Question

The Phoenix Corporation's fiscal year ends on December 31. Phoenix determines inventory quantity by a physical count of inventory on hand at the close of business on December 31. The company's controller has asked for your help in deciding if the following items should be included in the year-end inventory count.

1. Merchandise held on consignment for Trout Creek Clothing.
2. Goods shipped f.o.b. destination on December 28 that arrived at the customer's location on January 4.
3. Goods purchased from a vendor shipped f.o.b. shipping point on December 26 that arrived on January 3.
4. Goods shipped f.o.b. shipping point on December 28 that arrived at the customer's location on January 5.
5. Phoenix had merchandise on consignment at Lisa's Markets, Inc.
6. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 3.
7. Goods sold to a customer sitting on the loading dock on December 31 waiting to be picked up by the customer.
8. Freight charges on goods purchased in 3.

Required:
Determine if each of the items above should be included or excluded from the company's year-end inventory.

Answer 1

Explanation:

1. Merchandise held on consignment would be included in Phoenix's ending inventory as Phoenix is the consignor or supplier and Trout creek clothing is the consignee.

2. FOB destination goods are included in Phoenix's ending inventory as till the point goods reaches destination, it will be considered as part of the seller's inventory and would be transferred to buyer's inventory after goods reach destination.

3. In case of FOB shipping point, goods are included in buyer's inventory the day goods are shipped irrespective when it reaches the buyer. Here, Phoenix is the buyer so goods will be included in its ending inventory.

4. This would not be part of Phoenix's ending inventory as goods are shipped FOB shipping on December 28. So, this would be included in buyer's inventory.

5. In this case, Phoenix is the consignee and Lisa's market is consignor. So, merchandise on consignment would not be included in Phoenix's inventory.

6. Here, goods would not be included in Phoenix's ending inventory as terms are FOB destination and Phoenix is the buyer. Since, goods will arrive at the destination only On january 3, it will not be included.

7. Goods sold to a customer sitting on loading truck that has not yet been picked up by customer will not be included in Phoenix's inventory. It would be considered as customer's inventory.

8. Freight charges on goods bought are included in inventory cost of the buyer.