Base industries lists inventory at $87,500 on the balance sheet. included in this amount is the following: goods that were purchased fob shipping point that were in transit on the balance sheet date: $8,850 good held on consignment for western company: $7,525 goods that were purchased fob destination that were in transit on the balance sheet date: $1,045 what is the correct balance for base industries’ inventory account?

The answer is: $78,930

Explanation:

The merchandise inventory account included a couple of records that are incorrect:

Goods held on consignment belong to Western Company and shouldn't be included in the balance sheet (-$7,525).Goods that were purchased FOB destination will only belong to Base Industries when they are delivered. As long as they are in transit, the title of the goods belongs to the seller, so they also should be excluded form the balance sheet (-$1,045).

The correct balance of Merchandise Inventory account should be:

$87,500 - $7,525 - $1,045 = $78,930

The correct balance for Base Industries’ inventory account is $78,930

The correct computation for base industries account should be as follows:

Ending inventory balance - FOB destination goods purchased - goods being held on consignment

Therefore we have:

$87,500 - $7,525 - $1,045

= $78,930

Further Explanation

Some records should not be included in the merchandise inventory account.

The goods held on consignment for the western company should not be included in the inventory account because the goods are yet to be delivered to base industries, which means that it is owned by the western company. Therefore, the balance sheet is -$7,525Also, the goods that were purchased FOB destination were still in transits can be claimed yet by Base industries, that is, since Base industry is yet to receive the goods, then the goods are still owned by the seller and should not be included in the balance sheet. Therefore, the balance is - -$1,045

Thus, the correct balance for Base Industries’ inventory account is $78,930

Inventory accounts refer to the aspect of accounting which involves valuing and accounting for items that a company’s plan to sell for profit.

A company’s inventory deals with the goods that are involved in three stages of production and these include

Raw goods or production materialsIn-progress goodsFinished goods that can put out for sale

LEARN MORE:

On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,500 Coronado Industries took a physical inventory on December 31 and determined that goods costing $180,500 were on hand. Not included in the physical

KEYWORDS:

balance sheetlist inventorybase industriesFOB shipping pointinventory account

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