[futureCPA]

Mare Co.’s December 31 balance sheet reported the following current assets:

Cash $ 70,000

Accounts receivable 120,000

Inventories 60,000

Total $ 250,000

An analysis of the accounts disclosed that accounts receivable consisted of the following:

Trade accounts $ 96,000

Allowance for uncollectible accounts (2,000)

Selling price of Mare’s unsold goods out on consignment, at 130%

of cost, not included in Mare’s ending inventory 26,000

Total $ 120,000

Selling price of Mare’s unsold goods out on consignment, at 130%

At December 31, the total of Mare’s current assets is:

a. $230,000

b. $224,000

c. $244,000 ANSWER

d. $270,000

I’m not understanding why I would subtract $26k from $120k of A/R. I understand that I would add 20k back to inventories because that COGS, correct?

Any help is appreciated. Thanks!

REG - 70, 72, retake at end of Nov.
BEC - PASS
FAR - 10/20/2015
AUD - PASS

[Ningt]

Hi, I hope this explanation will be helpful.

“Under a consignment sales agreement, the goods are in the physical possession of the consignee but remain the property of the consignor and are included in the consignor's inventory. Thus, unsold consigned goods should be included in inventory at cost ($26,000 ÷ 130% = $20,000), not in receivables at their sale price. Current assets should therefore be $244,000 ($70,000 cash + $94,000 net receivables + $80,000 inventory).”

[Anonymous]

26K doesn't belong in A/R-it is a part of the company's inventory that they have on consignment, but at 130% of cost. So you have to back it out of A/R (26K) and add it back into Inventory at 20K(which is true amount of inventory).

[Author]

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