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Financial Accounting Reporting > INVENTORY > Flashcards

INVENTORY Flashcards

1
Q

Does interest have an effect on inventory?

A

No affect however it does have an affect when assets are produced for an enterprise own sale or lease as discrete projects

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2
Q

How to calc COGS using the periodic inventory system?

A

To calc the periodic inventory system we need to do the following

BEGIN INVENTORY
+ PURCHASES
- ENDING PURCHASES
= COGS

since INVENTORY is not accounted for directly when goods are sold inventory shortages will be hidden in the COGs

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3
Q

Are the packaging for shipping, shipping, special handing charges included as apart of the cost for inventory?

A

No just the price price of the product

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4
Q

Calc the cost of inventory as a result of purchase?

A

3750 Product A
175. Freight in
100 cost of material
900. Product A

4,925 cost of inventory

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5
Q

What are considered to be included in the physical count of inventory?

A

cosigned goods aren’t considered because they are transfer to an agent for possible sale so they are excluded from physical count

FOB destination goods can be added to the physical count of inventory bc if the inventory was not delievered at the destination

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6
Q

Consignment agreement are considered as an expense or apart of inventory cost?

A

As apart of inventory cost

Anything that are apart of inventory

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7
Q

What is FOB shipping point?

A

As soon as the seller ship it the buyer takes the responsibility and risk

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8
Q

Calc, the COGS for the year?

A

remember the inventory formula is

Begin Inventory 30,840
Purchased 102,800
Freight in 15,420
discount (10,280)
ending inventory (20,560)

= 30,840 + 102,800 + 15,420 - 10,280 - 20,560 = 118,220 COGS

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9
Q

Where are the freight costs included when a consignee has paid the freight costs of goods shipped?

A

in the accounts receivable are used by the consignees if the balance is a credit it’s a payable and debit balance it’s a receivable

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10
Q

Calc COGS reported on the income statement using the average pricing method and periodic inventory system?

A

Flex use the AVG pricing method to calc the COGS using the periodic inventory method

Here we will first start off with begin inventory and it’s units
purchases and it’s units

Begin inven 30,000. 10,000 units
Purchase 30,000. 5,000 units
Purchase. 25,000 5,000 units

                 75,000    20,000 units
                 = 3.75

Total cost of goods sold equals 37,500 (10,000 units sold x 3.75)

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11
Q

How to cal the Weighted Avg costs of goods sold?

A

To calc the weighted AVG costs of goods sold we need to calc the

begin inventory + begin units
purchase + purchase units
purchase + purchase units

total beginnng + purchase and total purchase units

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12
Q

When calc the moving AVG method and using the perpetural inventory method what

A

the moving avg is based on remaining inventory held and new inventory purchased

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13
Q

What are the benefits of LIFO inventory methods?

A

Under the LIFO method the most recent cost is allocated to cost of goods sold

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14
Q

The Weighted avg for the year cost flow method is application on which type of method?

A

only the periodic method

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15
Q

Calc the inventory amount that should be reported in the periodic and perpetual method?

A

Periodic method

Start off with beginning bal which is 2000 units x 1 units cost = 2000

Next we subtract the units in hands 2200 - 2000 = 200 x 3 = 600

2000 + 600 = 2600 periodic method

Perpetual method

begin inven 1400 x 1 = 1,400
purchase 800 x 5 = 4,000

For the 1400 units we needed to first subtract the sold on 1/23 = 1800 - 1200 = 600 units

2000 - 600 units = 1400 x 1 = 1400

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16
Q

In periods of rising prices when methods when methods has the higher inventory?

A

FIFO inventory is the higher than LIFO inventory

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17
Q

During the periods of rising prices a perpetual inventory system would result in the same dollar amounts of ending inventory as periodic inventory system under which methods?

A

FIFO - YES
LIFO - NO

For the FIFO cost flow the COGS and inventory are the same whether perpetual or periodic

LIFO perpetual it will generate different amounts from periodic system. COGS and ending inventory will be different

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18
Q

When inventory method is changed from FIFO and LIFO in a period of rising prices, what will be the change in ending inventory and net income?

A

LIFO ending inventory was lower than FIFO bc they they are considered older and lower prices

change from FIFO to LIFO cause the ending inventory to decrease, COGS to increase, and net income to decrease

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19
Q

Which inventory method would a company should to max profits in periods of rising prices use?

