Question

11. Fetherston Company's goods in transit at December 31 include: Purchase made Sales made (1) FOB destination (3) FOB destination (2) FOB shipping point (4) FOB shipping point Which items should be included in Fetherston's inventory at December 31? a. (1) and (3) b. (2) and (3) c. (1) and (4) d. (2) and (4) 12. Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2018 are as follows: Units Per unit price Total Balance, 1/1/18 200 $5.00 $1,000 Purchase, 1/15/18 100 530 Purchase, 1/28/18 100 5.50 550 An end of the month (1/31/18) inventory showed that 200 units were on hand. If the company uses FIFO, what is the value of the ending inventory? a. $1000 b. $1040 c. $1060 d. $1080

Answer 1

11)

The correct answer is b) 2 & 3:

Supporting explanations:

FOB Shipping point means when goods are purchased, the buyer is responsible for the goods received from the seller so goods purchased under FOB shipping point, the buyer is responsible. Therefore, Fetherstone Company should include the goods purchased in its inventory under FOB shipping point so 2nd point of FOB shipping point is correct under Purchases made.

FOB destination means when goods are sold, the seller is responsible of those goods until the goods reaches the buyer. Therefore, when goods are sold with FOB destination, those goods will still be included in selling inventory. So Fetherstone Company should include the sold goods in its inventory so point 3) FOB destination is correct under Sales made.

Therefore, option 2 & 3 are correct. Under these two options, Fetherstone will need to include the goods in transit in to its inventory.

2)

The correct option is d) $1,080.

Supporting calculations:

Under FIFO method, goods first received are sold first so the ending inventory is always from the latest date that is 1/28/18 with 100 units and remaining 100 units (200 - 100 units) from 1/15/18. The same calculation is shown below -

	Units (a)	Per unit price (b)	Total (a*b)
Purchase, 1/28/18	100	$5.50	$550.00
Purchase, 1/15/18	100	$5.30	$530.00
Ending Inventory under FIFO	200		$1,080.00

Therefore, the cost of ending inventory under FIFO is $1,080,000.

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