Chapter 5 Learning Questions

5:30-6:45

ACCT 2301 Principles I

Chapter 5 – Learning Questions (10 points)

1. Identify and define the items making up merchandise inventory.

The items that make up merchandise inventory goods in transit, good in consignment, and goods that are damage or obsolete. Goods in transit refer to items that make up inventory depending on the method of FOB shipping point or FOB destination. When it comes to FOB shipping point goods purchased are included in the buyers inventory. FOB Destination however is not included in the inventory until the purchases have made it to the destination.

Goods in consignment are shipped by the owner “consignor” to another party “consignee”. A consignor owns the consigned goods and reports them to their inventory while consignee’s never include consigned goods in their inventory. Goods damaged or obsolete are not counted in inventory if they cannot be sold. If they can be sold at a reduced price then they are recorded to inventory as net realizable value. Net realizable value is sales price minus the cost of making the sale.

2. Identify the cost of merchandise inventory

The cost of merchandise inventory includes cost of expenditures to bring an item to a condition and location. The cost of an inventory item includes its invoice cost minus any discount, and plus any incidental costs necessary to put it in a place and condition for sale. Incidental costs can include import tariffs, freight, storage, insurance, and costs incurred in an aging process.

3. Identify the four methods that are commonly used to assign cost to inventory and cost of goods sold. Give definitions of each method.

The four methods used to assign cost to inventory and C.O.G.S. is specific identification, first-in, first-out (FIFO), last-in, first-out (LIFO), and weighted average. Specific identification is usually practical for companies with expensive or custom-made inventories....