Chapter 3 - Inventory Flashcards Preview

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Flashcards in Chapter 3 - Inventory Deck (42)
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1
Q

Inventory are ____ items held for sale in the __________ of business, or goods that will be _________in the production of goods to be sold.

A

Asset; Ordinary course; Used/Consumed

2
Q

(Manufacturer) “Merchandise” may be categorized into 3 types, which are… (FWR)

A
  1. Finished goods (held for sales)
  2. Work in progress (in the course of production)
  3. Raw materials (to be consumed in the production)
3
Q

(Distributor) ______ and ______ MUST be distinguished.

A

Inventory; Supplies (there is NO inventory for SERVICES)

4
Q

(Inventory) What goes under “debit”?

A
  1. Beginning inventory
  2. Acquisition cost
  3. Goods in transit (considered as asset)
5
Q

(Inventory) How do you calculate “acquisition cost”?

A

Quantity x Price

6
Q

(Inventory) What must be considered to calculate “price” of acquisition cost? (TLIPP)

A
  1. Trade discount
  2. Losses during goods in transit (shipping, destination)
  3. Incidental costs
  4. Purchase allowance & return
  5. Purchase discount
7
Q

What are the types of “trade discounts”? (PQ)

A
  1. Price discount

2. Quantity discount (for bulk orders)

8
Q

Price under “acquisition cost” must be _____

A

Invoice price (actually transacted price)

9
Q

Conditions for liability may be contractually established in 2 ways:

A
  1. FOB Shipping point, (once shipped, buyer is liable)

2. FOB Destination point (until arrival at buyer’s place, seller is liable)

10
Q

What are some examples of “incidental costs”? (FIH)

A
  1. Freight-in cost
  2. Insurance cost
  3. Handling cost
11
Q

“Purchase allowance and return” is recorded when _____

A

Seller authorizes it

12
Q

(Destination point) “Freight-out cost”/transportation cost (transportation from warehouse to port) is considered _____

A

Selling expense (incurred by seller)

13
Q

What is a “credit term?”

A

Offer of a cash discount on payments within a specified period

14
Q

(Credit term) What does “2/10, n/30” mean?

A
  1. Discount of 2% if payment is made within 10 days

2. If discount is not taken, then the entire (gross) amount is due in 30 days

15
Q

What are the two methods of “purchase discount”? (GN)

A
  1. Gross method - Records sales without regard to discounts

2. Net method - Records sale net of the discount

16
Q

For cost allocation, what are the 2 types of “quantity” determination? (PP)

A
  1. Perpetual inventory system

2. Periodic inventory system (physical counting method)

17
Q

Perpetual inventory system ________ tracks changes in the inventory account. CGS is recorded at ________ by debiting _______ and crediting _______

A

Continuously; Time of each sale; CGS; Inventory

18
Q

Periodic inventory system determines inventory quantity only ______ by subtracting the ________ from the _________ available for sale. CGS is a ______ that depends on physical count at the end.

A

Periodically; Ending inventory; CGS; Residual amount

19
Q

What are the 3 methods for “price determination”? (SCG)

A
  1. Specific identification method
  2. Cost flow assumption
  3. Gross profit method
20
Q

What are the 3 types of “cost flow assumption”? (FAL)

A
  1. FIFO (First In, First Out) method
  2. Average method (moving average - perpetual system; total average - periodic system)
  3. LIFO (last In, First Out) method
21
Q

When do companies/auditors use “gross profit method”?

A
  1. When fire/other disaster destroys either inventory or inventory records
  2. Auditors use it when they need an estimate of the company’s inventory (e.g., interim reports)
22
Q

(Valuation) When the _______ of goods is no longer great as their _____, then a departure from the cost basis principle to measure inventory is required.

A

Utility; Cost

23
Q

(Valuation) New valuation is accomplished by stating such goods at _____ or _______. (LCN)

A

Lower cost; Net realizable value (NRV)

24
Q

For US GAAP, restoration is/is not permitted.

For IFRS, restoration is/is not permitted.

A

IS NOT;

IS

25
Q

Under “Purchase” account, debit is _____, and credit is ______

A

Inventory; Accounts payable

26
Q

Under “Allowance” account, debit is _____, and credit is ______

A

Accounts payable; Purchase allowance 10

27
Q

Under “Returns” account, debit is _____, and credit is ______

A

Accounts payable; Inventory

28
Q

“Allowance” and “Return” accounts are recorded when _____

A

Counterpart authorizes the recording (but inventory may be in buyer’s warehouse until seller takes back)

29
Q

(Purchase Discount) Under “Gross Method,” debit is _______, and credit is ______.

Discount recording occurs at _____; Debit is ______, and credit is ________.

A

Inventory (total); Accounts payable (total) - Assumption that there is no discount

Deadline; Accounts payable; Cash and Discount taken

30
Q

(Purchase Discount) Under “Net Method,” debit is ______, and credit is _____.

A

Inventory (discounted); Accounts payable (discounted)

31
Q

(Under Net Method) “Discount Not Taken” is considered as _____

A

Interest expense

32
Q

Both “Gross Method “ and “Net Method” are recognized by _____

A

GAAP

33
Q

(Price determination) “Specific identification method” is used for goods that are ______ or _____

A

Expensive; low in quantity (“price tag method”)

34
Q

“Inventory” account must be balanced with either _____ and/or ______

A

CGS; Ending inventory

35
Q

(LCN Valuation) For the price of “Ending Inventory” is determined by _____. Market value is used when it is _____ than original price. Market value is NOT used when it is _____ than original price.

A

Market value (fair value); Lower; Higher

36
Q

What are the 2 methods for valuation of price? (HC)

A
  1. Historical cost (acquisition cost)

2. Current market price

37
Q

What are the two types of “current market price”? (IO)

A
  1. Input market -> Replacement cost

2. Output market -> Selling price (realizable value) OR Net realizable value (NRV)

38
Q

Net realizable value (NRV) = ?

A

Realizable value (RV) - Additional sales expenses

39
Q

“Fair value” can refer to both ______ (specific by agreement) OR _____ (general)

A

Selling price; Current market price (one of)

40
Q

When do you “Gross Profit Method” for price determination?

A
  1. Destroyed inventory/records
  2. Insurance costs
  3. Sub-periodic/interim reports
41
Q

(Gross Profit Method) CGS is calculated by:

A

Sales x (1 - past income percentage)

  • (1 - past income percentage) is past CGS
42
Q

(Valuation)
Debit: ____
Credit: _____

A

Loss due to market decline/Loss on LCN;

Allowance for LCN