[drichter321]

So I am using wiley, and just finished inventory. Can anybody explain this to me in plain English? I am very confused.

Correct answer is C btw.

Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data:
Purchases during the year $12.0 million
Shipping costs from overseas 1.5 million
Shipping costs to export customers 1.0 million
Inventory at year end 3.0 million

What amount of shipping costs should be included in Seafood Trading’s year-end inventory valuation?

A. $0
Transportation-in is a product cost because it is a cost necessary for the inventory to be salable. In this case, only the import costs capitalized to inventory. 25% of purchases remain in ending inventory; therefore, 25% of the $1.5 million import cost or $375,000 is included in the inventory at year-end.
B. $250,000
C. $375,000
Only transportation-in is treated as a product cost and included in inventory. This cost is considered a cost necessary to bring the inventory to a salable condition. $1.5 million was incurred for this cost – the cost to import. Inventory represents $3/$12 or 25% of total purchases. Therefore, 25% of $1.5 million, or $375,000, of transportation-in is included in inventory. Shipping costs to customers are treated as a period cost.
D. $625,000

BEC: 75 lost credit, could not pass far 🙁
AUD: 76 lost credit could not pass far 🙁
FAR: 74, FML. Next exam 06/14/23
REG: 75 lost credit could not pass far 🙁

[Anonymous]

You would only capitalize “freight-in” costs to ending inventory i.e. 25% of the 1.5 million. The shipping cost to export is “freight-out” and is expensed in the period incurred in.

[Author]

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