Module 10

Question 0

The cost assigned to inventory is a component of 2 items. What are they?

Answer 0

The # of units included in inventory and the costs attached to those units.

Question 1

What is Inventory?

Answer 1

Tangible Personal Property (1) held for sale in the ordinary cause of business (2) in the process of production for such sale, or (3) to be used currently in the production of items for sale.

Question 2

What are the normal costs to be included in inventory?

Answer 2

All costs to prepare the goods for sale. Freight-in, handling costs, normal spoilage.

Question 3

How is fixed overhead allocated for a production facilities?

Answer 3

It is allocated based on normal capacity of the production facilities.

Question 4

How is variable overhead allocated in a production facility?

Answer 4

It is allocated to each unit of production based on the actual use of the production facilities.

Question 5

Is interest on inventories routinely produced capitalized as part of inventory costs?

Answer 5

No. They would be expensed

Question 6

How are purchases always presented on the income statement?

Answer 6

They are always recorded net of any allowable trade discounts.

Question 7

What is the formula to get Cost of Goods Sold?

Answer 7

Beginning inventory + Purchases - ending inventory = COGS

or Purchases - Change in Inventory - COGS

Question 8

How do you calculate purchases?

Answer 8

Take Gross Purchases - Purchases discounts - Purchase Returns and Allowance +Freight in = COG Purchased

Question 9

What is the periodic system for inventory evaluation?

Answer 9

Inventory is counted periodically and then priced

Question 10

What is a perpetual system for inventory evaluation?

Answer 10

a running total is kept of the units on hand by recording all increases and decreases as they occur.

Question 11

What are examples of periodic inventory systems?

Answer 11

Weighted Average, FIFO and LIFO

Question 12

What are examples of Perpetual inventory systems?

Answer 12

Moving average, FIFO and LIFO

Question 13

Which inventory valuation system better matches the balance statement during periods of rising prices?

Answer 13

FIFO

Question 14

Which Inventory valuation system better matches to the Income statement during times of increasing prices?

Answer 14

LIFO

Question 15

What happens when something is Shipped FOB Destination?

Answer 15

The seller bears ALL The costs of transporting the goods to the buyer

Question 16

What is the Lower of Cost of Market, and how does it relate to inventory

Answer 16

It stipulates that a departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great at its costs. It means the the inventory needs to be reevaluated.

Question 17

What are the Steps to apply the Lower of Cost or Market?

Answer 17

1) Determine Market - Market is replacement costs limited to a Ceiling or a Floor.
Ceiling - NRV (( Selling price - (selling costs + Costs to Complete)?
Floor - NRV - normal profit
2) Determine Cost
3) Select the lower of the cost or the market.

If costs is above ceiling - choose ceiling
If Costs is between floor and ceiling - Choose Costs
If Costs are below Floor - Choose Floor

Question 18

Can you recover from an inventory that has been written up, if the market rebounds?

Answer 18

No, you cannot realize the increase until the inventory is sold.

Question 19

If LIFO is used for tax purposes, must you use it for Financial reporting purposes?

Answer 19

Yes, this is knows as the LIFO conformity rule

Question 20

Which method smooths fluctuations in the income stream relative to FIFO because it matches current costs with current revenues?

Answer 20

LIFO

Question 21

What is Dollar Value LIFO

Answer 21

when LIFO is applied to pools of inventory items rather than to individual items

Question 22

What is the gross profit for inventory evaluation, and when is it used?

Answer 22

It is estimating ending inventory by using the gross profit % to convert sales to COGS. It is used for internal use, interim statements, and for establishing the amount of a loss due to flooding or fire.

Question 24

How do you compute the gross profit percentage? If using GP % to Costs

Answer 24

1) You solve for ex. Sales(100%) - X = GP Percentage. 2) Compute Ending Inventory and use the formula: Beg. Inventory + COG Purchased = COGAS = Ending Inventory - COGS

Question 25

What does the term FOB Shipping point mean?

Answer 25

Items in transit should be included in the inventory of the buyer since title passes to the buyer when the carrier receives the goods.

Question 26

What does the term FOB Destination mean?

Answer 26

Items in transit should be included in the inventory of the seller until the goods are received by the buyer since title passes to the buyer when the goods are received at their final destination

Question 27

What is the inventory turnover ratio?

Answer 27

COGS / Average Inventory

A higher inventory turnover is typically better

Question 28

What is the # of days’ supply in average inventory ratio?

Answer 28

365 / Inventory Turnover

Question 29

When do you recognize income on a completed contract method method for Income Recognition?

Answer 29

No income is recognized until the project is completed. Once completed the entire amount is recognized

Question 30

When do you recognize income on a percentage-of-completion method?

Answer 30

you apportionment the income to each year by taking the Gross Profit % * (Cost incurred to date / total estimated cost to complete)

Question 31

What do you need to remember when calculating the percentage of completion method?

Answer 31

In subsequent years you need to back-out previously recognized revenues. . Also The estimated costs to complete is equivalent to the costs incurred to-date + the estimated cost to complete

Question 32

What type of account is Billings on Contracts?

Answer 32

It is a contra asset account to construction in process current asset account

Question 33

In dollar value LIFO, LIFO is applied in pools of inventory items rather than to infividual items, which has you look at inventory items as pools and applied against a conversion price index. What is the formula for the index?

Answer 33

EI at end-of-period prices / EI at base year prices