Question

Question:In your audit of Jose Oliva Company, you find that a physical inventory on December 31, 2017, showed merchandise with a cost of \(441,000 was on hand at that date. You also discover the followingitems were all excluded from the \)441,000.

1. Merchandise of \(61,000 which is held by Oliva on consignment. The consignor is the Max Suzuki Company.

2. Merchandise costing \)38,000 which was shipped by Oliva f.o.b. destination to a customer on December 31, 2017. The customerwas expected to receive the merchandise on January 6, 2018.

3. Merchandise costing \(46,000 which was shipped by Oliva f.o.b. shipping point to a customer on December 29, 2017. Thecustomer was scheduled to receive the merchandise on January 2, 2018.

4. Merchandise costing \)83,000 shipped by a vendor f.o.b. destination on December 30, 2017, and received by Oliva on January4, 2018.

5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December 31, 2017, and received by Oliva onJanuary 5, 2018.

Instructions

Based on the above information, calculate the amount that should appear on Oliva’s balance sheet at December 31, 2017, for inventory.

Short answer

The inventory valuing $530,000 would be reported on the balance sheet on Dec 31, 2017.

Step-by-step solution

Step-by-step-solutionStep1: Recognition of inventory

Inventories are recognized in the books of accounts only when the title or ownership remains with the business. Or in some cases, the power to control the inventor vest with the company. The business should be able to bear the r loss or reward for the inventory.

Items to be recognized as inventory

From the given items, only the following would be recognized as inventory on Dec 31. -

Item 2 – For this itemcosting $38,000, the title remains with Olivia. So it would be recognized as inventory on 31 Dec in the financial statement.

Item 5 – For this item, the vendor has used the f.o.b. shipping point. So the title has been transferred to Olivia on the shipping date. So this would be included in the inventories on Dec 31.

Besides these two items, all other items would not be recognized as inventory on Dec 31.

the value of inventory to be recognized  

$$\begin{gathered} \mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory}\mathbf{=}\mathbf{Inventories}\mathbf{}\mathbf{on}\mathbf{}\mathbf{hand}\mathbf{+}\mathbf{Item}\mathbf{2}\mathbf{+}\mathbf{Item}\mathbf{5} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{441}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{38}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{51}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{530}\mathbf{,}\mathbf{000} \end{gathered}$$