Inventory Question from Wiley FAR:

Herc Co.'s inventory at December 31, 2009, was $1,500,000 based on physical count priced at cost, and before any necessary adjustment for the following:

-merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30, 2009, was received and recorded on January 5, 2010.

-goods in the shipping area were excluded from inventory although shipment was not made until January 4, 2010. The goods, billed to the customer FOB shipping point on December 30, 2009, had a cost of $120,000.

What amount should Herc report as inventory in its December 31, 2009 balance sheet?

a. $1,500,000

b. $1,590,000

c. $1,620,000

d. $1,710,000

answer: d ($1,500,000 + $90,000 + $120,000) = $1,710,000

My question is why would you include the $120,000 in inventory since it is FOB shipping point, 12/30/09 and the legal title has transferred to the buyer? Wouldn't you exclude those inventory items from your ending inventory.

Thanks, Tkphotomania and TaxProMom...I got it!

definition of F.O.B shipping point - title passes to company only when suppliers delivers the goods to common carrier.

Although the terms were customer F.O.B shipping pont-12/30/09, title didn't pass to Herc's customer until January 4th (when the shipment went out) so the goods should be incluced in Herc's inventory.

Thanks again.