Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
The Cain Company has just completed a physical inventory count at year end, December 31,
2017. Only the items on the shelves, in storage, and in the receiving area were counted and
costed on the FIFO basis. The inventory amounted to $80,000. During the audit, the independent
CPA discovered the following additional information:
(a) There were goods in transit on December 31, 2017, from a supplier with terms FOB
destination, costing $10,000. Because the goods had not arrived, they were excluded from
the physical inventory count.
(b) On December 27, 2017, a regular customer purchased goods for cash amounting to $1,000
and had them shipped to a bonded warehouse for temporary storage on December 28, 2017.
The goods were shipped via common carrier with terms FOB shipping point. The customer
picked the goods up from the warehouse on January 4, 2018. Cain Company had paid $500 for
the goods and, because they were in storage, Cain included them in the physical inventory count.
(c) Cain Company, on the date of the inventory, received notice from a supplier that goods
ordered earlier, at a cost of $4,000, had been delivered to the transportation company on
December 28, 2017; the terms were FOB shipping point. Because the shipment had not
arrived on December 31, 2017, it was excluded from the physical inventory.
(d) On December 31, 2017, there were goods in transit to customers, with terms FOB shipping
point, amounting to $800 (expected delivery on January 8, 2018). Because the goods had
been shipped, they were excluded from the physical inventory count.
(e) On December 31, 2017, Cain Company shipped $2,500 worth of goods to a customer, FOB
destination. The goods arrived on January 5, 2017. Because the goods were not on hand,
they were not included in the physical inventory count.
(f) Cain Company, as the consignee, had goods on consignment that cost $3,000. Because these
goods were on hand as of December 31, 2017, they were included in the physical inventory
Analyze the above information and calculate a corrected amount for the ending inventory. Explain
the basis for your treatment of each item.