Your supervisor has asked you to evaluate the following situation and conditions: John Joseph’s Music Store has taken inventory of the flutes, saxophones, and other reed instruments as well as miscellaneous musical items that it sells retail. As the store’s accountant, you gave your assistant instructions about taking the inventory and asked that unusual items be flagged for your review. Your assistant flagged the following items that need your review to determine whether the item was handled correctly on the year-end inventory.
a. Last year’s Model CB-4, tenor saxophone, is included in inventory at a cost of $ 357. (You happen to know that this outdated model can be purchased for $ 150 now that the new model is out.)
b. A purchase of two alto saxophones at $ 350 each was sent by the supplier on 12/29, FOB destination. The shipment had not arrived and was not included in inventory.
c. A purchase of two oboes at $ 450 each was sent by the supplier on 12/30, FOB shipping point. The shipment had not arrived and was not included in inventory.
d. You have received a credit memo for a damaged piccolo, cost $ 248, from a supplier. The supplier issued the notice based on your promise to ship the damaged unit back after the end of the year. The item is still in the warehouse, and the cost of $ 248 is included in the inventory.
e. A customer has paid $ 740 in full for a custom-made Native American flute that cost $ 540. The customer requested that you deliver it at the end of the first week of the New Year. The value of the special flute is included in the inventory as no one remembered to put a “sold” tag on it.
f. The shop owner has taken home a one-of-a-kind tenor saxophone to use during the holidays, after which he will return the saxophone to the shop. Retail value is $ 2,650; cost, $ 2,250. This item was not counted in inventory.
g. According to the company’s layaway policy, a sale is not recorded until the merchandise is paid for in full, and then delivery is made. A customer has paid 25 percent of the $ 960 price of a French horn. The horn is set aside because the customer has put money down on it, and the $ 810 cost is not included in the inventory.

1. What is the correct treatment for each item? Should you include it or exclude it in inventory? Why?
2. Was the item handled correctly by your assistant? If it was not, what must be done to correct the inventory? Should you increase inventory (if so, by what amount) or decrease inventory (if so, by what amount)?

  • CreatedOctober 21, 2014
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