Final answer:
The correct option with the inventory valued at $24,000 and the revenue at $3,800 assumes that the consigned rugs are not yet sold and thus remain as inventory, with revenue contingent on actual sales after deducting shipping costs and sales commissions.
The correct answer is A
Step-by-step explanation:
The scenario provided is about the Oriental rug company which ships six handmade rugs valued at $5000 each. The company pays $1000 in shipping costs and agrees to pay a 10 percent commission on any rugs that are sold. The question involves finding the correct inventory value and revenue recognition based on these details.
Given that not all rugs may be sold and some may be returned, the inventory cannot be directly set to $0 without knowing the actual sales. However, since no sales or returns information is provided, it's not possible to calculate actual revenue or change in inventory.
We must therefore make assumptions based on the details provided to select the correct answer. Usually, goods sent on consignment remain in the inventory of the consignor (Oriental rug company) until they are sold, and revenue is realized at the point of sale minus any costs such as commissions or shipping.
Based on these principles, the correct answer would be Option A, where the inventory is valued at $24,000, reflecting the consignment value of unsold rugs (6 rugs × $4000 cost per rug, accounting for the shipping costs), and the revenue is $3,800, considering the sales of rugs are not yet confirmed.
The correct answer is A