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Kale Thompson Sneed CPAs

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Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser
Company’s inventory account. Strawser did not have a good year and top management is under
pressure to boost reported income. According to its records, the inventory balance at year-end
was $740,000. However, the following information was not considered when determining that
amount.
1. Included in the company’s count were goods with a cost of $250,000 that the company is holding
on consignment.The goods belong to Superior Corporation.
2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that
were shipped FOB destination on December 28 and did not arrive at Strawser’s warehouse
until January 3.
3. Included in the inventory account was $17,000 of office supplies that were stored in the warehouse
and were to be used by the company’s supervisors and managers during the coming year.
4. The company received an order on December 29 that was boxed and was sitting on the loading
dock awaiting pick-up on December 31.The shipper picked up the goods on January 1 and
delivered them on January 6.The shipping terms were FOB shipping point.The goods had a
selling price of $40,000 and a cost of $30,000. The goods were not included in the count
because they were sitting on the dock.
5. On December 29 Strawser shipped goods with a selling price of $80,000 and a cost of $60,000
to District Sales Corporation FOB shipping point. The goods arrived on January 3. District
Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a
sales manager at Strawser had authorized the shipment and said that if District wanted to ship
the goods back next week, it could.
6. Included in the count was $40,000 of goods that were parts for a machine that the company no
longer made. Given the high-tech nature of Strawser’s products, it was unlikely that these obsolete
parts had any other use. However, management would prefer to keep them on the
books at cost, “since that is what we paid for them, after all.”

Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for each
item above, saying why you did or did not make an adjustment for each item.

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