Chapter 7 Homework eBook Calculator Valuation of Inventory The inventory on hand at the end of 2016 for Reddall Company is valued at a cost of $94,000. The following items were not included in this inventory 1. Purchased goods in transit, under terms FOB shipping point, invoice price $4,000, freight costs $250. 2. Goods out on consignment to Mariman Company, sales price S5,600, shipping costs of $300. 3. Goods sold to Grina Co. under terms FOB destination, invoiced for $1,900 which included $178 freight charges to deliver the goods. Goods are in transit. 4. Goods held on consignment by Reddall at a sales price of $2,700 which included sales commission of 20% of sales price. 5. Purchased goods in transit, shipped FOB destination, invoice price $2,100 which included freight charges of $190 Required: Determine the cost of the ending inventory that Reddall should report on its December 31, 2016, balance sheet, assuming that its selling price is 140% of the cost of the inventory. 106,050 X Foedback Check My Work The basic criterion for including items in inventory is economic control rather than physical possession or legal ownership. In simple situations, all three transfer at the same time. Therefore, in many situations, physical transfer will determine when the seller records the sale and the buyer records the purchase of inventory in their accounting systems. However, because there may be differences in more complex situations, the economic substance of the transaction should always take precedence over its legal form to determine whether the buyer or the seller has economic control. When goods are in transit at the end of the accounting period, the shipping terms determine whether the seller or the buyer includes them in its inventory. If the goods are shipped FOB (free-on-board) shipping point, control of (and legal title to) the goods is transferred at the shipping point when the seller delivers them to the buyer, or to a transportation company that is acting as an agent for the buyer. Because the buyer has economic control at the shipping point, it will record a purchase of inventory and indude those goods in its inventory. At the same time, the seller will record a sale and remove the goods from its inventory. If goods are shipped FOB destination, control of (and legal title to) the goods is not transferred until the goods are delivered to the buyer's destination. Because the seller has economic control until the goods are delivered, it does not record a sale and includes those goods in its inventory until the goods reach the buyer's destination. Similarly, the buyer will not record a purchase, or an increase in inventory, until the goods are delivered to the buyer's destination. Check My Work Next asignment Score: 75.67% Email Instructor Save and Exit Submit Assignment for Grading