A

FIFO will cause a lowest COGS and the highest net income

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20
Q

In periods of rising costs cash flow assumptions will result in higher cost of sales?

A

FIFO won’t result in lower cost because charging older and lowed price goods will result in lower cost of goods sold

However LIFO you will generate a higher cost of goods sold because the higher prices are sold first which in result will cause a higher cost of goods sold

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21
Q

calc the moving avg method that should be reported as inventory?

A

The moving avg method is dependent on remaining inventory held and new inventory purchased

Step 1 is to calc the COGS

begin inven 1000 x 1 = 1000
purchase 600 x 3 = 1800
1600. 2800

1.00 + 3.00 = 1.75

sold on 1/20 900 x 1.75 = 1575

      Begin 1000
purchase 1800
COGS        1575  END INVEN. 2000

Reported as inventory = 1000 + 1800 - 1575 + 2000 = 3225 moving avg inventory

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22
Q

When you calc, price index how to calc that?

A

The price index can be calculated by dividing ending inventory at current year cost by the ending inventory at base year cost

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23
Q

calc the Dollar value LIFO inventory

A

When calc the Dollar LIFO we need to calc the base year cost for the year to start off

So here Part 1 calc the base year cost for the year

Current year cost 80,000
Base year cost. 20,000 = 1.33

Part 2 calc the layer at the dollar value LIFO

Base year cost 15,000 x 1.33 = 20,000

Part 3 we use the Dollar value LIFO ending inventory

46,000 ending inventory
20,000 base tear cost

= 66,000 dollar value LIFO inventory

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24
Q

When Replacement cost is less than NRY minus a normal profit do we use the max NRV or the Min NRV?

A

We use the Min NRV

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25
Q

Would inventory be record at NRV when it’s higher than inventory or less?

A

NRV has to be less than the cost of inventory to be used

For an example

NRV is 330,000
Inventory 300,000

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26
Q

Calc, the inventory reported at balance sheet?

A

Start off with NRV - 330,000 - estimated costs of disposal 20,000 - estimated completion costs 15,000 = 295,000

ending inventory for the year end 295,000

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27
Q

remember when the inventory ending needs to be reported on the balance sheet what is excluded automatically?

A

the orignal cost of the inventory and NRV because the purpose for us to complete the NRV and LCM is to have the ending inventory less than the cost of the inventory

So inventory 26,000
NRV is 28000

these choices are automatically removed from the answer choice

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28
Q

calc the loss that would be recognized by applying the cost or market rule

A

To start off here we need to first calc the following items
NRV
REPLACEMENT COST
NRV - NORMAL PROFITS

NRV
ESTIMATED SELLING PRICE 204,000
ESTIMATED COST OF DISPOSAL 10,000
NRV 194,000

REPLACEMENT COST 180,000

NRV PROFIT MARGIN
ESTIMATED SELLING PRICE 194,000
NORMAL PROFITS MARGIN 30,000

NRV PROFIT MARGIN 164,000

HISTORIAL COST - 200,000 - 180,000 REPLACEMENT COST = 20,000 LOSS

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29
Q

If Inventory isn’t measured at the lower of the cost or net realized value, how is it measured?

A

LIFO

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30
Q

Under the FIFO method how are inventory measured?

A

measured at NRV

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31
Q

calc COGS in the income statement using the moving avg method?

A

beg bal 30,000 x 10.00 = 300,000
purchase10,000 x 12.00 =120,000

units 40,000
inventory total bal 420,000
420,000 / 40,000 = 10.50

20,000 units x 10.50 = 210,000

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32
Q

When there is loss on inventory how would that be recorded on the general entries?

A

Loss on purchase commitments
20,000
Accrured loss on purchase commitments

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33
Q

When losses occur for inventory does that need to be disclosed?

A

Yes, it will be needed to be disclosed in the financial statements

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34
Q

When Beg inventory and ending inventory are understated what will COGS will be?

A

Understated

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35
Q

The term NRV Net Realizable Value are defined by

A

estimated selling prices minus estimated costs completion and disposal

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36
Q

The if converted method of computing diluted earnings per share amounts assume conversion of convertible securities

A

beginning of the earliest period reported or at the time issuance if later

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37
Q

calc the price index used for the dollar value LIFO inventory layer?

