had been shipped, they were excluded from from the physical nventory count they were excluded from the inventory count from the physical inventory count. the physical inventory count. Required: Madison's accounting policy requires including in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the salcs contract. When goods are shipped "FOB shipping point, tite changes hands at shipment and the buyer normally pays for shipping. When they are shipped "FOB destination," title changes hands on delivery, and the seller nomally pays for shipping. Begin with the S33,500 inventory amount and compute the correct amount for the encing inventory. ("If no adjustment is necessary, enter a $0 in the cell.") Itern Ending inventory (physical count on December 31 of the cument year)33,500 a. Goods purchased and in transit b. Sariples out on trial to custorner c. Gaads in transit to customer d. Goods sold and in transit Correct inventory, Dccembor 31, current year