Who can help me with Accounting

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E6-1

Premier Bank and Trust is considering giving Lima Company a loan. Before doing so, they decide that further

discussions with Lima’s accountant may be desirable. One area of particular concern is the inventory account, which

has a year-end balance of $297,000. Discussions with the accountant reveal the following.

1. Lima sold goods costing $38,000 to Comerica Company, FOB shipping point, on December 28. The goods

are not expected to arrive at Comerica until January 12. The goods were not included in the physical

inventory because they were not in the warehouse.

2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Lima FOB

destination on December 27 and were still in transit at year-end.

3. Lima received goods costing $22,000 on January 2. The goods were shipped FOB shipping point on

December 26 by Galant Co. The goods were not included in the physical count.

4. Lima sold goods costing $35,000 to Emerick Co., FOB destination, on December 30. The goods were

received at Emerick on January 8. They were not included in Lima’s physical inventory.

5. Lima received goods costing $44,000 on January 2 that were shipped FOB destination on December 29. The

shipment was a rush order that was supposed to arrive December 31. This purchase was included in the

ending inventory of $297,000.

Determine the correct inventory amount.

E6-2

Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Company’s inventory account.

Strawser did not have a good year and top management is under pressure to boost reported income. According to its

records, the inventory balance at year-end was $740,000. However, the following information was not considered

when determining that amount.

1. Included in the company’s count were goods with a cost of $250,000 that the company is holding on

consignment. The goods belong to Superior Corporation.

2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped

FOB destination on December 28 and did not arrive at Strawser’s warehouse until January 3.

3. Included in the inventory account was $17,000 of office supplies that were stored in the warehouse and were

to be used by the company’s supervisors and managers during the coming year.

4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting

pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6.

The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of

$30,000. The goods were not included in the count because they were sitting on the dock.

5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000 to District

Sales Corporation FOB shipping point. The goods arrived on January 3. District Sales had only ordered

goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Strawser had

authorized the shipment and said that if District wanted to ship the goods back next week, it could.

6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made.

Given the high-tech nature of Strawser’s products, it was unlikely that these obsolete parts had any other use.

However, management would prefer to keep them on the books at cost, “since that is what we paid for them,

after all.”

Determine the correct inventory amount.