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FAR (Theories only) > Inventories > Flashcards

Inventories Flashcards

1
Q

The following are descriptions of inventories, except:

a. For use in production of goods or services
b. For sale in ordinary course of business
c. Materials/supplies to be consumed in the production process or for rendering of services
d. In process of production/sale

A

a.

Remember: Choice a can be machineries used to produce goods/services

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2
Q

The following are inventories. Choose the exception.

a. Piña fabric used to make barong tagalog
b. Canned tuna, to be sold to customers
c. A rocking chair in the factory, unfinished and still under production by workers
d. None of the choices is an exception.

A

d.

Choice a = Raw materials inventory
Choice b = Finished goods inventory/Merchandise inventory
Choice c = Work in process inventory

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3
Q

Under FOB Shipping Point, when is ownership transferred to the buyer?

a. Upon receipt of goods purchased
b. Upon shipment of goods purchased
c. Not transferred until full payment is made
d. Upon arrival of goods into the buyer’s docks

A

b.

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4
Q

If X (buyer) purchases from Y (seller) goods on January 17 under FOB Shipping Point and ships them on the next day (where shipment also started to move), when is ownership transferred if the goods were received by X 2 days after shipment?

a. January 17
b. January 18
c. January 20
d. No transfer of ownership until X pays in full

A

b.

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5
Q

If X (buyer) purchases from Y (seller) goods on January 17 under FOB Destination and ships them on the next day (where shipment also started to move), when is ownership transferred if the goods were received by X 2 days after shipment?

a. January 17
b. January 18
c. January 20
d. No transfer of ownership until X pays in full

A

c.

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6
Q

Under FOB Destination, ownership is transferred to the buyer upon:

a. Full payment of amount due
b. Full payment of amount due plus freight costs
c. Shipment of goods
d. Receipt of goods to the buyer’s place

A

d.

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7
Q

In the event that goods were damaged while on transit, who bears responsibility if shipping terms are FOB Shipping Point?

a. Buyer
b. Seller
c. Buyer and Seller, equally
d. Neither buyer nor seller

A

a.

Remember: ownership transfers immediately upon shipment, thus buyer will have responsibility for the lost goods.

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8
Q

In the event that goods were damaged while on transit, who bears responsibility if shipping terms are FOB Destination?

a. Buyer
b. Seller
c. Buyer and Seller, equally
d. Neither buyer nor seller

A

b.

Remember that ownership transfers to buyer upon receipt of the goods by buyer. Therefore, seller still has responsibility of goods until it is shipped.

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9
Q

Statement I - Freight in should be recorded by seller if terms of shipment is FOB Shipping point

Statement II - Freight out should be recorded by seller if terms of shipment is FOB Destination.

Statement III - Freight in is categorized as selling expense

Statement IV - Freight out is part of cost of goods sold computation

a. Statement I, III, IV is true
b. Statement II is true
c. Statement I & II is true
d. Statement III & IV is true

A

b.

SI - recorded by BUYER, not seller
SIII - recorded as part of cost of goods sold
SIV - recorded as selling expense

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10
Q

If freight term is FOB Shipping Point, Freight Collect, who should pay for the freight and who actually pays the freight?

a. Both scenarios: seller
b. Both scenarios: buyer
c. Buyer should pay; seller actually pays
d. Seller should pay; buyer actually pays

A

b.

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11
Q

If freight term is FOB Shipping Point, Freight Prepaid, who should pay for the freight and who actually pays the freight?

a. Both scenarios: seller
b. Both scenarios: buyer
c. Buyer should pay; seller actually pays
d. Seller should pay; buyer actually pays

A

c.

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12
Q

If freight term is FOB Destination, Freight Prepaid, who should pay for the freight and who actually pays the freight?

a. Both scenarios: seller
b. Both scenarios: buyer
c. Buyer should pay; seller actually pays
d. Seller should pay; buyer actually pays

A

a.

