Question

1. Consider this FOB Destination- FOB Shipping Point scenario:

Brian Inc. sold $1,000,000 worth of inventory/merchandise to Lisa Enterprises on Feb 14, 2020.

The inventory was loaded onto a truck and shipped from Cali to NY that same day- Feb 14, 2020

It is expected to arrive in NY on Feb 14, 2020

Based on the shipping documents this shipment to NY is being sent FOB Destination

Who does the $1,000,000 worth of inventory/ merchandise belong to on Feb 18, 2020 while the shipment is in transit from Cali to NY- Brian Inc. or Lisa Enterprises?

a. The inventory still belongs to Brian Inc. on Feb 18,2000

b. The inventory belongs to Lisa Enterprises

c. No answer text provided

2. Failure to prepare and record an adjusting entry, at the end of a reporting period, can cause financial statements to be misleading. If the accountants does not record additional revenue earned on the last day of the reporting period (assume a new sale):

a. Net Income will be overstated (artificially high)

b. No answer text provided

c. Liabilities will be understand (artificial low)

d. Revenues will be understand (artificially low) and assets will be understand (artificially low)

3. Is Match the user group to their classification external or internal users?

4. A company (the purchaser) uses the perpetual inventory method….and pays the transportation/ shipping costs to bring that inventory to their physical warehouse. This transportation/shipping costs would impact the accounting records as follows:

a. Inventory account is not affected

b. Freight-in accounts is increased

c. nventory account is increased

d. Delivery Expense account is increased

Answer 1

1.

Answer is a. The Inventory still belongs to Brian Inc. on Feb 18, 2020 as the Goods are still in Transit and the Terms are FOB destination.

Once the consignment reaches the destination, the title to the goods is transferred to Lisa.

2.

Answer is D.

Not recording a sale will lead to understatement of Revenues and Understatement of Assets. In case of assets, to the extent of the profit margin.

3. Question is not Clear and miissing some information.

There are two types of users for financial statements.

Internal and External Users.

Management, Board of Directors, Owners, Internal Departments are Internal Users.

Investors, Creditors, Tax Authorities, Lenders, Customers, Government units and General Public are external users.

4.

Answer is C. Inventory account is increased.

In perpetual Inventory System, Inventory is upadated in real time with each purchase and sale. Directly, Inventory account is maintained without maintaining purchase and other associated accounts. Inward Costs of Shipping and Transport is added to Inventory account. These costs are added to purchase cost of Inventory as these are incurred to bring the goods to the premises of the Company.