In: Accounting
1. Goods in transit shipped
a FOB destination should not be excluded from the buyer’s ending inventory.
b FOB shipping point should be included in the buyer’s ending inventory.
c FOB destination should not be included in the seller’s ending inventory.
d FOB shipping point should not be included in the buyer’s ending inventory.
2.Cost of goods available for sale is:
a.beginning inventory + cost of goods sold.
b cost of goods sold + purchases.
c ending inventory + cost of goods sold.
d purchases + ending inventory.
3.What is the impact on cost of goods sold, gross profit, net income before taxes and retained earnings, respectively, if inventory is understated?
a. overstated; understated; overstated; overstated.
b. understated; overstated; overstated; overstated.
c. overstated; understated; understated; understated.
d. understated; overstated; understated; overstated.
4.The lower of cost and net realizable value basis of valuing inventories ensures that inventories are
a valued at their selling price.
b not over-valued.
c not under-valued.
d valued at their current cost.
1 |
Goods in transit shipped FOB shipping point should be included in the buyer’s ending inventory. |
Under FOB Shipping Point, ownership is passed to the buyer as soon as goods are shipped by seller. |
FOB destination should be included in the seller’s ending inventory. |
Option B is correct |
2 |
Cost of goods available for sale is ending inventory + cost of goods sold. |
Alternatively, Cost of goods available for sale is beginning inventory + purchases |
Option C is correct |
3 |
If inventory is understated, cost of goods sold is overstated. |
As a result, gross profit, net income before taxes and retained earnings are understated |
overstated; understated; understated; understated. |
Option C is correct |
4 |
Lower of cost and net realizable value basis ensured that inventories are not over-valued. |
This is in line with Principle of Conservatism, which requires a business to not overstate it's income and to account for all probable losses in current period. |
Option B is correct |