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Accounting Chapter 6 Quiz
Terms in this set (10)
Merchandise inventory includes
All goods owned by a company and held for sale.
Goods on consignment:
Are goods shipped by the owner to the consignee who sells the goods for the owner.
Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between
ending inventory and cost of goods sold.
Physical counts of inventory
Are necessary to adjust the Inventory account to the actual inventory available.
The inventory turnover ratio:
Reveals how many times a company turns over (sells) its merchandise inventory.
The inventory turnover ratio is calculated as:
Cost of goods sold / average merchandise inventory.
Days' sales in inventory is calculated as
Ending inventory divided by cost of goods sold times 365.
In applying the lower of cost or market method to inventory valuation, market is defined as:
Current replacement cost
Damaged and obsolete goods that can be sold:
Are included in inventory at their net realizable value
On December 31 of the current year, Hewett Company reported an ending inventory balance of $215,000. The following additional information is also available:
• Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods on that date with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000 because they were not in Hewett's warehouse.
• Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Hewett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.
• Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Rumsfeld Company. (Hewett Company is the consignee.)
• Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at year-end.
Based on the above information, the correct balance for ending inventory on December 31 is:
tart with beginning inventory of $215,000. The information in the first bullet point was handled correctly, although the explanation for why is incorrect. No adjustment. For the second bullet point, the $44,000 of goods should not have been included in ending inventory since the goods were shipped FOB destination. Subtract $44,000. For the third bullet point, ending inventory should not include goods held on consignment from another company. Subtract $15,000. The information in the fourth bullet point was handled correctly. No adjustment. $215,000 - $44,000 - $15,000 = $156,000.
THIS SET IS OFTEN IN FOLDERS WITH...
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Accounting Chapter 6
Accounting Chapter 3
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