Final answer:
The correct statement is that Longhorn, the consignor, owns the inventory and should report it on its balance sheet, as possession does not equate to ownership in consignment sales.
Step-by-step explanation:
The correct statement is 2) Longhorn owns the inventory and should report it on its balance sheet.
When a company sells goods on consignment, it means that the goods are offered for sale by one party (the consignor) but the ownership remains with the other party (the consignee) until the goods are sold. In this case, Angus agreed to sell goods for Longhorn on consignment, which means Angus is acting as the consignee.
Since Angus does not take ownership of the goods, Longhorn still owns the inventory and it should report it on its own balance sheet. Angus, as the consignee, only holds the goods and sells them on behalf of Longhorn.
The question pertains to the accounting treatment of goods sold on consignment. In a consignment arrangement, the consignor (Longhorn Company) retains ownership of the goods, even though the goods are in the possession of the consignee (Angus Company). Therefore, the correct statement is: that Longhorn owns the inventory and should report it on its balance sheet. The inventory remains an asset of Longhorn until sold by Angus to a third party. In accordance with Generally Accepted Accounting Principles (GAAP), possession does not equate to ownership in consignment arrangements, and thus, Angus Company would not report the consigned goods as inventory on its balance sheet.