[tingtuzii]

On Dec. 1, 1992, Alt Department Store received 505 sweaters on consignment from Todd. Todd’s cost for the sweaters was $80 each, and they were priced to sell at $100. Alt’s commission on consigned goods is 10%. At Dec 31, 1992, 5 sweaters remained. in its Dec 31, 1992, balance sheet, what amount should Alt report as payable for consigned goods?

a. $45,000

b. $49,000

c. $45,400

d. $40,400

The Becker answer is choice a. Consigned goods are not included in inventory by Alt and a payable is not recorded until the goods are sold. 500 sweaters were sold for $50,000. After a 10% commission, $45,000 is payable.

I chose $45,400. the extra $400 is from the ending inventory, 5 sweaters, which owes to consignor. 5 x$80=$400. So in total Alt payable is $45,400.

Please help me out! Why the END INV is not considered in the calculation of payable?

[Anonymous]

The consignor (Todd) still owns the 5 sweaters in Alt's possession and accounts for them in their own ending inventory at Dec. 31. There does not need to be a payable for them on Alt's books, even if Alt is going to return the unsold sweaters to Todd (which the problem does not state is the case, but even if it were …), because Todd only relinquishes ownership of the sweaters when they are sold to a third party. The only thing Alt owes to Todd is the sales revenue less earned commission.

[tingtuzii]

Thank you! I got it!

[Author]

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