Consignment Inventory Topic 5

Ladies Resale Is a consignment store that sells ladies used clothing. Dorothy May took clothes to the resale shop on December 15 to be sold on consignment. The clothes have not been sold as of December 31. Which company should include the inventory on its December 31 balance sheet?

1. Ladies Resale
2. Dorothy May

FOB Destination Topic 5

Michael Company shipped merchandise to PJ Sales on December 31, Year 1, terms FOB destination. The merchandise arrives at PJ’s on January 4, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

1. Michael Company
2. PJ Sales

Inventory Set Aside Topic 5

Allied Company purchased goods from Baker Company on December 28. Allied agreed to pick up the goods from Baker. On December 31 the goods were in Baker’s warehouse separated and identified as Allied’s. Which company should include the inventory on its December 31 balance sheet?

1. Allied Company
2. Baker Company

Loss On Inventory Topic 5

Determine the effect on a company’s Assets and Net Income from the following transaction: a loss on inventory is recorded as an adjusting entry.

FOB Shipping Topic 5

Determine the effect on a company’s Assets and Net Income from the following transaction: a company using the perpetual inventory method ships goods costing $5,000 to a customer FOB shipping point. The sale price is $8,000.

FOB Shipping Topic 5

Ancient Inc. shipped merchandise to Cantor Company on December 26, Year 1, FOB shipping point. The merchandise arrived at Cantor on January 2, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

1. Ancient Inc.
2. Cantor Company

Inventory Costing Topic 5

A company uses the periodic inventory system to account for inventories. Information related to the company’s inventory for the month of October is given below:

During October the company sold 1,400 units at $6.00 per unit.

1. Determine the value of Cost of Goods Sold using the Average Cost Method of inventory valuation.
   • $2,661
   • $3,472
   • $3,690
   • $3,548
2. Determine Gross Profit for the month of October using the FIFO cost assumption.
   • $4,990
   • $4,710
   • $5,600
   • $3,410
3. Determine Ending Inventory using the LIFO cost assumption
   • $2,800
   • $3,410
   • $2,520
   • $,3690

The Effect of Inventory Errors Topic 5

A company discovered in Year 3 that the following inventory errors had occurred:

• Ending Inventory for Year 1 was understated by $5,000.
• Ending Inventory for Year 2 was overstated by $7,000.

Determine the effect those errors would have on the Year 1 and Year 2 financial statements:

1. How do the errors above affect Assets reported on the Year 1 financial statements? Assets would be...
   • a. Overstated by $2,000
   • b. Overstated by $5,000
   • c. Overstated by $7,000
   • d. Understated by $5,000
   • e. Understated by $12,000
2. How do the errors above affect Net Income reported on the Year 1 financial statements? Net income would be...
   • a. Overstated by $2,000
   • b. Overstated by $5,000
   • c. Overstated by $7,000
   • d. Understated by $5,000
   • e. Understated by $12,000
3. How do the errors above affect Assets reported on the Year 2 financial statements? Assets would be...
   • a. No effect on assets
   • b. Overstated by $2,000
   • c. Overstated by $7,000
   • d. Understated by $2,000
   • e. Understated by $7,000
4. How do the errors above affect Net Income and Shareholders’ Equity reported on the Year 2 financial statements? Net Income and Shareholders’ Equity would be...

   	Net Income	Shareholders’ Equity
   A	Understated by $12,000	Understated by $7,000
   B	Overstated by $5,000	No effect
   C	Overstated by $7,000	Overstated by $2,000
   D	Overstated by $7,000	Overstated by $7,000
   E	Overstated by $12,000	Overstated by $7,000