A

Add all the “At Current year cost”

90,000 + 30,000 + 80,000 = 190,000

Add all the “Base Year cost”
90,000 + 20,000 + 40,000 = 150,000

= 1.33 price index

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38
Q

When net income is overstated what will happen to ending inventory?

A

overstated of ending inventory

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39
Q

Which method valuation is not allowed at the interim dates at year end?

A

estimated gross profit

40
Q

Calc, the Cost of goods available for sale?

A

Using the net sales 900,000 x 40% = 540,000 + ending inventory 200,000 = 740,000 Good available for sale

41
Q

Calc the related loss for the purchase commitment as of Dec 31st?

A

Step 1

min annual gurantee purchase 200,000
Years entered 3
600,000
purchase units 80,000

remains liable for purchase 520,000
per unit cost 0.1
Loss related to purchase commitment 52,000

42
Q

When begin inventory is understated and ending overstated what happens to COGS?

A

COGS is understated

43
Q

Using the periodic inventory method use the AVG pricing method to determine the value of the inventory?

A

Begin inventory 10,000 units x 3 = 30,000
Purchase 5000 units x 4 = 20,000
Purchase 5000 units x 5 = 25,000

= 75,000 / 20,000 = 3.75

3.75 x 10,000 = 37,500

44
Q

Calc, the reported loss related to the purchase commitment as of Dec 31st?

A

Step 1 - Start off with the units purchased and the years that the contract is noncancelable

200,000 units
x 3 years noncancelable contract
= 600,000

Step 2 - Subtract the units that they decided to cancel

600,000 units purchased
80,000 units canceled
= 520,000 units remaining

Step 3 multiple the units remaining by the units per costs

520,000 units
x 0.10 per unit
= 52,000 purchase commitment

45
Q

What happens to assets and Retained earnings when when goods in transit purchased FOB Shipping point at year end purchases. The good were from the ending inventory

A

Assets and retained earnings are understated

46
Q

Calc, the inventory that needs to be reported on the balance sheet using the
dollaR lifo method?

A

Step 1 cal the end of the year inventory

132,000 Inventory at the end of the year
1.20 1+20%

110,000 Inventory at the end of the year
- 100,000 Value of inventory
10,000

10,000
* 1.20 1+20%
12,000

100,000 INVENTORY VALUE
12,000
112,000

47
Q

If a company changes from FIFO to LIFO in periods of rising prices what will happen to ending inventory and Net income

A

When there is a change from FIFO to LIFO in resulting in decrease in ending inventory and net income bc the inventory and up being older and lower of cost

48
Q

Calc, the shipping costs trading year end inventory valuation?

A

3 Million inventory / 12 million x 1.5 million freight in

375,000 freight in costs

49
Q

The LIFO inventory cost flow method may apply to which inventory system?

A

Both Periodic and Perpetual inventory system

50
Q

Calc, the consignment sales revenue for the consignee?

A

Sales at 1,000 x 10 freezers = 10,000

51
Q

If a company changes its inventory valuation method from FIFO to LIFO in a period of rising prices. What would be the change in ending inventory and Net income?

A

Ending inventory and net income would be a “Decrease” for ending inventory increased cost of goods sold and decreased net income

FIFO to LIFO results in decreased ending inventory increased COGS and decrease net income

52
Q

calc the amount that is estimated cost of missing inventory?

A

begin inven 500,000
purchase 2,500,000
Cost of goods available
3,000,000

Sales 3,200,000
Tax rate 0.750

                        2,400,000

estimated year end balance
600,000
physical inventory year end
575,000

estimated theft loss 25,000

53
Q

How is the term NRV defined?

A

Estimated selling price minus estimated costs of completion and disposal

54
Q

The dollar value FIFO inventory cost flow method involves computations based on?

A

for both inventory pools with similar items and a specific price index for each year

55
Q

Calc, the current year Sales tax payable?

A

Total retail sales 800,000
State Sales Taxes 5%
40,000

Beginning balance 4,500
Sales tax collected 40,000
44,500

                              44,500 Sales taxes              39,500

Sales tax payable 5000

56
Q

Calc, cost of goods sold on income statement using the AVG pricing method to determine the value of the inventory?

