The inventory account of Lance Company at December 31, 2007, included the following items: $\begin{array} { l }
&\text { Inventory Amount}\ \hline
\text { Merchandise out on consignment at sales price}&\
\text {(including markup of $ 40 \% $ on selling price) }&\$15,000\
\text {Goods purchased, in transit (shipped f.o.b. shipping point) }&12,000\
\text { Goods held on consignment by Lance}&13,000\
\text {Goods out on approval (sales price $ \$ 7,600 $, cost $ \$ 6,400 $ ) }&7,600\
\end{array}$
Based on the above information, the inventory account at December 31, 2007, should be reduced by
A)$20,200.
B)$22,600.
C)$32,200.
D)$32,000.

Question

The inventory account of Lance Company at December 31, 2007, included the following items: $\begin{array} { l  }
 &\text { Inventory Amount}\ \hline
 \text { Merchandise out on consignment at sales price}&\
 \text {(including markup of $ 40 \% $ on selling price) }&\$15,000\
 \text {Goods purchased, in transit (shipped f.o.b. shipping point) }&12,000\
 \text { Goods held on consignment by Lance}&13,000\
 \text {Goods out on approval (sales price $ \$ 7,600 $, cost $ \$ 6,400 $ ) }&7,600\
\end{array}$
 Based on the above information, the inventory account at December 31, 2007, should be reduced by
A)$20,200.
B)$22,600.
C)$32,200.
D)$32,000.

Quizplus · Accepted Answer

The inventory should exclude goods held on consignment by Lance ($13,000) and the markup on consigned goods ($6,000), totaling $19,000. The goods out on approval should be included at cost ($6,400), not sales price ($7,600), so reduce by $1,200. Total reduction: $20,200.

The Inventory Account of Lance Company at December 31, 2007