5. Where should goods in transit that were recently purchased f.o.b. destination
ID: 2601614 • Letter: 5
Question
5. Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
6. Which statement is not true about the gross profit method of inventory valuation?
a. It may be used to estimate inventories for interim statements.
b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. None of these.
7. An inventory method which is designed to approximate inventory valuation at the lower of cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.
8. When calculating the cost ratio for the retail inventory method,
a. if it is the conventional method, the beginning inventory is included and markdowns are deducted.
b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted.
c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted.
d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.
Explanation / Answer
5. Option “d Not on the balance sheet” is correct as goods purchased f.o.b. destination and goods are still in transit.
6. Option “b. It may be used to estimate inventories for annual statements” is correct because Gross profit method (also known as gross margin method) is a technique used to estimate the value of ending inventory and cost of goods sold of a period on the basis of the historical or projected gross profit ratio of the business not on actual basis.
7. Option “ c. conventional retail method” is correct as this is the method to calculate the inventory valuation after calculating the closing inventory from FIFO or LIFO etc.
8. Option “b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted” is correct.
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