FAR 3.3 - Inventory

Question 1

Title passes to the buyer when the seller delivers the goods to a common carrier:

Answer 1

FOB shipping point

Question 2

Title passes to the buyer when the buyer receives the goods from the common carrier:

Answer 2

FOB destination

Question 3

Which is freight in and which is freight out:
FOB shipping point
FOB destination

Answer 3

FOB shipping point = freight in
FOB destination = freight out

Question 4

If the seller ships the wrong goods to the buyer, who has title of the goods?

Answer 4

The title reverts to the seller upon rejection by the buyer

Question 5

Cost of inventory includes: freight in or freight out?

Answer 5

Freight in

Question 6

What are the 4 methods used to determine the cost of inventory?

Answer 6

FIFO
LIFO
Average cost
Retail inventory method

Question 7

Inventory is stated at cost, however, precious metals, meat, aaand some agricultural products aare valued at:

Answer 7

Net realizable value (selling price - cost of disposal)

Question 8

This method is used for all inventory that is costed using the FIFO or weighted average method

Answer 8

The lower of cost and net realizable value method

Question 9

This method is used for all inventory that is costed using the LIFO or retail method:

Answer 9

Lower of cost or market value

Question 10

Under the lower of cost or market value method, what are the three values used to determine the market value (the median value)?

Answer 10

1. Replacement cost
2. Market ceiling = selling price - cost to complete and dispose
3. Market floor = selling price - cost to complete and dispose - normal profit margin

Question 11

How many journal entries at the time of sale does the periodic inventory system use?
How many journal entries at the time of sale does the perpetual inventory system use?

Answer 11

Periodic inventory system - one journal entry
Perpetual inventory system - two journal entries

Question 12

Under the periodic method, cost of goods sold is calculated as:

Answer 12

Beginning inventory + purchases = cost of goods available for sale

Cost of goods available for sale - ending inventory = cost of goods sold

Question 13

In periods of rising prices, which method results in the highest ending inventory? FIFO or LIFO

Answer 13

FIFO

Question 14

In periods of rising prices, which method results in the highest cost of goods sold? FIFO or LIFO?

Answer 14

LIFO

Question 15

In periods of rising prices, which method results in the highest net income? FIFO or LIFO?

Answer 15

FIFO

Question 16

What is the formula used under the weighted average method (periodic system)

Answer 16

Total number of units of inventory available / total cost of inventory available

Question 17

What is the formula used in the moving average method (perpetual system)

Answer 17

Total cost of inventory available after each purchase / total units available after each purchase

Question 18

To compute the LIFO layer added in the current year at dollar value LIFO, the LIFO layer at base year cost is multiplies by:

Answer 18

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