Question

Stallman Company took a physical inventory on December 31 and determined that goods costing $275,260 were on hand. Not included in the physical count were $31,540 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and $28,940 of goods sold to Alvarez Company for $39,800, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Stallman report as its December 31 inventory?

Answer 1

The correct inventory amount for Stallman Company to report on December 31 is $306,800, which includes the physical inventory on hand worth $275,260 and the goods in transit from Pelzer Corporation worth $31,540.

Step-by-step explanation:

When determining the inventory to report on a balance sheet, it's important to include all goods owned by the company, whether they are on hand or in transit. For Stallman Company, the physical inventory counted goods that cost $275,260 on hand. Since the $31,540 worth of goods purchased from Pelzer Corporation were bought f.o.b. shipping point, this means that Stallman owned these goods during transit and they must be included in the inventory. However, the goods sold to Alvarez Company for $39,800, costing Stallman $28,940 and shipped f.o.b. destination, are not included in Stallman's inventory because ownership passes to the buyer only upon delivery. Therefore, the amount to be reported as December 31 inventory is the sum of goods on hand and goods in transit from Pelzer, totaling $306,800 ($275,260 + $31,540).