1. What are the two characteristics required to classify an asset as merchandise inventory?

2. What is just-in-time inventory management? Advantages?

3. Entity A ships merchandise to Entity B on December 20. The goods don’t arrive until January 5. What are the terms of sale that would result in the goods being included in Entity B’s year-end inventory? In Entity A’s year-end inventory.

4. When should a retailer include consigned goods in its inventory?

5. What is the primary basis for of accounting for inventories? To detect impairment?

6. True or false and why? Allocation of cost of goods available for sale should be based on the actual physical flow of the goods.

7. Which assumed cost flow method

--usually parallels the actual physical flow of the goods

--divides cost of goods available for sale by total units available for sale in determining a unit cost

--assumes that the latest units purchased are the first to be sold

8. In a period of rising prices, Entity C’s ending inventory reported on the balance sheet is close to the current cost of the inventory. Which inventory costing method is Entity C probably using?

9. In a period of rising prices, Entity D’s ending inventory reported on the balance sheet is considerably below its current cost. Which inventory costing method is Entity D probably using?

10. Discuss the affect use of LIFO has on taxes paid and cash flow when inventory costs are rising?

11. True or false and why? A company can include freight out in Cost of Goods Sold.

12. All things being equal, a company would prefer a higher inventory turnover. Under what circumstances might inventory turnover be too high?

13. Entity E discovers in 2022 that its ending inventory for December 31, 2021, was $5,000 understated. What effect does this have on 2021 net income, 2022 net income, and retained earnings after two years?

Answer rating: 100% (QA)

1 The two characteristics required to classify an asset as merchandise inventory are that the asset is held for sale in the ordinary course of busines... View the full answer