Question

1) 1) Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer. A) True B) False 2) 2) An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement. A) True B) False 3) 3) Errors in the period-end inventory balance only affect the current period's records and financial statements. A) True B) False 4) 4) To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory. A) True B) False 5) Merchandise inventory includes: A) Only non-damaged goods. B) All goods on consignment. C) All goods owned by a company and held for sale. D) All goods in transit. E) Only damaged goods. 6) Consignment goods are: A) Not reported in the consignor's inventory since they do not have possession of the inventory B) Goods shipped by the owner to the consignee who sells the goods for the owner. C) Goods shipped to the consignor who sells the goods for the owner. D) Reported in the consignee's books as inventory. E) Always paid for by the consignee when they take possession

Answer 1

Requirement 1: The statement is “False”

Goods in transit are not automatically included in inventory but when the ownership is transferred to buyer. In the case of FOB shipping point, the goods in transit are included in the inventory of buyer and in the case of FOB destination; the goods in transit are included in the inventory of seller.

Requirement 2: The statement is “False”

It is under the LIFO cost flow assumption that most recent costs are assigned to cost of goods sold and therefore does a better job in matching current costs to revenues.

Requirement 3: The statement is “False”

Errors in the period-end inventory not only affect the current period records and financial statements but also succeeding period records and financial statements.

Requirement 4: The statement is “False”

Companies use retail inventory method to avoid time-consuming processes of physical inventory counts.