Question

Blossom Company took a physical inventory on December 31 and determined that goods costing $250,000 were on hand. Not included in the physical count were $24,800 of goods purchased from Pelzer Corporation, FOB shipping point, and $22,600 of goods sold to Alvarez Company for $31,200, FOB destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Blossom report as its December 31 inventory? Inventory, December 31 $enter a dollar amount of inventory on December 3.

Answer 1

Blossom Company should include both the goods purchased from Pelzer Corporation under FOB shipping point terms and the goods sold to Alvarez Company under FOB destination terms in their year-end inventory, totaling $297,400.

Step-by-step explanation:

To calculate the correct inventory amount for Blossom Company as of December 31, we need to consider the goods in transit under two different terms: FOB shipping point and FOB destination. The terms determine who owns the goods in transit at a given point in time.

In the case of the goods purchased from Pelzer Corporation for $24,800, since the terms are FOB shipping point, ownership transfers to the buyer as soon as the goods leave the seller's warehouse. Therefore, these goods should be included in Blossom Company's inventory.

Conversely, the goods sold to Alvarez Company for $31,200 that cost Blossom $22,600, under terms FOB destination, remain the property of Blossom Company until they are received by the buyer. Thus, these goods should also be included in Blossom Company's year-end inventory. When we add both the value of goods purchased from Pelzer Corporation and the cost of goods sold to Alvarez Company to the physical inventory, we get:

• Physical Inventory: $250,000
• + Goods from Pelzer Corporation: $24,800
• + Goods sold to Alvarez Company: $22,600
• Total Inventory: $297,400

Hence, on December 31, Blossom Company should report inventory valued at $297,400.