Question

Metlock Company's inventory of $1,142,500 at December 31, 2020, was based on a physical count of goods priced at cost and before any year-end adjustments relating to the following items.

(a) Goods shipped from a vendor f.o.b. shipping point on December 24, 2020, at an invoice cost of $62,140 to Metlock Company were received on January 4, 2021. The physical count included $29,250 of goods billed to Sakic Corp. f.o.b. shipping point on December 31, 2020. The carrier picked up these goods on January 3, 2021.
(b) What amount should Metlock report as inventory on its balance sheet?

Answer 1

Metlock Company should report $1,175,390 as inventory on its balance sheet after making adjustments.

Step-by-step explanation:

To determine the amount that Metlock Company should report as inventory on its balance sheet, we need to make adjustments for goods that were shipped and received after the physical count.

For item (a), since the goods were shipped f.o.b. shipping point on December 24, 2020, they belong to Metlock Company and should be included in the inventory. Therefore, we need to add the cost of these goods ($62,140) to the inventory.

For item (b), the goods were billed to Sakic Corp on December 31, 2020, but the carrier picked them up on January 3, 2021. Since the goods were not in Metlock Company's physical possession at the time of the count, they should not be included in the inventory. Therefore, we need to subtract the cost of these goods ($29,250) from the inventory.

After making these adjustments, the amount that Metlock Company should report as inventory on its balance sheet is the initial inventory of $1,142,500 plus the cost of goods shipped on December 24, 2020 ($62,140), minus the cost of goods billed to Sakic Corp on December 31, 2020 ($29,250), which equals to $1,175,390.