Question

A physical inventory count of MegaCorp has a $50,000 balance before considering the following:

Consigned goods sent to and held by Madison Company: $10,000
Inventory in transit sold FOB destination: $7,500
Inventory in transit purchased FOB destination: $2,500
At what amount should inventory be reported on the balance sheet?

Answer 1

The answer is $67,500

Step-by-step explanation:

The term free on board(FOB) implies that the goods remain the asset of the seller until the goods arrive at the buyer's receiving point,hence the inventory in transit purchased FOB destination of $2,500,does not belong to MegaCorp unitl it reaches MegaCorp's destination.

Consigined goods are goods in business's possession but not owned by the firm because it has been mandated by the owner to hold and sell them.As a result,the consigned goods with Madison company still belong to MegaCorp an should be added to its inventory.

Finally, the goods sold FOB($7,500) are goods belonging to MegaCorp until the buyer receives them,in other words it is part of the closing inventory:

Physical inventory count $50,000

Consigned goods $10,000

Inventory sold FOB $7,500

closing inventory $67,500

Answer 2

The amount of inventory reported on balance sheet is $62,500

Step-by-step explanation:

In this question, we are asked to calculate the value at which inventory will be reported on the balance sheet.

To do this, we can employ a mathematical approach.

Mathematically;

Amount of inventory reported in Balance sheet = physical inventory + goods sent on consigned + inventory purchased on fob destination

From the question, we can identify the following;

Physical inventory = $50,000

Goods sent on consigned = $10,000

Inventory purchased on fob destination = $2,500

The amount of inventory reported in balance sheet = 50,000 + 10,000 + 2,500 = $62,500