A

To start off

Begin inventory is 10,000 x 3 = 30,000
Purchase 5,000 x 4 = 20,000
Purchase 5,000 x 5 = 25,000

= Total cost of begin inventory and purchase 75,000

Add all the units for begin and purchase and. we have a total of 10,000 begin + purchase 5,000 + purchase 5,000 = 20,000

= 75,000 cost / 20,000 = 3.75

Final step we use the 10,000 sold x 3.75 = 37,500

57
Q

Calc, the net inventory on consignment remains on the balance sheet for the year?

A

The cost of 20,000 (100% - 70%)

Cost 20,000 x 30% = 6,000

58
Q

Does retailer inventory increase or decrease freight in interest on inventory loan?

A

freight in helps to increase and the interest on inventory loan has no effect

59
Q

In a periodic inventory system that uses the weighted-average cost flow method, the beginning inventory is the

A

Total goods available for sale minus the net purchases

60
Q

Calc, moving average method reported as inventory?

A

Moving AVG system is only used for the perpetual inventories system. Moving AVG is based on remaining inventory held and new inventory purchased

Moving AVG

 Balance 1/1   1000 x 1.00 = 1,000  Purchased 1/7     600 X 3.00 = 1,800 
                         1600                2,800 Units 1,600 / 2800 = 1.75

Ones you calc the moving avg cost
Sold on 1/20 900 x 1.75 = 1575 COGS

     Begin 1000  Purchase    1800 COGS         (1575)  Purchase     2000

= Moving AVG Cost - 3225 Moving AVG Cost

61
Q

The following methods of inventory valuation is allowable at interim dates but not year end

A

estimated gross profit are used for interim statements

62
Q

Are inventory losses required to be recognized in the interim financial statement?

A

yes they are required to recognized by using the market price decline in inventory

63
Q

What happens to COGS and net income when ending inventory is understated?

A

COGS will be overstated
Net Income will be understated

64
Q

Under the perpetual inventory system, using the moving average method calc the inventory reported?

A

Moving Avg cost

Step 1
Units begin and purchase are 1,000 + 600 = 1600

Cost/ units 2800 / 1600 = 1.75

Total cost
1000 + 1800 = 2800

Step 2

900 units sold x 1.75 = 1575

Step 3

Begin 1000 + Purchase 1800 - 1575 COGS + 2000 purchase = 3,225

65
Q

When the ending inventory is overstated what happens to COGS and Retained Earnings

A

COGS are understated
Retained Earnings are overstated
Gross profit is also overstated

66
Q

Which of the following inventory cost flow methods could use dollar-value pools?

A

LIFO

67
Q

calc the LIFO and FIFO using the cost methods?

A

LIFO

      CEILING - 308,000  COST TO SELL     10,000 NRV                     298,000

NRV 298,000
NORMAL SELL PRICE. 13,000
NORMAL PROFIT MARGIN 285,000 LIFO METHOD

FIFO

NRV - 298,000

68
Q

calc, the gross margin of 20% the amount of purchases?

A

Here we first calc the COGS

Sales 275,000 x 20% gross margin = 220,000 - Begin Inventory 30,000 - 18,000 ending inventory = 208,000

69
Q

Calc, LTTI report as loss related to the purchase commitment as December current year?

A

start off with the 200,000 units x 3 years = 600,000 - 80,000 units = 520,000 units

70
Q

When a company goes from FIFO to LIFO in a period of rising prices, what happens to ending inventory and net income?

A

Decrease in both ending inventory and net income

71
Q

Are sales revenue always recognize?

A

No, they’re only recognized only for the amount of consideration to which the company expects to be entitled.

72
Q

Calc, the COGS in Y2?

A

Suppliers 490,000 + 25,000 = 515,000

Y1 - 50,000 - 75,000 = 25,000

515,000 + 30,000 = 545,000 COGS

73
Q

Calc, the cost of inventory of the purchase?

A

700 units of pro A 3750
freight-in 175
insurance cost 100
Bring product A 900

Total 4.925

74
Q

Calc. the COGS sold during reporting period?

A

Raw material 50,000
Direct labor costs 75,000
Direct labor 30,000

= Total 155,000 COGS Manufacuring

75
Q

Define the word “Net realized value (NRV)”

A

estimated selling price minus estimated costs of completion and disposal

76
Q

Calc, the payable for consigned goods?

