E7-5

(Goods in transit as of the end ofthe accounting period)

Dallas Manufacturing engaged in five transactions involving inventory at the end of 1997:

1* Ordered $50,000 of inventory on December 29, 1997. The goods were shipped on December 30, 1997, with the terms FOB shipping point. Dallas received the inventory on January 4, 1998.

2, Received an order to sell inventory with a cost of $40,000. The goods were shipped to the customer on December 31, 1997, and received on January 3, 1998. The terms of the sale were FOB shipping point.

3, Received an order to sell inventory with a cost of $15,000. The goods were shipped to the customer on December 29, 1997, and received on January 2, 1998. The terms of the sale were FOB destination.

4^ Ordered $10,000 of inventory on December 27, 1997. The inventory was shipped on December 27, 1997, with the terms FOB destination. Dallas received the inventory on December 31, 1997.

5, Ordered $75,000 of inventory on December 30, 1997. The inventory was shipped on December 31, 1997, with the terms FOB destination. Dallas received the inventory on January 3, 1998.

-REQUIRED:

Assume that Dallas included in inventory (12/31/97) all items from the five cases above.

Explain how the resulting financial statements would be misstated.

344 Part 3 Assets: A Closer Look