Exam 5: Inventories and Cost of Goods Sold

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2016.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2016.Park paid the amount due on June 13, 2016. ​ Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park?

The three forms or states in the development of inventory for a manufacturer are direct materials, direct labor, and finished goods.

Cost of goods sold is equal to

Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from operating activities.

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation. -Recorded cash sales for the day.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the seller to ship goods to its customers

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the buyer to ship goods to its place of business

The gross profit ratio is computed by dividing net sales by gross profit.

It important that the proper amount be assigned to inventory because the amount assigned to inventory will affect the amount eventually recorded as net sales.

The lower the inventory turnover ratio, the less time inventory resides in storage.

A major advantage of the weighted average method of inventory costing is that

Which of these is not an acceptable inventory costing method under IFRS?

When inventories are written down due to the application of the lower of cost or market (LCM) rule, the account that is usually increased is

Chamberlain Company buys designer clothing to sell in its retail stores.Since much of the merchandise comes from Dallas and Europe, Chamberlain Company must pay freight charges to get the merchandise shipped in.Which statement is true?

Like sales revenue, cost of goods sold represents an inflow of assets.

Assets are unexpired costs, and expenses are expired costs.

In a periodic inventory system, the cost of purchases is recognized as

If a company understates its ending inventory balance for 2016 by $15,500, what are the effects on its net income for 2017 and 2016? ​ Effect on 2017 Net Income Effect on 2016 Net Income a. Overstated by \ 15,500 Understated by \ 15,500 b. Understated by \ 15,500 Overstated by \ 15,500 c. Understated by \ 15,500 No effect d. Overstated by \ 15,500 No effect

Cost of goods sold represents

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Costs of direct materials, overhead, and direct labor used in goods that have been sold.