Chapter 7

Question 1

Stock out

Answer 1

Running out of an item

Question 2

FOB shipping point

Answer 2

Buyer owns the inventory when it leaves the seller premises

Question 3

FOB destination

Answer 3

Buyer owns inventory when it arrives

Question 4

Cody of goods available for sale =

Answer 4

Opening inventory + purchases

Question 5

Periodic inventory system

Answer 5

Until a physical count is done inventory is unknown as well as cost of goods sold

Question 6

Periodic inventory system equation

Answer 6

Opening inventory + purchases
= COGAS
- ending inventory
= COGS

Question 7

Perpetual inventory system

Answer 7

Inventory and COGS is updated after every transaction

Question 8

Inventory shrinkage =

Answer 8

Ending inventory - actual ending inventory

Question 9

Perpetual inventory system equation

Answer 9

Opening inventory 
\+ purchases 
= COGAS
- COGS 
= ending inventory

Question 10

3 inventory cost formulas

Answer 10

Specific ID, weighted average and first in first out

Question 11

Weighted average cost per unit=

Answer 11

COGAS/ # of units

Question 12

FIFO results in higher or lower gross margin?

Answer 12

Higher gross margin therefore higher net income

Question 13

Inventory is carried at the lower of…

Answer 13

Cost and net realizable value

Question 14

Net resizable value =

Answer 14

Normal selling price - costs to make the sale

Question 15

What is inventory write down

Answer 15

When managements estimate is lower than inventory cost, carrying amount of inventory must be reduced and treated as a expense

Question 16

Gross margin

Answer 16

Sales revenue - COGS

Question 17

Internal controls for managing inventory

Answer 17

Electronic markers that sound and alarm
Different employees for checking when inventory is received, ordering inventory, and entering inventory into accounting system