Inventories

Question 1

Method of perpetual inventory system

Answer 1

Update the inventory system each time a sale and a purchase occur. the COGS is determined at each sale.

Question 2

Under U.S. GAAP, during periods of inflation, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory valuation methods?

Answer 2

No matter what the economic conditions are, FIFO perpetual and FIFO periodic will always generate the same Ending Inventory results

Question 3

How to calculate COGS

Answer 3

Beg inventrory
\+ Purchases
- (Purchase discounts)
\+ Freight In
\+ Transportation to Consignee
= COGAFS
- Ending Inventory Consignor
- Ending Inventory -Consignee

Question 4

FOB Shipping point

Answer 4

The buyer of the good is responsible for the cost

the title is transferred from seller to buyer, when the merchandise leaves the seller’s warehouse.

Question 5

FOB destination

Answer 5

the buyer of the good is not responsible for the shipping cost. title passes from seller to buyer, when the seller receives the goods from the common carrier

Question 6

Which of the following statements are correct when a company applying the U.S. GAAP lower of cost or market method reports its inventory at replacement cost?

I.

The original cost is less than replacement cost.

II.

The net realizable value is greater than replacement cost.

Answer 6

if the replacement cost is the market value and inventory is reported at replacement cost, then the replacement cost is lower than the original cost. Statement II is true. The replacement cost is designated as market value if it is less than the net realizable value and greater than the net realizable value minus disposal costs. Since the inventory is reported at replacement cost, then replacement cost must be the market value (and lower than the original cost) and thus less than the net realizable value

Question 7

Bren Co.’s beginning inventory at January 1, 1993, was understated by $26,000, and its ending inventory was overstated by $52,000. As a result, Bren’s cost of goods sold for 1993 was:

Answer 7

the $26,000 understatement of beginning inventory creates an understatement of cost of goods available for sale which leads to a $26,000 understatement of cost of goods sold. The $52,000 overstatement of ending inventory creates a $52,000 understatement of cost of goods sold. Thus, cost of goods sold, in total, is understated by $78,000 ($26,000 plus $52,000).

Question 8

Estimates of price-level changes for specific inventories are required for which of the following inventory methods?

Answer 8

dollar value LIFO. It ajusts the inventory retail prices and ending inventory costs for price level changes.

Question 9

The U.S. GAAP lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application generally results in the lowest inventory?

Answer 9

Separately applying LCM to each item results in the most conservative ending inventory