Shubart Apparel Company purchased 1,000 shirts from Blue Parrot, ...

[storky111]

Shubart Apparel Company purchased 1,000 shirts from Blue Parrot, FOB shipping point. Each shirt had an invoice cost of 18, which includes 1 of tariff paid to import the shirts from Belize.
 
  Shubart also paid FedEx 2,000 to have the shirts shipped to its warehouse in Florida, and another 500 to insure the shirts while they were in transit.
  Required:
  a. Determine the inventory cost that Shubart should record.
  b. Explain when the costs described above will become expenses.
  What will be an ideal response?

Question 2

Merchandise inventory at the end of the year was understated. Which of the following statements correctly statesthe effect of the error?
 a. net income is understated
  b. net income is overstated
  c. cost of merchandise sold is understated
  d. merchandise inventory reported on the balance sheet is overstated

[babybsemail]

Answer to Question 1

a. 20,500 = (18 x 1,000 shirts) + 2,000 + 500
b. All of the costs above become part of inventory and will become expenses when the inventory is sold.

Answer to Question 2

a