Question 1

When using the perpetual system, the average cost method relies on a simple average calculation.

Accepted Answer

The average cost method in a perpetual inventory system uses a moving average calculation, not a simple average, to account for inventory costs after each purchase.

Question 2

An inventory count should be done by the employees who keep track of the stock.

Accepted Answer

Having employees who manage stock also conduct inventory counts can lead to conflicts of interest and inaccuracies. Independent verification is recommended for accuracy.

Question 3

Once goods leave the premises of the seller, they should never be added to the seller's physical inventory count.

Accepted Answer

Goods in transit that are shipped FOB (Free On Board) shipping point should not be included in the seller's inventory, but if they are shipped FOB destination, they remain in the seller's inventory until they reach the buyer's location.

Question 4

The physical inventory count determines the number of units on hand.

Accepted Answer

The purpose of a physical inventory count is to physically count and determine the number of units that are currently in the inventory. So, it is true that the physical inventory count determines the number of units on hand.

Question 5

In order to remove the cost of items sold from inventory, a unit cost must be determined.

Accepted Answer

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Question 6

Identify the effects of inventory errors on the financial statements.

Accepted Answer

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Question 7

Goods that have been purchased FOB destination, but are in transit, should be excluded from the buyer's ending inventory.

Accepted Answer

If goods have been purchased FOB destination, they remain the seller's property until they reach the buyer's location. Therefore, goods in transit should not be included in the buyer's ending inventory.

Question 8

Inventory cost methods such as FIFO and average deal more with the flow of costs than with the flow of goods.

Accepted Answer

The answer of Inventory cost methods such as FIFO and...

Question 9

If prices never changed, there would be no need for alternative inventory cost methods.

Accepted Answer

If prices were constant, the cost of inventory would remain the same, eliminating the need for different methods to account for price fluctuations.

Question 10

Explain the effects on the financial statements of choosing each of the inventory cost determination methods.

Accepted Answer

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Question 11

A company may use more than one inventory cost determination method if it has different types of inventory.

Accepted Answer

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Question 12

Goods in transit shipped FOB shipping point should be included in the buyer's ending inventory.

Accepted Answer

The answer of Goods in transit shipped FOB shipping point...

Question 13

Describe the steps in determining inventory quantities.

Accepted Answer

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Question 14

The specific identification method is desirable when a company sells a large number of low-unit-cost items.

Accepted Answer

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Question 15

Demonstrate the presentation and analysis of inventory.

Accepted Answer

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Question 16

Apply the methods of cost determination using specific identification, FIFO, and average cost under a perpetual inventory system.

Accepted Answer

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Question 17

Consigned goods are held for sale by one party although ownership of the goods is retained by another party.

Accepted Answer

Consigned goods are typically held by a retailer or consignee, while the ownership remains with the consignor until the goods are sold to a customer. This arrangement is common in retail and art industries.

Question 18

The first-in, first-out (FIFO) inventory cost method results in an ending inventory valued at the most recent cost.

Accepted Answer

The FIFO method assumes that the oldest inventory items are sold first, so the ending inventory consists of the most recently acquired items, valued at their most recent cost.

Question 19

If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the unit cost assigned to the cost of goods sold will be the same under FIFO and average cost formulas.

Accepted Answer

Since there is no beginning inventory, the first units to be sold will be the same under both FIFO and average cost methods, so the unit cost assigned to those units will also be the same.

Question 20

A system of internal control is not needed when a company regularly takes a physical inventory.

Accepted Answer

A system of internal control is still necessary even if a company takes regular physical inventory. Internal controls help ensure the accuracy and reliability of financial records and prevent fraud or errors. Physical inventory is just one component of a comprehensive internal control system.

Quiz 6: Reporting and Analyzing Inventory