Chapter 6 - Inventory

What are the two questions that must be answered to ensure a physical inventory count is correct?

• Do all of the goods included in the count belong to the company? and Does the company own any goods that were not included in the count?

• Do all of the goods included in the count belong to the company? and Does the company own any goods that were sold?

• Do all of the goods included in the count belong to the company? and Does the company own any goods that were damaged?

• Do all of the goods included in the count belong to the company? and Does the company own any goods that were returned?

In FOB Shipping Point, who pays the freight costs?

• Buyer

• Seller

• Carrier

• Both buyer and seller share the freight costs

In FOB Destination, who pays the freight costs?

• Buyer

• Seller

• Carrier

• Both buyer and seller share the freight costs

What happens to consigned goods if a buyer is not found?

• The goods are returned to the consignor

• The goods are sold at a discounted price

• The goods are donated to charity

• The goods are kept in storage indefinitely

What is the basis for accounting for inventory?

• Historical Cost

• Market Value

• Replacement Cost

• Net Realizable Value

Which cost flow assumption assumes that the earliest goods purchased are the first to be sold?

• First-In First-Out (FIFO)

• Last-In First-Out (LIFO)

• Average-cost

• Specific Identification

Under a periodic inventory system, how is the cost of goods sold calculated?

• Beginning Inventory + Cost of Goods Purchased - Ending Inventory

• Beginning Inventory - Cost of Goods Purchased + Ending Inventory

• Beginning Inventory - Cost of Goods Purchased - Ending Inventory

• Beginning Inventory + Cost of Goods Purchased + Ending Inventory

Which cost flow assumption assumes that the latest goods purchased are the first to be sold?

• First-In First-Out (FIFO)

• Last-In First-Out (LIFO)

• Average-cost

• Specific Identification

Why do some companies choose LIFO as their cost flow method?

• To have higher net income

• To have lower income taxes

• To have more accurate financial statements

• To have better inventory control

Which cost flow method provides a more realistic net income amount?

• First-In First-Out (FIFO)

• Last-In First-Out (LIFO)

• Average-cost

• Specific Identification