F3M3

Question 1

FOB Shipping Point

Answer 1

Title of inventory passes from seller to buyer when seller delivers the goods to a common carrier.

Buyer includes the goods in their inventory upon seller shipping them.

Question 2

FOB Destination

Answer 2

Title passes from seller to buyer when the buyer receives the goods from the common carrier.

Question 3

What are precious metals and farm products valued at for inventory?

Answer 3

Net Realizable Value= selling price - costs to complete - costs of disposal

previous metals valued at NRV if there is an effective government controlled market at a fixed monetary value

Agriculture, minerals, and other products valued at NRV if they have immediate marketability at quoted prices, unit interchangeability, and an inability to determine appropriate costs.

Question 4

Installment sales of inventory

Answer 4

If the seller sells goods on an installment basis and retains the legal title as security for the loan, the goods are in the sellers inventory books if a percentage of uncollectible debts cannot be estimated

If the percentage can be estimated, the transaction will be accounted for as a sale and an allowance for uncollectible debts would be recorded.

Question 5

Net realizable value equation

Answer 5

net Selling price - costs to complete - costs to dispose of the inventory

Question 6

Market value (for lower of cost or market)

Answer 6

median of an inventory items replacement cost, its market ceiling, and its market floor.

Question 7

Replacement cost (for lower of cost or market)

Answer 7

Cost to purchase the item of inventory as of the valuation date.

this is typically the median used as it is typically between the ceiling and floor but that is not always the case.

Question 8

Market Ceiling (for lower of cost or market)

Answer 8

an items net selling price less the costs to complete and costs to dispose aka NRV

Question 9

Market floor (for lower of cost or market)

Answer 9

Market ceiling (NRV) - a normal profit margin.

Question 10

Journal entry to record the write down of inventory to a separate account

Answer 10

Debit Inventory loss due to decline in market value
Credit Inventory

Question 11

Periodic inventory system COGS calculation

Answer 11

Beginning Inventory + purchases = Costs of goods available for sale - Ending inventory (physical count)

Question 12

Periodic Inventory System

Answer 12

year end inventory accounts

Inventory and COGS are not adjusted as sales are made

COGS is calculated after the periodic inventory count

Question 13

Perpetual Inventory System

Answer 13

Inventory and COGS are updated for each sale and purchase as they occur.

There is a running inventory count.

Question 14

Hybrid Inventory Systems

Answer 14

Units of inventory on hand: quantities only= perpetually recording the change in units only

Perpetual with Periodic at year end: most companies with the perpetual system in place, do a periodic physical inventory count on all the inventory or test count some of their inventory on a random or cyclical basis.

Question 15

Dollar-value LIFO internally computed price index formula

Answer 15

Price index = ending inventory at current year cost / ending inventory at base year cost

Price index is multiplied by the added LIFO layer at base year cost to equal the LIFO layer added in the current year at dollar value LIFO.

Question 16

An understatement of beginning inventory creates a ……

Answer 16

understatement of COGS

Question 17

For a consignee transaction, when is freight subtracted from profits?

Answer 17

When the sale is made the freight is expensed.

Question 18

If a company ships their inventory to a company to be held on consignment, what do you do with you freight costs if there have been no sales.

Answer 18

freight costs are added to inventory costs