What is the Merchandise inventory/Balance inventory in the following case?Given the following items and costs as of the balance sheet date, determine the value of Light Company's merchandise...

What is the Merchandise inventory/Balance inventory in the following case?

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 which originally cost $5,000, but which now have an $800 net realizable value.

a. $7,000

b. $7,800

c. $9,800

d. $9,000

e. $6,800

Asked on by colege

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justaguide | College Teacher | (Level 2) Distinguished Educator

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According to information provided:

  • $2,000 goods sold by Light to another company. The goods are in transit and shipping terms are FOB shipping point. And $3,000 goods sold by another company to Light. The goods are in transit and shipping terms are FOB shipping point.

In FOB shipping point the ownership of the goods is transferred to the buyer only at the point of destination. On transit, the ownership continues to be with the seller.

The goods that are sold to Light are not yet owned by light while the goods that Light has sold continue to remain under the ownership of Light.

  • $4,000 owned by Light but in the possession of another company the consignee.

These goods are with the consignee but the ownership remains with Light.

  • Damaged goods owned by Light which originally cost $5,000, but which now have an $800 net realizable value.

These are goods with Light and have a value of $800.

From the items above we see that the cost of goods of which Light is still the owner is $2000 + $4000 + $800 = $6800.

The required merchandise/ balance inventory is option E or $6800.

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