Question

In: Accounting

1. Goods in transit shipped a FOB destination should not be excluded from the buyer’s ending...

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.

Solutions

Expert Solution

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

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

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

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

ekkarill92 answered 1 year ago

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