Inventory

Question 1

Should we recognize inventory losses in the interim financial statements or should we wait and recognize only in annual Financial statements.

Answer 1

Inventory losses generally should be recognized in the interim statements.

Question 2

Which GAAP inventory costing method will be most like to give a company the lowest ending inventory when its product line are subject to specific price increases.

Answer 2

Dollar-value LIFO

Question 3

What happens when a company change its inventory from FIFO to LIFO and prices are rising

Answer 3

The ending inventory will decrease.
The net income will decrease (understated)
The COGS will increase (overstated)
The Retained earning will decrease (understated)

Question 4

What is major drawback of Periodic inventory system

Answer 4

The COGS figure from this system contain both the cost of inventory and inventory shortages.

Question 5

What should you do when you contract to buy inventory at a fixed price and market price fell below the contracted market price

Answer 5

1- recognize the loss in IS
2- Disclose this loss in note to FS
3- Accrued a liability to recognize the loss
Estimate Loss on PC
    Estimated Liability on PC

Question 6

Gold, silver, and other precious metals, and meat and agriculture products are valued at what?

Answer 6

They are valued at NRV

NRV = SP - COD

Question 7

How loss is recognized related to inventory

Answer 7

Recognize in current period (goes to IS). Under GAAP usually write-down the inventory and loss is reflected in CCOGS unless the loss is material

Question 8

In a periodic Inventory System, Ending Inventory is Overstated by 1,000

Answer 8

COGS understated 1,000
Net Income overstated 1,000
Gross Profit overstate 1,000
RE overstated 1,000

Question 9

What is Inventory Turn over ratio?

Answer 9

Inventory turnover ratio = COGS/Average Inventory

Average Inventory = (Beginning Inv + Ending Inv)/2

Question 10

Goods in transit that were shipped by vendor on F.B.O Shipping point excluded from Ending Inventory. What effect would it have on Asset and Retained Earning

Answer 10

Asset is understated

Retained Earning is understated.

Question 11

Which GAAP Inventory costing method approximate most closely the current cost of:
Cost of Goods Sold
Ending Inventory

Answer 11

Cost of Goods Sold - LIFO

Ending Inventory - FIFO

Question 12

If the beginning Inventory is understated What effect would it have on COGS?

Answer 12

COGS will be understated as well

Question 13

If the Ending Inventory is Overstated What effect would it have on COGS?

Answer 13

COGS will be understated

Question 14

When you estimate ending inventory using a method based on the Financial Statements of prior period in order to prepare quarterly interim Financial method. What kind of Inventory system and method of estimating ending Inventory you are using?

Answer 14

Periodic and Gross Profit method

Question 15

What is NRV

Answer 15

It is a net realizable value. it is calculated as follow:

NRV = SP - COD

Question 16

What is the JE for Consignee when he sell products for 50,000 and he get 10% commision

Answer 16

Cash
Account Payable
Commission Revenue

Question 17

What is a JE for Consignor when Inventory at cost of 40,000 is sold by consignee for 50,000

Answer 17

Account Receivables
         Sales Revenue
COGS
        Inventory
Commission Expense
        Account Receivables

DOUBLE CHECK THE JE for commission

Question 18

Company determine that the ending inventory destroyed in the sale was 50,000, and insurance reimburse the 70% of that. what should company report as a loss?

Answer 18

Should should report a loss of $15,000

Question 19

For a manufacturing company, do you add indirect material cost and indirect material in Inventory cost?

Answer 19

Yes, we include that in Inventory cost.

Question 20

For a manufacturing company, do you add Insurance cost in Inventory cost?

Answer 20

Yes, we include that in Inventory cost.