Which one of the following statements is true?
A)Until goods are sold by the consignee, the consignor includes the goods in his/her inventory at cost less handling and shipping costs incurred in the delivery to the consignee.
B)When goods are sold on an installment plan, the seller retains title and continues to include them on his/her balance sheet until full payment has been received.
C)Title to goods may not pass before shipment occurs.
D)In accounting for inventory, economic substance should take precedence over legal form.

Question

Quizplus · Accepted Answer

Economic substance means the actual economic impact of a transaction or event, regardless of its legal form. In accounting for inventory, it is important to consider not only legal ownership but also who has control over the goods and who bears the risks and benefits of ownership. Therefore, economic substance should take precedence over legal form. Choices A and B are incorrect because they are not related to the concept of economic substance. Choice C is incorrect because title to goods can pass either before or after shipment, depending on the terms of the sales contract.

Which One of the Following Statements Is True