FAR-Inventory

Question 1

Is the moving average method on a periodic or perpetual basis?

Answer 1

perpetual

Question 2

When is COGS determined under the weighted average method?

Answer 2

This method is only available under the periodic method, so COGS is not available until the end of the period when the inventory is counted.

Question 3

What are the three ‘elements’ evaluated when determining how to value inventory under LCM?

Answer 3

NRV: Ceiling; Net Realizable Value. Sales Prince-Cost of Disposal
Replacement Cost
NRV-Normal Profit; Floor

Question 4

Calculate COGS when using the Periodic Method

Answer 4

Subtract EI from Inventory available for sale.

Question 5

What is Freight-out?

Answer 5

Delivery expense to be paid by the seller when its merchandise is sold with terms of FOB destination. This is an operating expense and is not included in the cost of merchandise.

Question 6

What is Freight-in?

Answer 6

The shipping cost to be paid by the buyer of merchandise purchased when the terms are FOB shipping point. Freight-in is considered to be part of the cost of the merchandise and should be included in inventory if the merchandise has not been sold.

Question 7

What is a consignor?

Answer 7

In a consignment agreement, the consignor is the party that legally owns the goods that are for sale and is responsible for all risks and expenses.

Question 8

What is a consignee?

Answer 8

In a consignment agreement, the consignee is the party that physically hold the inventory and sells the inventory, but does not retain any ownership.

Question 9

How do you calculated Goods Available For Sale from COGS?

Answer 9

COGS + Ending Inventory = Goods Available For Sale

Question 10

How is Cost of Goods Sold Calculated?

Answer 10

Beginning Inventory + Purchases=Goods Available for Sale

Goods Available for Sale - Ending Inventory=Cost of Goods Sold

Question 11

Which method results in the highest cost of goods sold if prices are rising?

Answer 11

LIFO

Question 12

Which method leaves ending inventory unaffected by whether a perpetual or periodic system is used if goods are not specifically identified?

Answer 12

FIFO

Question 13

Which method reflects the actual physical flow of goods?

Answer 13

Specific Indentification

Question 14

Which method determines cost only at period end but usable in a perpetual system that records only quantities?

Answer 14

Weighted-Average Costs

Question 15

Which method has ending inventory approximates current cost?

Answer 15

FIFO

Question 16

Which method requires an estimate of price-level changes for specific inventories?

Answer 16

Dollar Value LIFO

Question 17

How does FIFO affect earnings during a time of rising prices?

Answer 17

If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.