Hey Guys and Gals
I'm having trouble understanding the application question on page 25 of the Ninja Book Financial Accounting and Reporting – conceptual framework & FS Presentation
Acme Co's AP balance at 12/31 was $850,000 before necessary year end adjustments, if any, related to the following information:
– At 12/31, ACe has a 50,000 debit balance in its AP resulting from a pmt to a supplier for goods to be manufactured to Acme's specifications
– Goods shipped FOB destination on 12/20 we received and recorded by Acme 1/2; the invoice cost was $45,000
In it's 12/31 BS, what amount should Acme report as AP?
850,000
895,000
900,000
945,000
Answer is C. 900,000.
The explanation is where i get lost.
‘the 50,00 debit balance in AP for goods to be manufactured should shown in AR unless right to set off exists. The goods shipped FOB destination Should not be included as a liability until received and were not included in the 850,000 balance.
Why would Acme record the 50,000 to AR? Acme bought the item from a supplier, so it's correctly recorded in AP. The supplier would record the item to AR and the buyer to AP.
What am i missing?
.