Asked by Osvaldo Munoz on Jun 14, 2024
Verified
Assume that the total inventory counted at the end of the year was $75,000. Excluded from the count were purchases of $5,000 in transit under FOB destination terms. What is the cost of inventory reported on the balance sheet?
A) $60,000
B) $70,000
C) $75,000
D) $80,000
Physical Inventory
An actual count of all the goods on hand at the end of an accounting period.
FOB Destination
A shipping term indicating that the seller is responsible for the goods and the shipping cost until the goods reach the buyer's specified location.
Cost of Inventory
The total cost incurred to acquire stock items that are intended for resale, including purchase price, freight, and handling fees.
- Construct a section detailing the cost of goods sold on the income statement, utilizing the periodic inventory system.
Verified Answer
NM
Natasa MoginJun 18, 2024
Final Answer :
C
Explanation :
Under FOB destination terms, the title of the goods transfers from the seller to the buyer when the goods arrive at the buyer's location. Therefore, the $5,000 of purchases in transit should not be included in the buyer's inventory until received. The correct inventory value is the amount counted, $75,000.
Learning Objectives
- Construct a section detailing the cost of goods sold on the income statement, utilizing the periodic inventory system.