Question

Whispering Winds Corp. took a physical inventory on December 31 and determined that goods costing $213,000 were on hand. Not included in the physical count were $35,000 of goods purchased from Coronado Industries, FOB, shipping point, and $26,500 of goods sold to Sunland Company for $31,000, FOB destination. Both the Coronado purchase and the Sunland sale were in transit at year-end.

Required:
1. What amount should Whispering Winds report as its December 31 inventory?

Answer 1

Whispering Winds Corp. should report an inventory value of $274,500 on December 31, which includes the initial inventory of $213,000, plus $35,000 for goods purchased FOB shipping point, and $26,500 for goods sold FOB destination that are still in transit.

Step-by-step explanation:

To determine the correct inventory valuation for Whispering Winds Corp. as of December 31, we must consider the terms of shipment for the items in transit. The cost of the inventory physically present is $213,000. Additionally, we have two transactions in transit to consider:

• The purchase from Coronado Industries for $35,000 is shipped FOB shipping point, which means ownership of the goods transfers to Whispering Winds once the goods leave the supplier's warehouse. Therefore, these goods should be included in Whispering Winds' inventory.
• The sale to Sunland Company for $31,000 is shipped FOB destination, which means ownership of the goods remains with Whispering Winds until they are received by Sunland. As such, these goods should also be included in Whispering Winds' inventory until they reach their destination.

Thus, the correct value of inventory to report on December 31 is:

$213,000 (initial inventory) + $35,000 (Coronado purchase) + $26,500 (goods in transit to Sunland) = $274,500.

This adjusted inventory value accounts for all goods that Whispering Winds Corp. owns as of December 31, whether on-hand or in transit.