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Financial > Inventory > Flashcards

Inventory Flashcards

1
Q

Which costs are inventoriable?

A

Purchases - Net of Discounts, Freight, Warehouse expenditures

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2
Q

When does ownership of goods transfer when shipped FOB Shipping Point?

A

FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock

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3
Q

When does ownership transfer when goods are sent FOB Destination?

A

FOB Destination keeps the items in the seller’s inventory until it reaches the buyer

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4
Q

Which costs are non-inventoriable?

A

Sales Commissions

Interest on liabilities to vendors

Shipping expense to customers

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5
Q

When are discounts recorded under the gross method?

A

Under the gross method, discounts are recorded only when used.

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6
Q

Under the net method, when are discounts recorded?

A

Under the net method, discounts are recorded whether used or not.

Unused discounts are allocated to financing expense.

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7
Q

How is gross margin calculated?

A

Gross Margin : Sales - COGS (BI + P - EI)

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8
Q

Describe the periodic inventory system.

A

Inventory is counted at certain times throughout the period

Weighted-average cost flow method is used.

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9
Q

Describe the perpetual inventory system.

A

Inventory count continually updated

Uses a moving-average cost flow method

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10
Q

In periods of rising prices, under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?

A

Under the FIFO system, periodic and perpetual inventory methods will both have the same ending inventory.

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11
Q

How is inventory turnover calculated?

A

COGS / Average Inventory

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12
Q

How is Average Day’s Sales in inventory calculated?

A

365 / Inventory Turnover

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13
Q

Under a consignment system, who holds the consigned goods in inventory?

A

The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.

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14
Q

Under a consignment system, does the consignee hold consignment inventory in their own inventory?

A

No. Consignment goods are maintained in the inventory of the consignor, not the consignee.

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15
Q

What effect does overstatement or understatement of inventory have on ending retained earnings?

A

Misstatement of beginning inventory does NOT have an effect on ending retained earnings.

Misstatement of ENDING inventory does have an effect on retained earnings.

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16
Q

How does misstatement of ending inventory effect Ending Retained Earnings?

A

EI Over : COGS Under : ERE Over

EI Under : COGS Over : ERE Under

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17
Q

Which costs are included in COGS first under the FIFO (first in first out) system?

A

The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it, COGS is $1

This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes

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18
Q

Which costs are included in COGS under the LIFO (last in first out) system?

A

The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it, COGS is $1.50

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19
Q

How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?

A

COGAS / Total Units : Weighted Average Cost Per Unit

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20
Q

How does FIFO’s COGS relate to LIFO’s in a time of changing prices?

A

FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.

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21
Q

How do FIFO and LIFO change in a period of rising prices?

A

FIFO has the Lowest COGS

FIFO is a cat that sees a mouse starts Low and is Rising

If COGS is Low, that means EI is High

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22
Q

How do FIFO and LIFO change in a period of falling prices?

A

FIFO has the Highest COGS

Remember: FIFO, that silly cat, got High from Catnip and is Falling off the couch

If COGS is High, that means EI is Low

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23
Q

Under a Lower of Cost or Market, how are the benchmarks calculated?

A

Market Ceiling : Net Realizable Value : Selling Price - Selling Costs

Market : Replacement Cost

Market Floor : Net Realizable Value - Normal Profit

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24
Q

How is the cost method used in recording treasury stock? (L)

A

Where the “cost” method is used, acquisitions are recorded at cost and the total cost is shown in the balance sheet as a reduction of stockholders’ equity.

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25
Q

What are Available for sale securities and how are they recorded? (L)

A

Debt and equity securities not classified either as held-to-maturity securities or trading securities are classified as available for sale securities and are reported at fair value.

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26
Q

ASC 20-25% guideline regarding Stock Splits and Stock Dividends (L)

A

In ASC 505, a guideline was established that where additional shares were issued, less than 20% or 25% of the total shares outstanding indicated a stock dividend; whereas a distribution in excess of that indicated a stock split.

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27
Q

The transfer of a security between categories must be accounted for at _________. (L)

A

Fair Value

28
Q

Name three ways that Capital Stock can be recorded: (L)

A

1) Par Value
2) No-Par Value (Stated Value)
3) No-Par Value (No Stated Value)

29
Q

A legal right usually granted to stockholders is the pre-emptive right which allows: (L)

A

The individual stockholders to subscribe to any additional issues of the same class of stock on a pro rata basis

30
Q

How is the par-value method used in recording treasury stock? (L)

A

The par-value method results in the shares being recorded at par with the treasury shares shown in the balance sheet as a reduction of capital stock outstanding.

31
Q

If a transaction is considered a stock dividend (ASC 505) retained earnings should be capitalized based on? (L)

A

If the transaction is a stock dividend, capitalize retained earnings based on fair value of additional shares issued

32
Q

Advantage of the pre-emptive right for stockholders (L)

A

This privilege allows the existing stockholders to maintain their relative interests in the corporation’s earnings, assets, and management.

33
Q

Does the investor’s position of ownership change with a stock split? (L)

A

The investors’ relative position of ownership interests is unchanged; there are merely more shares representing the ownership rights.

34
Q

Name a general purpose of donated stock. (L)

A

May be purchased to buy out a stockholder, or to create a market demand for the stock and thus retard a downward trend in the market value.

35
Q

Stock Split (L)

A

A distribution of additional shares effected to reduce the market price per share

36
Q

True or False? A company cannot affect the income statement by trading in its own stock. (L)

A

True, a company cannot affect the income statement by trading in its own stock.

