Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: -The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year.
-The ending inventory balance of $412,000 included damaged goods at their original cost of
$38,000. The net realizable value of the damaged goods was $10,000.
Based on this information, the correct balance for ending inventory on December 31 is:

Question

Quizplus · Accepted Answer

The ending inventory balance reported by Buffalo Company is adjusted based on the following two points:
1. $48,000 worth of goods purchased on December 28 were not included in the ending inventory balance of $412,000. These goods were shipped FOB destination and not received by Buffalo until January 2 of the following year. Therefore, they should not be included in the December 31 ending inventory balance. Hence, the $48,000 value should be subtracted from the reported ending inventory balance of $412,000 to arrive at the adjusted ending inventory balance.

$412,000 - $48,000 = $364,000

2. Damaged goods with a net realizable value of $10,000 were included in the ending inventory balance of $412,000 at their original cost of $38,000. Therefore, they should be adjusted to their net realizable value by deducting the difference from the ending inventory balance.

$412,000 - ($38,000 - $10,000) = $384,000

Hence, the correct balance for ending inventory on December 31 is $384,000, which is option D.

Buffalo Company Reported a December 31 Ending Inventory Balance of $412,000