Question

1.Goods in transit shipped

FOB shipping point should be included in the buyer’s ending inventory.

FOB shipping point should not be included in the buyer’s ending inventory.

FOB destination should not be excluded from the buyer’s ending inventory.

FOB destination should not be included in the seller’s ending inventory.

2.An error

that understates the ending inventory will cause the cost of goods sold for the period to be understated.

in the ending inventory of the current period will have no effect on net income of the next accounting period.

that understates the ending inventory will cause net income for the period to be overstated.

that understates the ending inventory will cause assets to be understated.

3.Wholesome Ltd. has a days in inventory ratio of 50 and average inventory of $320,000. What is its cost of goods sold?

cannot be determined

$16,000,000

$2,191,780

$2,336,000

4.the managers of Winning Ways Ltd. receive performance bonuses based on the company’s net income. Which inventory cost formula are they likely to favour in periods of declining prices?

Average cost.

FIFO.

Need more information to answer.

They would have no preference.

5.

Which one of the following statements is true?

Depreciation is a valuation concept; that is, we allocate costs to reflect the actual change in the value of the asset.

The adjusting entry for unearned revenues results in an increase to a liability account and a decrease to a revenue account.

Expiration of one month of an insurance policy paid in advance, initially recorded by debiting Prepaid Insurance, results in an adjusting entry that reduces the company's liabilities.

Adjusting entries never affect cash.

None of the above is true.

6.Under a perpetual inventory system

there is no need for a year-end physical count.

the account Purchase Returns and Allowances is credited when goods are returned to vendors.

increases in inventory resulting from purchases are debited to Purchases.

accounting records continuously disclose the amount of inventory.

Answer 1

1. FOB shipping point should not be included in the buyer’s ending inventory. As the risk & reward are not transferred to buyer untill the goods reaches its destined port.

2. that understates the ending inventory will cause net income for the period to be overstated. As closing inventory is deducted from the Cost of purchase to find the cost of goods sold.

3. Inventory turnover ratio = 365/50 =7.3

Cost of Goods sold = 7.3×320,000

=2,336,000

4. Average Cost as the Closing stock under Fifo will be less that will increase the Cost of Godds sold thus decrease the Net income.

5. The adjusting entry for unearned revenues results in an increase to a liability account and a decrease to a revenue account. As revenue is not yet earned so it will constitute to liability till then.

6. increases in inventory resulting from purchases are debited to Purchases. As purchases are debited at time of purchase, mode of inventory valuation chosen don't change this.

Hope this makes contribution to your success. Hit Like to motivates the experts to provide quality solutions.

Any feedback will also be appreciated.

Best of luck?!