Question

On December 31 of the current year, Hewett Company reported an ending inventory balance of 215,000. The following additional information is also available: Hewett sold goods costing 38,000 to Trump Enterprises on December 28 and shipped the goods on that date with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of 215,000 because they were not in Hewett's warehouse. Hewett purchased goods costing 44,000 on December 29. The goods were shipped FOB destination and were received by Hewett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of 215,000. Hewett's ending inventory balance of 215,000 included 15,000 of goods being held on consignment from Rumsfeld Company. (Hewett Company is the consignee.) Hewett's ending inventory balance of 215,000 did not include goods costing 95,000 that were shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the correct balance for ending inventory on December 31 is:

1) 200,000
2) 209,000
3) 171,000
4) 194,000
5) 156,000

Answer 1

To find Hewett Company's corrected ending inventory balance, adjustments must be made for the FOB transactions and consigned goods. After these adjustments, the ending inventory should be 213,000, which doesn't match the provided options. The discrepancy suggests potential errors in the options or the question itself.

Step-by-step explanation:

The student is asking to determine the correct ending inventory balance for Hewett Company as of December 31. To calculate this, we need to adjust the reported inventory balance by reviewing the transactions around the year-end and applying inventory recognition rules. The terms FOB shipping point and FOB destination play critical roles in this determination.

• The goods sold to Trump Enterprises (costing 38,000) that were shipped FOB shipping point should not be included in the ending inventory as the title passes to the buyer once the goods are shipped.
• The purchased goods costing 44,000 shipped FOB destination and received after year-end should not be included as they were not on hand at year-end.
• The 15,000 of goods on consignment from Rumsfeld Company should be removed from the inventory because consigned goods remain the property of the consignor until sold.
• The goods costing 95,000 that were in transit under FOB destination terms should be included in the inventory because the title passes to the buyer when the goods arrive.

Therefore, we make the following adjustments:

• Starting balance: 215,000
• Less goods sold to Trump Enterprises: -38,000
• Less inclusion of goods not yet received: -44,000
• Less consignment goods: -15,000
• Add goods in transit (FOB destination): +95,000

After these adjustments, the corrected ending inventory balance is:

215,000 - 38,000 - 44,000 - 15,000 + 95,000 = 213,000