F4 Inventory

Question 1

Disadvantage to periodic inventory system

Answer 1

COGS amount used for financial reporting purposes includes both cost of inventory sold and inventory shortages.

Question 2

In purchase commitment, when at year end the current market value of the inventory was less than the fixed purchase price. What is the accounting treatment?

Answer 2

loss must be recognizedat the time of the decline in price, a liability must be recognized on the balance sheet and a description of the losses must be described in the footnotes.

Question 3

Understatement of Ending inventory results in …

Answer 3

overstatement of COGS
understatement of net income
Understatement of retained earnings

Question 4

Inventory turnover ratio

Answer 4

costs of good sold / by average inventory

lower inventory turnover ratio in period of rising prices would result when using FIFO, because there is a lower COGS and EI is higher,