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Cooper, Inc
Cooper, Inc. took physical inventory at the end of 2015. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.
a. Cooper needs to correct an accounting error.
b. Cooper has made a change in accounting principle, requiring retrospective adjustment.
c. Cooper is required to adjust a change in accounting estimate prospectively.
d. Cooper is not required to make any accounting adjustments.
Expert Solution
Answer: d. Cooper is not required to make any accounting adjustments.
Explanation:
Inventories that are in transit under terms FOB destination should be reported in the accounting books and financial statements of the seller while the goods are in transit, and to the buyer upon receipt of the inventories. Therefore, Cooper, Inc. as a buyer, is correct not to include the goods acquired FOB destination in the physical count, and is not required to make any accounting adjustments. FOB destination means that the seller is responsible for the transportation fees related to the purchase of inventories, thus the risks and rewards related to them is borne by the seller while the goods are in transit.
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