Question

Question: Craig Company asks you to review its December 31, 2017, inventory values and prepare the necessary adjustments to the books. The following information is given to you.

1. Craig uses the periodic method of recording inventory. A physical count reveals \(234,890 of inventory on hand at December 31, 2017.

2. Not included in the physical count of inventory is \)13,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.

3. Included in inventory is merchandise sold to Champy on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for \(12,800 on December 31. The merchandise cost \)7,350, and Champy received it on January 3.

4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of \(15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.

5. Not included in inventory is \)8,540 of merchandise purchased from Glowser Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.

6. Included in inventory was \(10,438 of inventory held by Craig on consignment from Jackel Industries.

7. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped on December 31 after it was counted. The invoice was prepared and recorded as a sale for \)18,900 on December 31. The cost of this merchandise was \(10,520, and Kemp received the merchandise on January 5.

8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing \)1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged; Craig will honor the return.

Instructions

(a) Determine the proper inventory balance for Craig Company at December 31, 2017.

(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2017. Assume the books have not been closed.

Short answer

The correct ending inventory amounts to$235,892. Only transaction 6 needs entry correction as consignment goods have been recorded as purchase.

Step-by-step solution

Analysis of transactions

2) As the purchase is f.o.b. shipping point, this inventory would be included in the closing inventory. But no entry would be required or adjusted as it has already been recorded.

3) There is no need for correction and adjustment entry as the sale is based on f.o.b. destination.

4) There is no need for adjustment in this transaction.

5) The inventory costing $8,540 needs to be added to the ending inventory as the inventory was received on Dec. 31, but no entry was made as it has been recorded.

6) This inventory needs to be subtracted from the ending inventory as it is an inventory based on consignment, and adjustment entry would be made to correct books of accounts.

7) The inventory costing $10,520 needs to be subtracted as the sale is based on f.o.b. shipping point and has been sipped on Dec. 31, but no entry was recorded.

8) As the return has not been recognized yet, there is no need for any adjustment.

Proper ending inventory balance 2017

Correct ending inventory = Given ending inventory + Purchase of transaction 2 + Purchase of transaction 5 - Consignment entry of transaction - Sale in transaction 7

= $234,890 + $13,420 + $8,540 - $10,438 - $10,520

= $235,892

Correct journal entries