A

So when there is a calc for consigner it’s usually the payable/receivable which is for the consignees

500 sales x 100 x 10% = 45,000

77
Q

Calc, the adjusting entry that should be recorded to adjust from average cost to LIFO?

A

AVG INVENTORY 375,000 - 320,000 LIFO COST = 55,000 - 35,000 = 20,000

Cost of goods sold 20,000
LIFO reserve 20,000

78
Q

Advantage of LIFO method?

A

The most recently incurred costs be allocated to the cost of goods sold this is very effective for the Cost of Goods during inflation times

79
Q

Weighted AVG costs of goods sold inventory?

A

Total of cost of 1250 + 116 + 440 = 1806

Units 200 + 80 + 20 = 300

1806 / 300 units = 6.02 x 10 60.20 units sold

80
Q

Calc, the No work in process inventory at the beginning or end of the year?

A

Step 1 - calc the material used

increased direct materials inventory
15,000
direct material purchased 430,000
Material used equally 415,000
Direct labor payroll 200,000
factory overhead 300,000
COGS MANUFACURED 915,000
ADD DEC FINISHED goods 35,000

No work in process 950,000

81
Q

Calc, the dollar value LIFO inventory at December 31?

A

First calc the index

577,500 ending inventory / 525,000 ending cost = 1.10

525,000 base layer cost - 500,000 = 25,000 x 1.10 = 27,500

500,000 + 27,500 = 527,500

82
Q

Calc, LIFO Method inventory net income?

A

FIFO
YEAR 2
270,000 - 240,000 = 30,000

FIFO
YEAR 2
210,000 - 200,000 = 10,000

30,000 - 10,000 = 20,000

NET INCOME PER FIFO 170,000 - 20,000 = 150,000

83
Q

Calc, the COGS for the year using the price discounts, and freight in cost?

A

Begin inventory 30,840
Purchase 102,800
Freight in. 15,420
Discounts 10,280

= COGS 118,220

84
Q

Can you report a sale if the product is expected to be returned?

A

No because product is expected to be return

85
Q

Calc, the Cost of goods available for sale?

A

1,000,000 GROSS SALES
900,000. NET SALES
x 60% COG must be 60%
540,000

1,000,000 - 540,000 = 460,000

540,000 + 200,000 = 740,000
Good available for sale equals cost of goods sold

86
Q

During times of rising prices which method should companies use?

A

FIFO bc lowest COGS and Highest Net Income

87
Q

Components are used in the calculation of the index number?

A

In the numerator, the ending inventory at current year cost in the denominator, the ending inventory at base year cost

88
Q

Cost of ending Inventory understated what affects does that cause for COGS and Net Income?

A

COGS - Overstated
Net Income - Understated

89
Q

Calc, the no work in process of inventory at the beginning & ending of the year?

A

Since there is no work in process of inventory the goods manufactured direct material used, direct, labor, overhead

Step 1 - to start off with the direct materials purchased

STEP 1
direct material purchased 430,000
increase in direct material inventory 15,000

Materials used 415,000

STEP 2
415,000
Direct labor payroll 200,000
factory overhead 300,000

915,000
Finished good inventory 35,000

Cost of goods sold 950,000

90
Q

Under the LIFO and the retail inventory method requires departure from the historical cost when the utility of inventory has fallen below cost

A

Market is the replacement cost of the inventory

91
Q

Calc, the current liability for the consignment?

A

Cash - 35,000
Trade accounts - 48,000
Allowance CL - 1,000
Inventories - 30,000
10,000

= current assets 122,000

Unsold goods should be added to consigned goods
13,000 x 130% = 10,000

92
Q

When inventory is using the inventory average method or any cost method other than LIFO or retail how do we measure them?

A

NRV or Lower of cost method

estimated selling price 215,000 - 10,000 estimated cost of disposal

93
Q

what method does the weighted AVG cost applies to?

A

The periodic method

94
Q

Calc, the COGS on the income statement at the end of the year? the retailer uses the perpetual inventory method?

A

Begin inventory - 30,000 units x 10 = 300,000
Purchased 3/5 10,000 units x 12 =120,000

300,000 + 120,000 = 420,000 Total inventory balance

begin inventory 10 + 12 purchase 3/5 = 10.50 units

Final step - 20,000 COGS x 10.50 units = 210,000

95
Q
A

Financial Accounting Reporting (24 decks)

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