Inventory

Question 1

What is retail inventory?

Answer 1

Finished goods for resale

Question 2

When does title pass from the seller to the buyer of goods?

Answer 2

In the manner and under the conditions explicitly agreed upon by the parties

Question 3

If no conditions are agreed upon for passing of title, when is the title passed?

Answer 3

At the time and place where the seller’s performance regarding delivery of goods is complete

Question 4

When does title pass in FOB Shipping Point?

Answer 4

When the seller delivers the goods to a common carrier

Question 5

When does title pass in FOB Destination?

Answer 5

When the buyer receives the goods from the common carrier

Question 6

GAAP requires that inventory be stated at?

Answer 6

Cost

Question 7

What are the 2 exceptions for the departure of the cost basis?

Answer 7

Lower of cost or market and precious metals and farm products

Question 8

Gold, silver, and other precious metals, and meat and some agricultural products are valued at?

Answer 8

Net realizable value

Question 9

What is the formula for Net realizable value?

Answer 9

Net selling price - costs of disposal

Question 10

What is the purpose of reducing inventory to the lower of cost or market?

Answer 10

To show the probable loss sustained in the period in which the loss occurred

Question 11

What principle is for showing the probable loss sustained?

Answer 11

Conservatism

Question 12

What principle is showing the loss in the period incurred?

Answer 12

Matching

Question 13

What does the term market mean in the phrase lower of cost or market?

Answer 13

Current replacement cost

Question 14

What is the rule regarding market cost?

Answer 14

Current replacement cost shouldn’t exceed net realizeable value or fall below net realizable value reduced by normal profit margin

Question 15

What is the market ceiling?

Answer 15

Net realizable value

Question 16

What is the market floor?

Answer 16

Net realizable value - normal profit margin

Question 17

Under US GAAP, are reversals of inventory write-downs prohibited?

Answer 17

Yes

Question 18

IFRS require inventory to be reported at?

Answer 18

The lower of cost or net realizable value

Question 19

What is the journal entry to record the write-down to a separate account?

Answer 19

Dr. Inventory loss due to decline in market value, Cr. Inventory

Question 20

What are the 2 types of inventory systems used to count inventory?

Answer 20

Periodic and perpetual inventory systems

Question 21

What is the formula for Cost of Goods Sold in the periodic inventory system?

Answer 21

Beginning inventory + Purchases = Cost of Goods Available for sale - Ending inventory = Cost of goods sold

Question 22

When is the inventory record updated in the perpetual inventory system?

Answer 22

Each item of inventory is updated for each purchase and each sale as they occur

Question 23

What cost flow assumption method is prohibited under IFRS?

Answer 23

LIFO

Question 24

In the periods of rising prices, the FIFO method results in?

Answer 24

Highest ending inventory, lowest costs of goods sold, and the highest net income

Question 25

How is the weighted average determined?

Answer 25

Dividing the total costs of inventory available by the total number of units of inventory avialable

Question 26

How is the moving average method calculated?

Answer 26

Computes the weighted average cost after each purchase by dividing the total cost of inventory available after each purchase by the total units available after each purchase

Question 27

In the periods of rising prices, the LIFO method results in?

Answer 27

Lowest ending inventory, the highest costs of goods sold, and the lowest net income

Question 28

What is the formula for price index?

Answer 28

Ending inventory at current year cost / Ending inventory at base year cost