F3/M3 Inventory Flashcards
FOB Shipping Point (Freight-in)
Title passes to buyer when delivered to common carrier
Cost of shipping is included in inventory for buyer
FOB Destination (Freight-out)
Title passes to buyer when received from common carrier
Cost of shipping is a selling expense to the seller
(T/F): If goods are sold but the buyer has the right to return the goods and the amount of returned goods cannot be estimated by the seller, the goods are included in the sellers inventory
True
Example: trial period
Criteria to recognize revenue in a sale with The Right to Return
- Price is fixed
- Buyer assumes risk of loss
- Buyer has paid some consideration
- Product is substantially complete
- Able to estimate amount of returns
(T/F): Inventory should be stated at cost
True
(T/F): Precious metals and farm products are stated at net realizable value, cost less costs to dispose
True
(T/F): Under GAAP, you can reverse write downs of inventory
False, only IFRS to the extent you wrote it down
(T/F): Losses on inventory write downs can either be debited to COGS if immaterial or reported as an write down in unusual events
True
Lower of Cost and Net Realizable Value
IFRS - apply all the time
U.S. GAAP- FIFO or Weighted Average
NRV = Net selling price (-) costs to sell
- Market Ceiling
(T/F): Lower of Cost or Market is U.S. GAAP only
True;
- only used with LIFO method
Choose middle value:
- Replacement cost
- Market Ceiling = NRV
- Selling price (-) cost to dispose - Market Floor
- (2.) Market Ceiling (-) profit
Calculation of COGS under Periodic Inventory Method
Beginning Inventory (+) Purchases -------------------------------- COGAS (-) Ending Inventory --------------------------------- COGS
- 1 JE at time of sale, do not record COGS at sale
- Periodic = “Purchases”
(T/F): Under the Periodic Inventory Method, purchases of Inventory are not recorded as “Inventory”, but “Purchases”
True;
Dr: Purchases
Cr: Cash
(T/F): Under U.S. GAAP, the cost flow assumption used by the company does not have to have a rational relationship with the physical flow of inventory
True
(T/F): IFRS prohibits LIFO
True
(T/F): Ending inventory and COGS are the same under FIFO whether periodic or perpetual method is used
TRUE
(T/F): Weighted Average has to be used with Periodic Inventory Method
True
(T/F): Moving Weighted Average has to be a Perpetual Inventory System
True;
(T/F): LIFO = Lower of Cost or Market
True
(T/F): If you want to use LIFO for tax purposes, you have to use it for GAAP also
True; LIFO conformity rule
(T/F): Permanent market declines in inventory should be reflected in interim financial statements
True
(T/F): Agricultural products (cotton) are recorded as revenue at time produced, not sold
True
(T/F): F.O.B. Destination means that title passes when received by the buyer, and that packing, shipping, and handling costs are paid by the seller.
True
(T/F): Inventory includes the cost of normal spoilage and freight in
True
(T/F): Net Profit Margin is taken on Net selling price, not NRV
True
