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

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. 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

Merchandise on consignment, f.o.b. destination goods not yet arrived, and f.o.b. destination freight charges should be included in inventory. F.o.b. shipping point goods shipped before year-end and merchandise on consignment away from Phoenix should be excluded.

Step-by-step explanation:

The question involves determining which items should be included in Phoenix Corporation's year-end inventory count.

Excluded: Merchandise held on consignment for another company is not owned by Phoenix and should not be included.

Excluded: Goods shipped f.o.b. destination that have not yet reached the customer are still part of Phoenix's inventory until they arrive at the customer's location.

Included: Goods shipped f.o.b. shipping point are considered part of the buyers’ inventory once shipped, so they should be included in Phoenix's inventory.

Excluded: Goods shipped f.o.b. shipping point that have left Phoenix's premises before the year-end should not be included in the inventory count.

Excluded: Goods on consignment elsewhere are still owned by Phoenix and should not be included in its inventory count.

Included: Goods shipped f.o.b. destination are still part of the seller’s inventory until they arrive at buyers’ location, so they should be included.

Related: Freight charges on purchased goods relate to the costing of the inventory, but are not part of the physical inventory quantity.

In summary, items that are on consignment with Phoenix, or have been shipped but not yet delivered under f.o.b destination terms, should be included in Phoenix's inventory. However, items on consignment elsewhere and items that have left Phoenix's premises under f.o.b. shipping point terms before December 31 should be excluded.

Answer 2

1. Merchandise held on consignment for Trout Creek Clothing.

• Excluded from the company's year-end inventory because they belong to another company.

2. Goods shipped f.o.b. destination on December 28 that arrived at the customer's location on January 4.

• Included in the company's year-end inventory because FOB destination shipments transfer ownership only after they are delivered, not while on transit.

3. Goods purchased from a vendor shipped f.o.b. shipping point on December 26 that arrived on January 3.

• Included in the company's year-end inventory because FOB shipping point shipments transfer ownership after they leave the seller's facilities.

4. Goods shipped f.o.b. shipping point on December 28 that arrived at the customer's location on January 5.

• Excluded from the company's year-end inventory because FOB shipping point shipments transfer ownership after they leave the seller's facilities, so they belong to the buyer now.

5. Phoenix had merchandise on consignment at Lisa's Markets, Inc.

• Included in the company's year-end inventory because merchandise on consignment belong to the company, not to Lisa' Market.

6. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 3.

• Excluded from the company's year-end inventory because FOB destination shipments transfer ownership only after they have been delivered, not while in transit.

7. Freight charges on goods purchased in 3.

• Included in the company's year-end inventory because freight costs under FOB shipping point are paid by the buyer.