First Bank is considering giving Wildhorse Company a loan. First, however, it decides that it would be a good idea to have further discussions with Wildhorse's accountant. One area of particular concern is the inventory account, which has a December 31 balance of $365,300. Discussions with the accountant reveal the following:

﻿﻿﻿The physical count of the inventory did not include goods that cost $123,500 that were shipped to Wildhorse, FOB shipping point, on December 27 and were still in transit at year end.

﻿﻿﻿Wildhorse sold goods that cost $45,500 to Sandhill Company, FOB destination, on December 28. The goods are not expected to arrive at their destination in India until January 12. The goods were not included in the physical inventory because they were not in the warehouse.

3.

On December 31, Pina Company had $39,650 of goods held on consignment for Wildhorse. The goods were not included in Wildhorse's ending inventory balance.

4. Wildhorse received goods that cost $36,400 on January 2. The goods were shipped FOB shipping point on December 26 by Novak Co. The goods were not included in the physical count.

Determine the correct inventory amount at December 31.

The correct cost of inventory is:

Ending inventory-physical count

Adjustments:

1.

v inventory

2

3

4.

inventory

inventory

inventory

$

To determine the correct inventory amount for Wildhorse Company at December 31, we need to adjust the physical count of the inventory with the information provided. Here are the steps:

1. **Physical Count of Inventory:** $365,300

**Adjustments:**

1. **Goods in Transit (FOB Shipping Point):**
   - Goods costing $123,500 were shipped to Wildhorse on December 27 but not included in the physical count.
   - These goods should be included in the ending inventory since the title passes to Wildhorse when the goods are shipped.
   - **Adjustment:** Add $123,500

2. **Goods Sold (FOB Destination):**
   - Goods costing $45,500 were sold to Sandhill Company on December 28 but not included in the physical count.
   - These goods should **not** be included in the ending inventory as the title passes to Sandhill Company upon delivery (expected January 12).
   - **Adjustment:** No adjustment needed.

3. **Goods on Consignment:**
   - Goods costing $39,650 were held on consignment for Wildhorse but not included in the physical count.
   - These goods should be included in the ending inventory since they are still owned by Wildhorse.
   - **Adjustment:** Add $39,650

4. **Goods Received After Year-End (FOB Shipping Point):**
   - Goods costing $36,400 were received on January 2 but were shipped by Novak Co. on December 26 (FOB shipping point).
   - These goods should be included in the ending inventory since the title passed to Wildhorse when the goods were shipped.
   - **Adjustment:** Add $36,400

Now, let's calculate the correct ending inventory amount:

\[
\text{Ending Inventory (Physical Count)} = \$365,300
\]
\[
\text{Adjustment for Goods in Transit (FOB Shipping Point)} = +\$123,500
\]
\[
\text{Adjustment for Goods on Consignment} = +\$39,650
\]
\[
\text{Adjustment for Goods Received After Year-End (FOB Shipping Point)} = +\$36,400
\]

\[
\text{Correct Ending Inventory} = \$365,300 + \$123,500 + \$39,650 + \$36,400
\]

\[
\text{Correct Ending Inventory} = \$564,850
\]

The correct cost of inventory at December 31 is **$564,850**.

Do you want more details or have any questions?

Here are 5 questions you might want to ask:
1. How does FOB shipping point and FOB destination impact inventory recording?
2. What is consignment inventory and how is it treated in financial statements?
3. Why is it important to include goods in transit in the inventory count?
4. How do year-end adjustments for inventory affect the financial statements?
5. Can you explain the difference between physical count and book inventory?

**Tip:** When accounting for inventory, always pay attention to the terms of shipping (FOB shipping point vs. FOB destination) as they determine when ownership and risk of loss transfer between buyer and seller.

Learn how to calculate the correct ending inventory for Wildhorse Company using inventory accounting principles. Includes adjustments for goods in transit, consignment inventory, and goods received after year-end. Detailed solution with step-by-step calculations.

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