Question

Monty Ltd. took a physical inventory count on December 31 and determined that goods costing $2,100 were on hand. This amount included $810 of goods held on consignment for Woods Corporation. Not included in the physical count were $750 of goods purchased from Timmons Corporation, f.o.b. shipping point, and $200 of goods sold to Myers Ltd. for $330, f.o.b. destination. Both the Timmons purchase and the Myers sale were in transit at year end. What amount should Monty report as its December 31 inventory?

Answer 1

Monty Ltd. should report a December 31 inventory of $1,140, after excluding consigned goods and including goods purchased that are in transit but excluding the sale of goods in transit to Myers Ltd.

Step-by-step explanation:

Monty Ltd. should report an inventory amount of $1,140 as of December 31. This is calculated by adjusting the physical inventory count to exclude goods held on consignment and to include goods in transit that are owned by Monty Ltd.

To begin, the physical inventory of $2,100 needs to be adjusted by deducting the goods held on consignment since these goods are owned by Woods Corporation and should not be included in Monty Ltd.'s inventory. Therefore, $2,100 - $810 = $1,290. Next, we add the cost of goods purchased from Timmons Corporation since they were purchased f.o.b. shipping point, which means ownership of the goods transfers to the buyer as soon as they are shipped: $1,290 + $750 = $2,040.

Lastly, we do not include the goods sold to Myers Ltd. in the inventory count because they were sold f.o.b. destination, meaning ownership transfers to the buyer only when the goods are received, and so they remain in Monty Ltd.'s inventory until delivered: $2,040 (no adjustment necessary). Hence, the correct inventory amount is $1,290 + $750 = $2,040.