Inventory

Question 1

What is the formula to determine Cost of Goods Sold using Inventory Balances?

Answer 1

Cost of Goods Sold = Beg Inventory Plus Purchases Less Ending Inventory

Question 2

Periodic Inventory

Answer 2

Inventory record gets updated at the end of the accounting period.

Question 3

Perpetual Inventory

Answer 3

Inventory record gets updated for each purchase and sale.

Question 4

FOB Shipping Point vs FOB Shipping Destination

Answer 4

FOB Shipping point - buyer assumes responsibility as soon as goods leave the seller’s location.

FOB Shipping destination - buyer receives title of ownership when product reaches the buyer’s location.

Question 5

Consignor vs Consignee

Answer 5

The Consignor is the sender or shipper of goods. Responsibilities include packing and labeling goods, arranging transportation, ensuring proper documentation, paying for freight and insurance. Example: A manufacturer shipping products to a retailer.

The Consignee is the receiver or recipient. Responsibilities: receiving and inspecting the goods, unpacking and unloading, completing any necessary documentation for customs clearance, paying import duties, taxes, handling fees. Example: A retailer receiving products from a manufacturer.

Ownership of the goods or the consignment remains with the Consignor (sender) until the goods have been paid for in full by the Consignee (receiver).

Question 6

Lower of Cost or Market Rule

Answer 6

Lower of Cost of Market Rule requires companies to value their inventory at the lower of either its historical cost or its current market value, preventing overstatement of inventory on the balance sheet.

Question 7

How do you calculate Net Realizable Value in inventory accounting?

Answer 7

NRV = Estimated Selling Price - Estimated Costs of Completion of Sale.

Question 8

How do you calculate Moving Avg Method in inventory accounting?

Answer 8

Moving Avg = Total Cost of the Items Purchased / Number of Items in Stock.

Question 9

LIFO - Pass Key

Answer 9

In periods of rising prices, the LIFO method generally results in the lowest ending inventory, the highest COGS and the lowest Net Income.

LIFO =
Lowest Ending Inv
Highest COGS
Lowest Net Income

Question 10

FIFO - Pass Key

Answer 10

In periods of rising prices, the FIFO method results in the Highest Ending Inv, the Lowest COGS and the Highest Net Income (current costs are not matched with current revenues).

FIFO =
Highest Ending Inv
Lowest COGS
Highest Net Income

Question 11

The replacement cost of an inventory item is below the NRV and above the NRV less a normal profit margin. The inventory item’s original cost is above the NRV. Under the Lower of Cost or Market Method, the inventory item should be valued at:

Answer 11

REPLACEMENT COST