Premier Bank and Trust is considering giving Bean Company a

Premier Bank and Trust is considering giving Bean Company a loan. Before doing so, they decide that further discussions with Bean’s accountant may be desirable. One area of particular concern is the inventory account, which has a year-end balance of $326,000. Discussions with the accountant reveal the following.

1. Bean received goods costing $49,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $326,000.

2. Bean sold goods costing $41,000 to Cusa Company, FOB shipping point, on December 28 for $65,000.The goods are not expected to arrive at Cusa until January 12.The goods were not included in the physical inventory because they were not in the warehouse.

3. The physical count of the inventory did not include goods costing $89,000 that were shipped to Bean FOB destination on December 27 and were still in transit at year-end.

4. Bean received goods costing $27,000 on January 2. The goods were shipped FOB shipping point on December 26 by Noble Co. The goods were not included in the physical count.

5. Bean sold, for $55,000 goods costing $38,000 to Limerick Co., FOB destination, on December 30. The goods were received at Limerick on January 8. They were not included in Bean’s physical inventory.

Instructions:

(a) Determine the correct inventory amount on December 31.

(b) What correcting entry would have to be made for item 4?

Solution

a) Correct Inventory on December 31:

b) Journal Entry