Question: A retail company recently completed a physical count of ending
A retail company recently completed a physical count of ending merchandise inventory to use in preparing adjusting entries. In determining the cost of the counted inventory, company employees failed to consider that $5,000 of incoming goods had been shipped by a supplier on December 31 under an FOB shipping point agreement. These goods had been recorded in Merchandise Inventory as a purchase, but they were not included in the physical count because they were in transit. Explain how this overlooked fact affects the company’s financial statements and the following ratios: return on assets, debt ratio, current ratio, profit margin ratio, and acid-test ratio.
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