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13
Q

If freight term is FOB Destination, Freight Collect, who should pay for the freight and who actually pays the freight?

a. Both scenarios: seller
b. Both scenarios: buyer
c. Buyer should pay; seller actually pays
d. Seller should pay; buyer actually pays

A

d.

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14
Q

Goods out on consignment must form part of inventories of:

a. Consignor
b. Consignee
c. Both, equally
d. Consigned goods must be ignored

A

a.

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15
Q

The following items are under consideration to be formed part of inventory of J Corp. for 31-Dec-23. Which should be part of inventories?

I. Purchase of goods from X Corp., terms FOB Shipping Point, Freight Collect. Goods are shipped 12/31
II. Purchase of goods from X Corp., terms FOB Destination, Freight Prepaid. Goods are shipped 12/22 and are received 12/31, but J Corp. did not record the receipt of inventories.
III. Purchase of goods from X Corp., terms FOB Destination, Freight Collect. Goods are shipped 12/27 and are in transit as of 12/31
IV. Sale of goods to K Corp., terms FOB Shipping Point, Freight Collect. Goods are shipped 12/29 and are in transit
V. Sale of goods to K Corp., terms FOB Destination, Freight Prepaid. Goods are shipped 12/27 and are received 12/31, but J failed to record the sale.
VI. Sale of goods to Q Corp., terms FOB Shipping Point, Freight Prepaid. Goods were not yet shipped as of this date.
VII. Sale of goods to Q Corp., terms FOB Destination, Freight Collect. Goods were shipped 12/30 and are in transit.

A

I, II, VI, VII

I - FOB Shipping Point, but goods are shipped 12/31. This purchase is part of inventories
II - FOB Destination. Inventory purchase is recorded upon receipt by buyer of goods, that is 12/31. This is proper.
III - FOB Destination. Inventory purchase is recorded upon receipt by buyer of goods. Since goods are still in transit, no inventory shall be recorded.
IV - FOB Shipping Point, sale to customer. Transferred ownership immediately on 12/29.
V - Sale of goods via FOB Destination. Sale and transfer of ownership recognized upon receipt by buyer of goods, which is 12/31. Therefore, it is now properly excluded.
VI - FOB Shipping point. Goods are transferred upon shipment to buyer, but it is still not shipped. If that is the scenario, it is still our inventory.
VII - FOB Destination. Goods are transferred upon receipt of goods by buyer, but currently underway (in transit). Goods are not transferred to buyer until he receives it, thus goods are still ours.

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16
Q

Which of the following goods must be included in inventory?

I. Purchased under installment basis
II. Sold under installment basis
III. Segregated special order goods, unshipped
IV. Segregated regular order goods, unshipped.

a. I & III
b. I & IV
c. II & III
d. II & IV

A

b.

If sold under installment basis, treat it as “sale”

Special order goods are unique in nature. They are customized and tailored for a specific need of a customer and are not for the masses. They are already hard to reverse/bring back to their original state (i.e. goods sold to ordinary customers). However, segregated regular order goods, in addition that they are still in the hands of the seller and are unshipped, can be resold to another customer if the original customer opts to cancel the purchase of said goods.

17
Q

Which inventory system necessitates the physical inventory counting at end of period?

A

Periodic inventory system

18
Q

I. Periodic inventory system is best applied for small value inventories.
II. Perpetual inventory system is best applied for high-value inventories
III. Perpetual inventory system uses stock cards for maintenance of inventory records.

a. All statements false
b. All statements true
c. I and II are true
d. I and III are true

A

b.

19
Q

I. Assuming no shortage/overage of inventories per physical count, cost of ending inventory under FIFO using Perpetual system is greater than that under Periodic system using FIFO.
II. The account “Sales discount” is used in periodic system
III. The account “Cost of goods sold” is credited when there are inventories sold under the perpetual system

Choose the FALSE statement.

a. I only
b. I & II
c. II & III
d. I & III

A

d.

I - Regardless of method, cost of ending inventory is the same.
III - COGS is debited when inventories are sold, followed by a corresponding credit to “Merchandise inventory”

20
Q
A

FAR (Theories only) (6 decks)

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