Chapter 10 - Inventories

Question 1

What are the two classes of inventories?

Answer 1

Inventories of a trading concern and inventories of manufacturing concern

Question 2

What is a trading concern or merchandising inventory?

Answer 2

buys and sell

Question 3

What is a manufacturing concern?

Answer 3

buys goods which are altered or converted for sale

Question 4

Completed products which are ready for sale

Answer 4

Finished Goods

Question 5

Partially completed products

Answer 5

work in process/goods in process

Question 6

Goods that are to be used in the production process and can be traced directly to the end product

Answer 6

raw materials

Question 7

What goods shall be included in inventory?

Answer 7

All goods to which an entity has title. As long as the entity is the owner of the goods to be inventories, the goods shall be included in the inventory.

Question 8

Identify the owner of the inventory in transit and ownership transfer.

FOB Destination

Answer 8

owner of the inventory in transit - seller

ownership transfer - upon receipt of the goods by the buyer

Question 9

Identify the owner of the inventory in transit and ownership transfer.

FOB Shipping Point

Answer 9

owner of the inventory in transit - buyer

ownership transfer - upon shipment of the goods

Question 10

Identify the owner of the inventory in transit and ownership transfer.

Free Alongside (FAS)

Answer 10

owner of the inventory in transit - seller up to alongside

ownership transfer - alongside the carrier

Question 11

Identify freight term.

The freight charge is actually paid by the buyer

Answer 11

Freight collect

Question 12

Identify freight term.

The freight charge is already paid by the seller

Answer 12

Freight prepaid

Question 13

FOB Destination and FOB Shipping Point determine ____ of the goods and the party who is supposed to pay.

Freight Collect and Freight Prepaid determine the party who ____ ___ the freight charge but not the party who is supposed to legally pay.

Answer 13

ownership

actually paid

Question 14

Who is the owner of the consigned goods?

Answer 14

The consignor, thus it the inventory must be included in the consignor’s inventory

Question 15

What is the presentation of inventories in the financial statement?

Answer 15

as one line item in the statement of financial position but the details shall be disclosed in the notes to financial statements.

Question 16

What are the two systems of accounting inventories?

Answer 16

Periodic system ad Perpetual system

Question 17

The system that calls for the physical counting of goods on hand at the end of the period.
This approach gives actual or physical inventory.
COGS is computed only at the end of the period.

Answer 17

periodic system

Question 18

The system that requires the keeping of stock cards.
This approach gives book or perpetual inventory.
COGS is computed at the time of every sale.

Answer 18

perpetual inventory system

Question 19

physical count of inventory < inventory per book

Answer 19

shortage

Dr. Inventory shortage
Cr. Merchandise inventory

Question 20

physical count of inventory > inventory per book

Answer 20

overage

Dr. Merchandise Inventory
Cr. Inventory Overage

Question 21

Discounts deducted from the list or catalog price in order to arrive at the invoice price.

Answer 21

Trade discounts

Question 22

Discounts deducted from the invoice price when payment is made within the discount period.

Answer 22

Cash/purchase discounts (buyer) or sales discounts (seller)

Question 23

The cost of inventories comprise:

Answer 23

> cost of purchase
cost of conversion
other cost incurred in bringing the inventories to their present location and condition.

Question 24

T or F.
The cost of purchase of inventory comprises the purchase price, import duties and recoverable taxes, freight, handling and other costs directly attributable to the acquisition of finished goods, materials, and services.

Answer 24

F - irrecoverable taxes