Question

Umatilla Bank and Trust is considering giving Sage Hill Inc. a loan. Before doing so, it decides that further discussions with Sage Hill Inc.'s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $253,760. Discussions with the accountant reveal the following.

1. Sage Hill Inc. sold goods costing $55,290 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock until January 12. The goods
were not included in the physical inventory because they were not in the warehouse.
2. The physical count of the inventory did not include goods costing $96,030 that were shipped to Sage Hill Inc. FOB destination on December 27 and were still in transit at year-
end.
3. Sage Hill Inc. received goods costing $26,180 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count.
4. Sage Hill Inc. sold goods costing $47,850 to Ehler of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Sage Hill Inc. physical inventory.
5. Sage Hill Inc. received goods costing $38,560 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive
December 31. This purchase was included in the ending inventory of $253,760.
Determine the correct inventory amount on December 31.
The correct inventory amount on December 31

Answer 1

The correct inventory amount on December 31 can be determined by adjusting the year-end balance of the Inventory account based on the given transactions.

Step-by-step explanation:

The correct inventory amount on December 31 can be determined by adjusting the year-end balance of the Inventory account based on the information provided. Let's break down each transaction:

1. The goods sold to Hemlock Company on December 28, but not expected to reach Hemlock until January 12, should be deducted from the year-end balance of Inventory as they were not in the warehouse.
2. The goods shipped to Sage Hill Inc. on December 27 and still in transit at year-end should be included in the year-end balance of Inventory as they were purchased but not yet received.
3. The goods received from Yanice Co. on January 2 should be added to the year-end balance of Inventory as they were purchased before year-end but not included in the physical count.
4. The goods sold to Ehler of Canada on December 30 should be deducted from the year-end balance of Inventory as they were sold but not included in the physical inventory.
5. The rush order that arrived on January 2 should be deducted from the year-end balance of Inventory as it was not included in the physical inventory.

To calculate the correct inventory amount on December 31, start with the year-end balance of $253,760 and make the necessary adjustments based on the transactions above.