Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

AP 7 - 1 ( Algo ) Analyzing Items to Be Included in Inventory LO 7 - 1 Sabre Company has just completed a physical

AP7-1(Algo) Analyzing Items to Be Included in Inventory LO7-1
Sabre Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $104,000. During the audit, the independent CPA developed the following additional information:
Goods costing $430 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year.
On December 28 of the current year, a customer purchased goods for cash amounting to $3,800 and left them for pickup on January 3 of next year. Sabre Company had paid $2,700 for the goods and, because they were on hand, included the latter amount in the physical inventory count.
Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the Required section), cost $2,200. Because these goods had not yet arrived, they were excluded from the physical inventory count.
On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $3,000(expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical inventory count.
On December 31 of the current year, the company shipped $730 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical inventory count.
On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $5,000 had been delivered to the transportation company on December 27 of the current year; the terms were FOB shipping point. Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical inventory count.
One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Sabre Company to continue carrying the item, the manufacturer-supplier provided the item on a consignment basis. This means that the manufacturer-supplier retains ownership of the item, and Sabre Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Sabre Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Sabre Company had five of these items on hand; therefore, they were included in the physical inventory count at $880 each.
Required:
Assume that Sabres 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 sales contract. When goods are shipped FOB shipping point, title 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 normally pays for shipping. Begin with the $104,000 inventory amount and compute the correct amount for the ending inventory.
Note: Deductible amounts should be entered with a minus sign.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting And Auditing Research Tools And Strategies

Authors: Thomas Weirich, Thomas C. Pearson, Alan Reinstein

6th Edition

032430224X, 9780324302240

More Books

Students also viewed these Accounting questions