Question

Delar Co. completed its year-end physical count of inventory. The inventory was valued at first-in, first-out (FIFO) costs and totaled $500,000. Delar subsequently noted the following two items: 1. 1,000 units of inventory with a FIFO cost of $10 each were shipped and billed to a customer, f.o.b. destination. These items were included in the physical count. 2. 6,000 units at a FIFO cost of $5 each were held on consignment for one of its suppliers, but were excluded from the physical count.What amount should Delar report as inventory at year end?a) $530,000b) $520,000c) $500,000d) $490,000

Answer 1

Answer:

C. $500,000

Explanation:

FOB which means free on board is a phrase used in commercial law indicating the point where either the buyer or seller is liable for goods that are damaged or destroyed during shipping. In FOB destinations, the title of ownership and risk is transferred to the buyer at the buyer's office, loading dock, post office and so on. Therefore, it is correct to include inventory that was shipped in inventory physical count due to the fact that inventory wasn't delivered to customer at year end.

While the goods held for consignment are not sold but rather they are given to an agent for possible sale. They are included in the inventory of the consignor. Thus, this is why Declar should report $500,000 as inventory at the end of the year.