A company has the following information related to its ending inventory: Owned inventory on shelves: $20,000, Goods on consignment from a seller: $50,000, Goods purchased and in transit, FOB shipping point: $10,000, Goods sold and in transit, FOB destination: $6,000, Goods returned from customers: $7,000. Which amount should be included as the final inventory value for this company?

Rationale

$42,000 should be included as the final inventory value for this company.

To determine the final inventory value, we need to consider only the inventory owned by the company and the relevant transactions affecting that inventory. The owned inventory on shelves, goods on consignment, and goods in transit (FOB shipping point) are included, while goods sold in transit (FOB destination) and goods returned from customers do not affect the ending inventory.

A ($85,000) YOUR ANSWER

This choice incorrectly sums all items without accounting for the exclusion of goods sold in transit and returns. Adding $20,000 (owned inventory) + $50,000 (goods on consignment) + $10,000 (goods in transit) + $6,000 (goods sold in transit) + $7,000 (goods returned) leads to an inflated total that does not represent the actual ending inventory value.

B ($35,000) YOUR ANSWER

This figure is arrived at by incorrectly excluding some relevant inventory items. It could represent owned inventory on shelves ($20,000) plus goods on consignment ($50,000) but fails to account for the goods in transit ($10,000), resulting in an incomplete total.

C ($42,000) CORRECT

This is the correct calculation that includes owned inventory ($20,000) plus goods on consignment ($50,000) plus goods in transit ($10,000), while correctly excluding goods sold in transit ($6,000) and goods returned ($7,000). The accurate calculation is $20,000 + $50,000 + $10,000 - $6,000 - $7,000 = $42,000.

D ($20,000) YOUR ANSWER

This option only includes the owned inventory on shelves and ignores additional relevant inventory items such as goods on consignment and goods in transit, which should be included to arrive at a proper ending inventory value.

Conclusion

The final inventory value is derived from the total of owned inventory, goods on consignment, and goods in transit, while excluding items like goods sold in transit and returns. The accurate computation results in a final inventory value of $42,000, reflecting the company’s true ending inventory position for accurate financial reporting.

$42,000 should be included as the final inventory value for this company.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test