Chapter 8: Inventories

Question 1

Inventories

Answer 1

Asset items held for sale in the ordinary course of business
Or
Goods to be used in the production of goods to be sold

Question 2

Raw materials account

Answer 2

Debit cost of materials purchased

Credit cost of materials used

Question 3

Work in progress

Answer 3

Debit (increase) from materials used, labor used, overhead costs applied
Credit (decrease) cost of goods manufactured (finished goods)

Question 4

Finished goods

Answer 4

Debit (increase) cost of goods manufactured

Credit (decrease) cost of goods sold

Question 5

Goods available for sale

Answer 5

(AFS)

Beginning inventory + cost of goods purchased

Or

Ending inventory + cost of goods sold

Question 6

Cost of goods sold

Answer 6

Cost of goods available for sale - ending inventory

Or

Begining inventory + cost of goods purchased - ending inventory

Question 7

Inventory over/short account

Answer 7

For shortages (decrease inventory):
Debit inventory over/short
     Credit inventory 

For overages (increase inventory):
Debit inventory
     Credit inventory over/short

Temporary account closed to Cogs

Question 8

FOB shipping point

Answer 8

Ownership pases to buyer when carrier accepts the goods from the seller

Buyer pays freight

Must do adjusting entries for any inventory in transit at the end of the period

Question 9

Fob destination

Answer 9

Ownership passes to the buyer when the buyer receives the goods

Seller pays freight costs

Question 10

Sales with high rates of returns

Answer 10

Record sales revenue at NET amount expected to receive after returns

Establish estimated inventory return account

Question 11

Product costs

Answer 11

Costs directly connected with bringing the goods to the buyer’s place of business and converting such goofs into a salable condition

Question 12

Period costs

Answer 12

Generally selling, general and administrative expenses

Question 13

Average cost methods

Answer 13

Weighted average (usual for periodic inventory) based on all purchase amounts for a period

Moving average (usual for perpetual inventory) average cost calculated every time a purchase is made

Question 14

FIFO matching

Answer 14

Balance sheet more correct income statement less so

Value of current inventory is accurate but current costs are not matched against current revenues

Question 15

LIFO matching

Answer 15

Income Statement more accurate and balance sheet less so.

Current costs matched to current income but value of inventory on balance sheet less accurate

Question 16

LIFO reserve

Answer 16

Difference between inventory method used for internal reporting and LIFO inventory value

Question 17

LIFO effect

Answer 17

Dollar amount of journal entry to bring lifo reserve to correct amount to reduce inventory value to LIFO

Question 18

Allowance to reduce inventory to LIFO

Answer 18

Contra asset account to inventory

Permanent account

Question 19

LIFO liquidation

Answer 19

When, using LIFO inventory valuation, all recent inventory has been sold through and company sells old inventory which is at a much lower price and suddenly COGS is much lower and income is much higher

Addressed with dollar value LIFO

Question 20

Dollar value LIFO

Answer 20

Inventory at year is end prices 
/ Price index (against base year)
= End of year inventory at base year prices
- previous year at base year prices 
= New layer
* Price index 
= Layer at end of year prices 
\+ Previous layers = balance

If end of year inventory at base year prices is less than previous year must decrease most recent later instead of making a new layer