Question

Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on physical count of goods in Dimitri’s plant, at cost, on December 31, 2017) \(1,520,000

Accounts payable at December 31, 2017 1,200,000

Net sales (sales less sales returns) 8,150,000

Additional information is as follows.

1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2017. These tools had a cost of \)31,000 and were billed at \(40,000. The shipment was on Dimitri’s loading dock waiting to be picked up by the common carrier.

2. Goods were in transit from a vendor to Dimitri on December 31, 2017. The invoice cost was \)76,000, and the goods were shipped f.o.b. shipping point on December 29, 2017.

3. Work in process inventory costing \(30,000 was sent to an outside processor for plating on December 30, 2017.

4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2017, were not included in the physical count. On January 8, 2018, the tools costing \)32,000 were inspected and returned to inventory. Credit memos totaling \(47,000 were issued to the customers on the same date.

5. Tools shipped to a customer f.o.b. destination on December 26, 2017, were in transit at December 31, 2017, and had a cost of \)26,000. Upon notification of receipt by the customer on January 2, 2018, Dimitri issued a sales invoice for \(42,000.

6. Goods, with an invoice cost of \)27,000, received from a vendor at 5:00 p.m. on December 31, 2017, were recorded on a receiving report dated January 2, 2018. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2017.

7. Goods received from a vendor on December 26, 2017, were included in the physical count. However, the related \(56,000 vendor invoice was not included in accounts payable at December 31, 2017, because the accounts payable copy of the receiving report was lost.

8. On January 3, 2018, a monthly freight bill in the amount of \)8,000 was received. The bill specifically related to merchandise purchased in December 2017, one-half of which was still in the inventory at December 31, 2017. The freight charges were not included in either the inventory or in accounts payable at December 31, 2017.

Instructions

Using the format shown below, prepare a schedule of adjustments as of December 31, 2017, to the initial amounts per Dimitri’s accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31, 2017, amounts. If the transactions would have no effect on the initial amount shown, enter NONE.

Accounts Net

Inventory Payable Sales

Initial amounts \(1,520,000 \)1,200,000 \(8,150,000

Adjustments—increase

(decrease)

1

2

3

4

5

6

7

8

Total adjustments

Adjusted amounts \) \( \)

Short answer

The total adjusted amount for inventory, accounts payable, and net sales are $1,656,000, $1,340,000, and $8,190,000 respectively.

Step-by-step solution

Analyzing Transaction

1) As the inventories were sold on f.o.b. shipping point, the cost of goods will not be included in the ending inventory and sales will be recognized.

2) Goods have been purchased on f.o.b. shipping point, therefore cost of goods willbe included in the ending inventory.

3) Work in process inventory is a part of the inventory and will be included in the ending inventory.

4) The cost of returned goods will not be included in the ending inventory until inspected and approved.

5) As the sales of goods in transit based on f.o.b. destination has not been included in the ending inventory, the adjustment to inventory will be required until accepted by the customer.

6) The goods have been in possession, the value of goods would be added in the ending inventory.

7) No adjustment will be required as goods are in the possession and the title has been received.

8) Freight charges will be added to the inventory.

Schedule of adjustment

	Inventory	Accounts Payable	Net Sales
Initial Amounts	$1,520,000	$1,200,000	$8,150,000
Adjustments – increase (decrease)
1	($31,000)	None	$40,000
2	$76,000	$76,000	None
3	$30,000	None	None
4	None	None	None
5	$26,000	None	None
6	$27,000	None	None
7	None	$56,000	None
8	$8,000	$8,000	None
Total Adjustments	$136,000	$140,000	$40,000
Adjusted amounts	$1,656,000	$1,340,000	$8,190,000