Question

Determining the Correct Inventory Balance [LO 7-1, LO 7-2, LO 7-4] Seemore Lens Company (SLC) sells contact lenses FOB destination. For the year ended December 31, the company reported Inventory of $84,000 and Cost of Goods Sold of $448,000.

a. Included in Inventory (and Accounts Payable) are $12,800 of lenses held on consignment
b. Included in the Inventory balance are $6,400 of office supplies held in SLC's warehouse.
c. Excluded from the Inventory balance are $9,400 of lenses in the warehouse, ready to send to customers on January 1. SLC reported these lenses as sold on December 31, at a price of $17,800.
d. Included in the Inventory balance are $3,700 of lenses that were damaged in December and will be scrapped in January, with no recoverable value.

Answer 1

To determine the correct inventory balance, adjustments must be made to remove items not held in the ownership of the company (consignment inventory), non-sellable items (office supplies), goods yet to be shipped (based on FOB destination), and valueless items (damaged lenses). After these adjustments, the revised inventory balance should be $70,500.

Step-by-step explanation:

The student's question pertains to the determination of the correct inventory balance for Seemore Lens Company (SLC) at the year's end. Based on the information provided:

• Consignment inventory ($12,800), which is not owned by SLC, should be removed from Inventory and Accounts Payable.
• Office supplies ($6,400), which do not constitute inventory for sale, should be reclassified and not included in Inventory.
• Lenses excluded from Inventory but recorded as sold ($9,400), should be included in Inventory until they are shipped to the customer due to the FOB destination terms.
• Damaged lenses ($3,700) with no recoverable value should be written off and not included in Inventory.

Therefore, the correct Inventory balance would be calculated as follows:

Initial Inventory Balance: $84,000

Less: Consignment Inventory: $12,800

Less: Office Supplies: $6,400

Add: Lenses Excluded (recorded as sold but not yet shipped): $9,400

Less: Damaged Lenses: $3,700

Adjusted Inventory Balance: $70,500