FAR 7 - Inventory

Question 1

What does FOB shipping point mean?

Answer 1

Freight on board Shipping point - means that ownership of the goods transfers to the buyer when placed with the common carrier, i.e, Fedex, UPS, etc.

Question 2

What is the moving average method?

Answer 2

Requires that a new unit cost be computed each time goods are purchased.This new unit cost is used to cost all sales until the next purchase.

Question 3

On moving average method how are computations done?

Answer 3

Total cost divided by total number of units. When a sale or purchase happens, total up cost and divide by total number units.

Question 4

Journal entries: purchase of inventory

Answer 4

DR Inventory, CR accounts payable

Question 5

Journal entries: sale of inventory

Answer 5

DR accounts receivable, CR Sales revenue; DR COGS, CR inventory.

Question 6

What type of inventory is “specific identification” used for?

Answer 6

Heterogeneous - meaning items are different. Also, fewer in number, each has its own special identification number, etc.

Question 7

What is FIFO?

Answer 7

Inventory costing method - “First In First Out” . Applies to COGS

Question 8

What is “LISH”?

Answer 8

“Last In Still Here” - equal to ending inventory.

Question 9

Review- What does acronym ON-TIDE-N-OC stand for?

Answer 9

O - Operating Income, N - Non-operating income, T - Taxes, I - Income from continuing operations(sum of prior 3). D - discontinued operations, E - Extraordinary losses. N - Net Income (sum of prior 3) O - Other comprehensive income, C - Comprehensive income

Question 10

What is the formula for Operating Income?

Answer 10

Sales-COGS=Gross Profit - SG&A(Selling, General &Administrative expenses) = Operating Income

Question 11

What is formula for COGS?

Answer 11

Beginning Inventory + net purchases -ending inventory = COGS

Question 12

What are Period Costs?

Answer 12

SGNA - Selling, General & Administrative expenses that are costed by the period (monthly, quarterly, etc.)

Question 13

Dollar value LIFO formulas for ending year at base cost

Answer 13

Ending inventory at current cost/consumer price index

Question 14

In dollar value LIFO what it the formula for consumer price index?

Answer 14

Ending inventory at current cost/Ending inventory at base year dollars

Question 15

Dollar Value LIFO formula for increase in inventory at base cost

Answer 15

Ending year at inventory @ base cost - beginning year inventory @ base cost

Question 16

Dollar value LIFO formula for yearly layer at current cost

Answer 16

increase in inventory @ base cost * CPI

Question 17

Inventory turnover ratio

Answer 17

there are 2 ways to figure it: 1. Sales/Inventory 2. Cost of Goods Sold/Average Inventory{(ending inventory+beginning inventory)/2}

Question 18

ANother name for Market value?

Answer 18

Replacement cost

Question 19

How is profit on a percentage basis figured?

Answer 19

Profit is percentage of sales price. For example, 40% profit would be sales 8 *40= cogs. Cogs would be 60% of sales price.

Question 20

What is Net realizable value

Answer 20

Estimated selling price - estimated costs of completion and sale

Question 21

In periods of rising prices, what will result in the highest value in inventory?

Answer 21

FIFO

Question 22

In periods of rising prices what will result in the lowest value in inventory?

Answer 22

LIFO

Question 23

What is the formula for average pricing method using a periodic inventory system?

Answer 23

Purchases: A @ $1, B @ $2, & C @ $3. Total purchases $6 (A/$6 X $1) + (B/$6 X $2) + (C/$6 X $3) = price D. All inventory sold reported at price D.

Question 24

What are the 2 methods for accounting for Cash discounts?

Answer 24

Gross method and Net method.

Question 25

Describe the Gross Method of accounting for cash discounts.

Answer 25

On $6,000 with 10% discount

1. Initial sale at full gross price:

Cash 6,000

A/P 6,000

2. Payments within discount period:

A/P 6,000

Cash 5,400

Purchase discount 600

3. After discount period is ended:

A/P 6,000

Cash 6,000

Question 26

Describe the Net method of accounting for cash discounts.

Answer 26

$6,000 purchas with 10% discount

1. On initial purchase:

Purchases 5,400

A/P 5,400

2. During discount period:

A/P 5,400

Cash 5,400

3. After discount period:

A/P 5,400

Purchase discounts lost 600

Cash 6,000