37
Q

Legal Capital (L)

A

Legal capital is that portion of corporate capital required by state statute to be retained in the business to afford creditors a minimum degree of protection.

38
Q

Retained Earnings Balance (L)

A

Retained earnings balance is cumulative net income of a corporation from date of incorporation or reorganization, after deducting losses, distributions to stockholders, transfers to capital accounts, and after accounting for prior period adjustments.

39
Q

For available for sale securities IFRS requires that the unrealized gain be reported as a: (L)

A

Part of other comprehensive income

40
Q

If the donated stock is not to be resold, how should the company treat it? (L)

A

The company should effect a formal reduction of its stated capital.

41
Q

If a transaction is a stock split (ASC 505), what are the two ways it can be recorded? (L)

A

Stock split with no change in total capital or retained earnings are capitalized to the extent of the par or stated value of the shares.

42
Q

True or False? Tradable is an acceptable method of recording investments under IFRS. (L)

A

False, tradable is not an acceptable method of recording investments under IFRS.

43
Q

Treasury Stock (L)

A

Treasury stock is a corporation’s own stock, once issued and fully paid, and later reacquired but not canceled in accordance with a formal procedure specified by law.

44
Q

Retained earnings should never/always be increased as a result of treasury stock transactions. (L)

A

Retained earnings should never be increased as a result of treasury stock transactions.

45
Q

In published statements this element of stockholders’ equity is normally shown under one title; however, separate accounts must be maintained in the accounting records by source. (L)

A

Capital Contributed in Excess of Par Value of Stock

46
Q

When treasury stock is purchased, how should the cost be handled? (L)

A

The cost of treasury stock, regardless of par, should be carried as the value of treasury stock as a reduction of stockholders’ equity.

47
Q

Name five characteristics of Preferred Stock. (L)

A

1) Fixed dividend rate
2) Preference in liquidation of assets
3) Participating or non-participating. Participation must be stated in problem.
4) Cumulative or non-cumulative.
5) Absence of voting rights

48
Q

The total cost of treasury stock carried should be shown as a ___________ of retained earnings in the balance sheet. (L)

A

restriction

49
Q

When preferred stock is redeemed, what are preferred shares entitled to receive? (L)

A

Par value
Dividends (in arrears if cumulative and any participating dividends)
Redemption premium

50
Q

Subscription of capital stock occurs when? (L)

A

A subscription of capital stock occurs when an investor contracts to purchase stock, making payment(s) in the future. Usually, a partial payment is made at the time of the contract and the stock is not issued until final payment has been made.

51
Q

How should be “Gains” on capital stock acquired (for reasons other than retirement) be treated? (L)

A

“Gains” on sales of treasury stock not previously accounted for as constructively retired should be credited to capital in excess.

52
Q

Preferred Stock Participation in Dividends

Rule #1 (L)

A

When the common stock has a par or stated value, participation is allocated on the aggregate dollar amount of preferred and common stock outstanding. Current dividends should be the same percentage of total par value of each class of stock outstanding.

53
Q

Why would a company consider doing a quasi-reorganization? (L)

A

Assets may be overvalued and/or the corporation may have a deficit in its retained earnings account. These factors may hinder the corporation’s ability to attract investors because dividends are unlikely.

54
Q

How should be “Losses” on capital stock acquired (for reasons other than retirement) be treated? (L)

A

“Losses” should be charged to capital in excess to the extent that previous net “gains” from sales or retirements of the same class of stock are included therein, otherwise to retained earnings.

55
Q

Preferred Stock Participation in Dividends

Rule #2 (L)

A

When the common stock is no-par with no stated value, retained earnings available for participation is based on the number of shares of preferred and common stock outstanding.

56
Q

Name four characteristics of a quasi-reorganization. (L)

A

1) The corporate entity remains intact.
2) Recorded asset values should be readjusted to the fair value.
3) A deficit is eliminated (usually).
4) Facts must be disclosed.

57
Q

If a subscriber defaults on a subscription contract the default could result in these four occurrences: (L)

A

1) Forfeiture of all amounts paid.
2) Refund of amount paid.
3) Partial refund.
4) Issuance of shares in proportion to amount paid for.

58
Q

ASC 320 General Definition (L)

A

This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and all investments in debt securities.

59
Q

The terms “Gains” and “Losses” regarding treasury stock. (L)

A

The terms “gains” and “losses” are used in connection with describing the transaction; however, treasury stock transactions do not result in net income for financial reporting purposes. Also, treasury stock transactions are not taxable.

60
Q

In computing Book Value, if there is only one class of stock, book value is based on what? (L)

A

The number of shares issued and outstanding, excluding treasury shares.

61
Q

ASC 320 states the fair value of an equity is readily determinable if? (L)

A

The fair value of an equity security is readily determinable if sales prices are currently available on a registered securities exchange, publicly reported over-the-counter market, or comparable foreign market.

62
Q

Name four elements of Stockholder’s Equity (L)

A

1) Contributed Capital:
* Capital Stock (Legal Capital)
* Capital Contributed in Excess of Par or Stated Value
2) Retained Earnings
3) Treasury Stock
4) Accumulated Other Comprehensive Income

63
Q

Held-to-maturity Securities (L)

A

Debt securities that the entity has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are reported at amortized cost.

64
Q

Name the two accounting methods used in recording with treasury stock. (L)

A

1) Cost (preferable)

2) Par-value or retirement method

65
Q

Do stock dividends or stock splits change stockholder’s equity? (L)

A

No, neither a stock dividend nor a stock split change stockholders’ equity.

66
Q

Trading Securities (L)

A

Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized holding gains and losses included in earnings.

Financial (26 decks)

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