F3 M3

Question 1

sales with a mandatory buyback

Answer 1

included in inventory because seller is required to buy back goods from buyer as part of a financing arrangement

Question 2

installment sales

Answer 2

included in inventory if the seller sells goods but retains legal title to goods as a security for loan (collateral) and uncollectible debts cannot be estimated
-if can be estimated, treated as a sale and ADA would be recorded

Question 3

market floor

Answer 3

NRV - profit margin %

Question 4

market ceiling

Answer 4

selling price - costs to sell or dispose (or processing costs)

AKA NRV

Question 5

recognizing a loss in inventory

Answer 5

write-down of inventory usually reflected in COGS unless amt is material, in which is recorded separately in I/S

Question 6

can you do reversals of write-downs on inventory?

Answer 6

No, prohibited by U.S. GAAP

Question 7

periodic inventory system

Answer 7

-quantity of inventory determined by physical count at end of accounting period
-no running total of inventory balances
-COGS determined by doing calc.

Question 8

perpetual inventory system

Answer 8

-inventory record for each item of inventory is updated after each purchase and sale
-COGS determined and recorded after each sale

Question 9

what’s the difference between journal entries for periodic vs. perpetual when you purchase inventory?

Answer 9

Periodic:
Dr. Purchases
Cr. Cash

Perpetual:
Dr. Inventory
Cr. Cash

Question 10

what’s the difference between journal entries for periodic vs. perpetual when you sell inventory?

Answer 10

Periodic:
Dr. Cash
Cr. Sales

Perpetual:
Dr. Cash
Cr. Sales
Dr. COGS
Cr. Inventory

Question 11

COGS formula

Answer 11

beg. inventory
+ purchases
= COGS available
-Ending inventory
= COGS

Question 12

price index formula

Answer 12

ending inventory at current year cost/ending inventory at base year cost

Question 13

LIFO layer added formula

Answer 13

LIFO layer at base year cost * price index

Question 14

a firm purchase commitment

Answer 14

enforceable agreement to purchase a certain amt of goods at a time in future
-disclosed in F/S or in notes

Question 15

what if the contracted price of firm purchase commitment exceeds market price and losses expected to occur upon purchase?

Answer 15

-loss recognized at time of decline in price
-description of losses recognized on these commitments must be disclosed in current period’s I/S

Question 16

dollar value LIFO ending inventory

Answer 16

base year cost + (base year layer * price index)

Question 17

are warehouse costs inventoriable or expensed?

Answer 17

expensed because they are not usual in capitalizing inventory