Question:Stallman Company took a physical inventory on December 31 and determined that goods costing \(200,000 were on hand. Not included in the physical count were \)25,000 of goods purchased from Pelzer Corporation, f.o.b. shipping point, and \(22,000 of goods sold to Alvarez Company for \)30,000, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale werein transit at year-end. What amount should Stallman report as its December 31 inventory?

There are two shipping terms namely FOB destination and FOB shipping point. Under f.o.b. destination the title of the goods remains with the supplier or seller unless the goods are delivered to the buyer. Whereas in f.o.b. shipping point, the supplier or seller transfers the title as soon as the goods are shipped.

As the purchases were made on the terms f.o.b. shipping point, the Stallman Company has received the title of the goods. Thus it should report this inventory on Dec 31.

The ending inventory would increase by $25,000.

As the selling term was f.o.b. destination, the Stallman Company possesses the title of the goods unless the goods are received by the Alvarez company. Thus this inventory should be included in the closing inventory.

The ending inventory would increase by $22,000.

$$\begin{gathered} \mathbf{Value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{ending}\mathbf{}\mathbf{inventory}\mathbf{(}\mathbf{as}\mathbf{}\mathbf{on}\mathbf{}\mathbf{Dec}\mathbf{31}\mathbf{)}\mathbf{=}\mathbf{Inventory}\mathbf{}\mathbf{on}\mathbf{}\mathbf{hand}\mathbf{+}\mathbf{FOB}\mathbf{}\mathbf{shipping}\mathbf{}\mathbf{point}\mathbf{}\mathbf{purchase}\mathbf{+}\mathbf{FOB}\mathbf{}\mathbf{destination}\mathbf{}\mathbf{sales} \\ \mathbf{=}\mathbf{\$}\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{247}\mathbf{,}\mathbf{000} \end{gathered}$$