EXERCISES: SET B
First Bank and Trust is considering giving Johnson Company a loan.Before doing so,they
decide that further discussions with Johnson’s accountant may be desirable. One area of particu-
lar concern is the inventory account, which has a year-end balance of $255,000. Discussions with
the accountant reveal the following.
Johnson received goods costing $27,000 on January 2.The goods were shipped FOB shipping
point on December 26 by Cook Co.The goods were not included in the physical count.
The physical count of the inventory did not include goods costing $79,000 that were shipped
to Johnson FOB destination on December 27 and were still in transit at year-end.
Johnson sold goods costing $47,000 to Lane Company, FOB shipping point, on December 28.
The goods are not expected to arrive at Lane until January 12. The goods were not included
in the physical inventory because they were not in the warehouse.
Johnson sold goods costing $42,000 to Toby Co., FOB destination, on December 30. The
goods were received at Toby on January 8. They were not included in Johnson ’s physical
Johnson received goods costing $41,000 on January 2 that were shipped FOB destination on
December 29. The shipment was a rush order that was supposed to arrive December 31. This
purchase was included in the ending inventory of $255,000.
Determine the correct inventory amount on December 31.
Mark Anthony, an auditor with Lopez CPAs, is performing a review of Martin Company’s
inventory account. Martin did not have a good year and top management is under pressure to
boost reported income. According to its records, the inventory balance at year-end was
$550,000. However, the following information was not considered when determining that
The physical count did not include goods purchased by Martin with a cost of $30,000 that were
shipped FOB destination on December 28 and did not arrive at Martin’s warehouse until
Included in the company’s count were goods with a cost of $150,000 that the company is hold-
ing on consignment.The goods belong to Discland Corporation.
Included in the inventory account was $21,000 of office supplies that were stored in the ware-
house and were to be used by the company’s supervisors and managers during the coming year.
The company received an order on December 29 that was boxed and was sitting on the load-
ing dock awaiting pick-up on December 31.The shipper picked up the goods on January 1 and
delivered them on January 6. The shipping terms were FOB shipping point. The goods had a
selling price of $29,000 and a cost of $19,000. The goods were not included in the count
because they were sitting on the dock.