Question

Question 7:

PLease, write the answer in Word format with Formulae written

1. Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. You have been given the information listed below. Discuss how this information affects the reported cost of inventory.
   1. Hasbeen included in the inventory goods held on consignment for Falls Co., costing $35,000.
   2. The company did not include in the count purchased goods of $20,000, which were in transit (terms: FOB shipping point).
   3. The company did not include in the count inventory that had been sold with a cost of $18,000, which was in transit (terms: FOB shipping point).

2. Khaled Industries, a defense contractor, is developing a cash budget for October, November, and December.

(i) Khaled’s sales in August and September were $100,000 and $200,000 respectively. Forecasted Sales for October, November, and December are as below: October - $400,000 November - $300,000 December - $200,000

      30% of the firm’s sales have been for cash, 50% have been collected after 1 month, and the remaining 20% after 2 months. Bad-debt expenses (uncollectible accounts) have been negligible. In December, Khaled will receive a $30,000 dividend from stock in a subsidiary.

(ii) Khaled has also gathered the relevant information for the development of a cash disbursement schedule.  Purchases will represent 70% of sales - 40% will be paid immediately in cash, 60% is paid the month following the purchase. The firm will also expend cash on rent, wages and salaries every month of $52,000.

Prepare a Cash Budget for October, November and December.

Answer 1

Answer (a)

(i). Deduct. Inventory included in inventory which is held for consignment shall be deducted. Therefore $35,000 will be added to $200,000.

(ii). Add. The inventory which is in transit on free on board shipping point basis will be deemed to be the inventory of H company because the ownership is transferred since the date of shipment. $20,000 is required to be

(iii). No effect. Inventory that is sold on free on board basis and on consignment shall not become part of the company's inventory. Hence, $18,000 shall have no inclusion in the inventory valuation.

Ultimate inventory which is required to be reported is ($200,000-$35,000+$20,000) $185,000.