Given the following items and costs as of the balance sheet date,determine the value of Light Company's merchandise inventory. - $2,000 goods sold by Light to another company.The goods are in transit and shipping terms are FOB shipping point.
- $3,000 goods sold by another company to Light.The goods are in transit and shipping terms are FOB shipping point.
- $4,000 owned by Light but in the possession of another company,the consignee.
- Damaged goods owned by Light that originally cost $5,000 but now have an $800 net realizable value.
A)$7,000
B)$7,800
C)$9,800
D)$9,000
E)$6,800

Question

Quizplus · Accepted Answer

The value of Light Company's merchandise inventory can be calculated as follows:
Beginning inventory + purchases - cost of goods sold = ending inventory
Since we are not given the beginning inventory or purchases, we can assume that they are not relevant for this calculation.
- The $2,000 goods sold by Light to another company are not included in Light's inventory since they are no longer in Light's possession.
- The $3,000 goods sold by another company to Light are included in Light's inventory since they are in transit and the shipping terms are FOB shipping point, which means ownership transfers to Light at the point of shipment.
- The $4,000 owned by Light but in the possession of another company, the consignee, are also not included in Light's inventory since they are not in Light's possession.
- The damaged goods with a net realizable value of $800 are included in Light's inventory at their net realizable value.
Therefore, the value of Light Company's merchandise inventory is:
$3,000 (goods in transit) + $800 (damaged goods at net realizable value) = $3,800
However, the question asks for the value of Light's merchandise inventory, which includes both goods in transit and goods in Light's possession. Therefore, we need to add back the cost of goods sold (COGS) associated with the $3,000 goods in transit:
$3,800 (goods in transit and damaged goods at net realizable value) + $3,000 (COGS for goods in transit) = $6,800
Therefore, the best choice is B.

Given the Following Items and Costs as of the Balance