Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:

The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year.

The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is:

A. $374,000
B. $384,000
C. $460,000
D. $422,000
E. $438,000

B. $384,000

Explanation:

At December 31, the ending inventory balance of $412,000. This balance did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date because the goods arrived on January 2 of the following year. The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000

Starting with an inventory of $412,000. The inventory did not include goods shipped FOB destination because as of December 31 it has not been received. The cost of damaged goods at their original cost should not be included in inventory. The value of the damaged goods =  ($38,000 - $10,000) = $28000

The correct balance of ending inventory = $412,000 - $28,000 = $384,000.

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