Question

You were asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. When you arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, "We are not going to include the contents in the inventory." Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January. Does your client have a liability that should be recorded at December 31? Discuss. For what possible reason(s) might your client wish to postpone recording the transaction?

Answer 1

1. Yes he has a liability that should be.

Step-by-step explanation:

Ownership would be shifted to buyer as soon as product has been shipped.

From question we saw that the car load has been shipped from Albuquerque in December 24, so ownership has been moved to Milwaukee branch.

1. So yes my client has a liability which should be recorded on that date. The date is December 31st and the amount is $36800

2. My client client may want to postpone the recording based on these reasons

a. Based on wanting to keep current ratio at a particular level. The value of additional recovery and account payable would then affect it

b. So as to show decreased amount of account payable

c. So as to show reduced net profit.