Question

Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a 25% sales commission on any merchandise sold. During the year, Mogul ships inventory with a cost of $105,000 to Ski Outfit. By the end of the year, $80,000 of the merchandise has been sold to customers for a total of $111,000. What amount of inventory will Mogul report at year end

Answer 1

Answer:

$25,000

Explanation:

The value of inventory at the end of the end of the period will be equal to

Value of inventory = Cost of goods sent less the cost of goods already sold.

Remember the arrangement  is that of agency, hence the goods are not deemed to be sold except the agent has been able to exchange them for revenue in a sales contract with his own buyers.

Also the sales commission would be reported under a separated ledger which will be reported as part of the operating expenses.

Amount of inventory = $105,000 - $80,000

                                  = $25,000