Question

Q 6.26: Howard Incorporated is determining ending inventory. In the inventory process, Howard inadvertently miscategorized a $6,000 shipment of FOB destination goods in transit from a supplier as FOB shipping point. How will this miscategorization impact Howard’s total inventory?

Answer 1

This error will decrease Howard's inventory by $6,000

Step-by-step explanation:

Howard's inventory should include:

inventory on hand + goods purchased FOB shipping point + goods sold FOB destination point.

FOB shipping point means that the title of the goods is passed at the moment that they leave the seller's warehouse. FOB destination point means that the title of the goods is passed only after they have been delivered to the buyer's warehouse.

In this case, Howard purchased goods as FOB shipping point, so that means they should have been included in their inventory. Since they weren't, this error will decrease its inventory by $6,000.