Inventory

Question 1

Inventory is defined as tangible personal property?

Answer 1

1. Held for sale in the ordinary course of business (Finished Goods)
2. In the process of production for such sale (Work in Process)
3. To be used currently in the production of items for sale (Raw Materials)

Question 2

Regarding inventory, everything not sold appears in inventory on?

Answer 2

The balance Sheet

Question 3

Regarding inventory, everything sold appears in COGS on?

Answer 3

The income statement

Question 4

Periodic System?

Answer 4

FIFO, LIFO, & Weighted Average Methods

Inventory is counted periodically and then priced with an offset to COGS

Question 5

Perpetual System?

Answer 5

FIFO, LIFO, & Moving Average Methods

A running total is kept of the units on hand. An offset to COGS is recorded each time inventory is sold.

Question 6

What is the primary basis of accounting for inventories?

Answer 6

Cost

Question 7

Generally, what are the costs to be included in inventory?

Answer 7

Costs which are necessary to prepare the goods for sale.

Question 8

For a manufacturing entity, normal inventory costs include?

Answer 8

Direct Materials
Direct Labor
Direct & Indirect Factory Overhead

Question 9

Normal costs to include in inventory?

Answer 9

Freight-in
Handling Costs
Spoilage

Question 10

Costs normally associated with inventory that are for some reason abnormal, are treated how?

Answer 10

As periodic costs

Question 11

Interest on inventories routinely produced are treated how?

Answer 11

Period cost

Question 12

When does the Gross Method record purchase discounts?

Answer 12

When purchase discount is recognized.

Only if recognized will the purchase discount net against COGS

Question 13

When does the Net Method record purchase discounts?

Answer 13

Purchase discounts are assumed taken and will always net against COGS even if the discount is not taken.
An expense account - Purchase Discounts Lost would be debited to offset the discount not realized and would be treated as a period expense.

Question 14

Inventory Valuation Methods:

Answer 14

1. Specific Identification
2. Weighted Average
3. Moving Average
4. LIFO
5. FIFO

Question 15

What types of items is the Specific Identification Method use for?

Answer 15

Automobiles, appliances, jewelry, etc…

High dollar items that are uniquely traceable because of a unique identification number

Question 16

What account do you debit when purchasing materials under the Periodic System?

Answer 16

Purchases

Question 17

What account do you debit when purchasing materials under the Perpetual System?

Answer 17

Inventory

Question 18

COG Purchases is calculated how?

Answer 18

Gross Purchases
- Purchase Discounts
- Purchase Returns & Allowances
= Net Purchases
\+ Freight & Transportation
= Cost of Goods Purchased

Question 19

COGS is calculated how?

Answer 19

Beginning Inventory (COGS Account)
\+COG Purchased
= COG Available for Sale
- Ending Inventory (Equity Account)
= COGS

Question 20

How do you calculate the Weighted Average - Periodic?

Answer 20

1. Total Cost of Inventory (at end of period)/Total Units of Inventory for Period
   Do not include Sales of inventory
2. Multiply Sales Units by the above average cost

Question 21

How do you calculate Moving Average - Perpetual?

Answer 21

Same as above except every time a sale is made, you have to re-calculate moving average cost

Question 22

What is FIFO?

Answer 22

First In First Out

Question 23

What is LIFO?

Answer 23

Last In First Out

Question 24

What method yields the same results for both the periodic and perpetual systems?

Answer 24

FIFO

Question 25

In a period of rising prices, switching from FIFO to LIFO will yield?

Answer 25

1. Higher COGS 2. Lower NI 3. Lower Ending Inventory

Question 26

In a period of rising prices, switching from LIFO to FIFO will yield?

Answer 26

1. Lower COGS 2. Higher NI 3. Higher Ending Inventory

Question 27

In a period of falling prices, switching from FIFO to LIFO will yield?

Answer 27

1. Lower COGS 2. Higher NI 3. Higher Ending Inventory

Question 28

In a period of falling prices, switching from LIFO to FIFO will yield?

Answer 28

1. Higher COGS 2. Lower NI 3. Lower Ending Inventory

Question 29

What method does a better job of matching on the Income Statement?

Answer 29

LIFO

Question 30

What method does a better job of inventory valuation on the Balance Sheet?

Answer 30

FIFO

Question 31

When is a departure from the cost basis of pricing inventory necessary?

Answer 31

When the utility of inventory no longer matches its cost

Question 32

Market or Replacement Cost is limited to what?

Answer 32

``` Ceiling = Net Realizable Value (Selling Price - Selling Cost) Floor = Net Realizable Value - normal profit ```

Question 33

Can inventory valuation be written back up after it is written down?

Answer 33

NO There can be no recovery until the units are sold

Question 34

What type of inventory can be written up or down before the inventory is received?

Answer 34

Purchase Commitments

Question 35

Why is LIFO so widely adopted?

Answer 35

Because of the reduction of tax liability in periods of rising prices

Question 36

What is the result of a LIFO Liquidation?

Answer 36

Large profits due to lower valued layers being included in COGS

Question 37

What is the LIFO Conformity Rule?

Answer 37

If LIFO is used for tax purposes, it must be used for financial reporting as well

Question 38

What is a LIFO Reserve Account used for?

Answer 38

To reduce inventory from an internal valuation method used that is different from LIFO when the same entity uses LIFO for external financial reporting

Question 39

How does Dollar Value LIFO differ from LIFO?

Answer 39

Dollar Value LIFO applies LIFO to pools of inventory rather to individual items

Question 40

Does the LIFO Conformity Rule apply to Dollar Value LIFO?

Answer 40

Yes

Question 41

What is the advantage of using Dollar Value LIFO?

Answer 41

Inventory liquidation of LIFO Layers is less likely to occur because of the increased number of items in the pool

Question 42

What are the steps to applying Dollar Value LIFO?

Answer 42

1. Convert Nominal Ending Inventory to Base Year Ending Inventory by using a CPI 2. Find changes in each period by taking the difference between each base year 3. Convert Base Year differences to Nominal 4. Add

Question 43

Consignment goods remain in the inventory of who?

Answer 43

The Consignor

Question 44

Who bears the cost of shipping the goods to the Consignee?

Answer 44

Shared by the Consignor & Consignee

Question 45

When does the Consignor recognize revenue?

Answer 45

When the Consignee sells the goods

Question 46

How is the Inventory Turnover Ratio measured?

Answer 46

COGS/Average Inventory

Question 47

How is the Number of Days Supply in Average Inventory Ratio measured?

Answer 47

365/Inventory Turnover

Question 48

When is the Percentage of Completion method used?

Answer 48

When an entity can make dependable estimates regarding contract revenues, costs, and the extent of progress towards completion

Question 49

What is the formula for recognizing revenue under the percentage of completion method?

Answer 49

``` Gross Profit (Contract Cost - Total Est. Cost to Completion) x (Cost Incurred to Date)/(Total Est. Cost to Complete) ```

Question 50

Where is transportation cost to the Consignee located?

Answer 50

COGS

Question 51

IFRS allows you to re-value your inventory based on?

Answer 51

Lower of Cost or Net Realizable Value

Question 52

The Double Extension and Link Chain methods are two variation of which inventory cost flow method?

Answer 52

FIFO

Question 53

Regarding the Percentage of Completion Method, if at the end of the year, progress billings are greater than construction in process account then...

Answer 53

A liability is recorded

Question 54

Under IFRS, Specific Identification is required for inventory that is...

Answer 54

Not interchangeable