Chapter 10 -Inventories

Question 1

They are the assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Answer 1

Inventories

Question 2

It encompasses goods purchased and held for resales such as the merchandise purchased by a retailer and held for resale and land and other property held for resale by a subdivision entity and real estate developer.

Answer 2

Inventories

Question 3

It also encompasses finished goods produced, goods in the process, and materials and supplies awaiting use in the production process.

Answer 3

Inventories

Question 4

2 Classes of inventories

Answer 4

1. inventories of a trading concern

2. Inventories of a manufacturing concern

Question 5

What are the inventories of manufacturing concern?

Answer 5

a. Finished goods
b. Good in process
c. Raw Materials
d. Factory supplies

Question 6

When can the company say the inventory is theirs?

Answer 6

1. Goods owned and currently on hand.
2. Goods in transit and purchased FOB SHIPPING POINT.
3. Goods in transit and sold FOB DESTINATION.
4. Goods OUT on consignment.
5. Goods in the hands of sales agents that are unsold.
6. Goods held by customers on approval or on trial.

Question 7

The title is passed to the buyer at the time of shipment and the buyer is responsible for the delivery charges

Answer 7

FOB Shipping point

Question 8

The title is passed to the buyer upon receipt of goods and the seller is responsible for delivery charges

Answer 8

FOB Destination

Question 9

Freight terms:

This means that the freight charge on the goods shipped is not yet paid - the carrier shall collect from the buyer but the buyer actually paid for it

Answer 9

freight collect

Question 10

Freight terms :

This means that the freight charge on the goods shipped is already paid by the seller

Answer 10

freight prepaid

Question 11

It is a method of marketing goods in which the owner called the consignor transfers physical possession of certain goods to an agent called the consignee who sells them on the owner’s behalf.

Answer 11

Consignment

Question 12

Freight and other handling costs charges are included in the consignment cost

Answer 12

true

Question 13

Goods out on inventory = company’s inventory

goods held on consignment = inventory of original owner

Answer 13

TRUE

Question 14

2 systems are offered in accounting for inventories:

Answer 14

Periodic system

perpetual system

Question 15

It calls for the physical counting of goods on hand at the end of the accounting period to determine quantities.

Answer 15

Periodic system - it gives the actual or physical inventories

Question 16

It is used when the individual items have small peso investments such s groceries, hardware, and auto parts.

Answer 16

periodic system

Question 17

It requires the maintenance of records called stock cards that usually offer a running summary of the inventory inflow and outflow.

Answer 17

perpetual system

Question 18

It is commonly used where the inventory items treated individually represent a relatively large peso investment such as jewelry and cars

Answer 18

perpetual system

Question 19

They are the deductions from the list or catalog price in order to arrive at the invoice price which is the amount actually charged to the buyer

Answer 19

trade discount - not recorded

Question 20

They are deductions from the invoice price when payment is made within the discount period by the buyer and sales discount by the seller

Answer 20

cash discount

Question 21

Purchase discount is deducted from purchases to arrive at net purchases and sales discount is deducted from sales to arrive at net sales revenue

Answer 21

TRUE

Question 22

Inventories shall be recorded at:

Answer 22

1. Cost of purchase (purchase price, duties, irrecoverable taxes, freight, and handling)
2. Cost of conversion
3. Cost related to bringing the inventories items to their present location

Question 23

Methods of recording purchases

Answer 23

Gross method

net method

Question 24

The cost measured under ___ method represents the cash equivalent price on the date of payment and therefore the theoretically correct historical cost.

Answer 24

net method

Question 25

Most entities record purchases at the gross invoice amount

Answer 25

TRUE

Question 26

gross method violates the ___ principle because discounts are recorded only when taken or when cash is paid rather than when purchases that give rise to the discounts are made.

Answer 26

matching principle

Question 27

Trade discounts, rebates, and other similar items are deducted in determining the cost of purchase

Answer 27

TRUE