Accounting: Inventory Costs and Interest Expenses

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In a consignment shipment, who acts as an agent in selling the consigned goods?

Supplier

Purchaser

Common carrier

Consignor (correct)

When does title pass to the buyer in a shipment with f.o.b. destination?

When the goods reach the fiscal period end

When goods are delivered to the common carrier

When the goods are shipped by the supplier

When the goods are received by the buyer (correct)

How should a buyer record inventories in a shipment with f.o.b. destination if they have not arrived at the end of a fiscal period?

Do not record them until they arrive

Record them immediately upon shipment

Never record them in the buyer's book (correct)

Record them only after title passes to the buyer

What happens to goods out on consignment in terms of ownership?

They remain the property of the consignor Signup and view all the answers

Which party is obligated to exercise due care and reasonable protection for goods received on consignment?

Purchaser Signup and view all the answers

How does a consignee treat revenue from selling consigned goods?

Remits all revenue back to the consignor Signup and view all the answers

According to the FIFO method, how does a company use goods?

In the order of most recent purchases Signup and view all the answers

How does FIFO determine the cost of the ending inventory?

By taking the cost of the most recent purchase and working back until all units are accounted for Signup and view all the answers

What is one of the objectives of using the FIFO method?

To approximate the physical flow of goods Signup and view all the answers

Why is the cost of goods sold the same at the end of the month with FIFO?

Because the same costs will always be first in and, therefore, first out Signup and view all the answers

How does FIFO approximate specific identification?

By closely following the physical flow of goods Signup and view all the answers

In what order are goods assumed to be used or sold according to FIFO?

In the order of their purchase Signup and view all the answers

Why do companies usually expense interest costs associated with getting inventories ready for sale?

Interest costs are directly related to the cost of financing. Signup and view all the answers

Why did the IASB rule that companies should capitalize interest costs related to assets constructed for internal use or discrete projects?

To align with the principle of matching costs with revenues. Signup and view all the answers

How does the perpetual inventory system differ from the periodic inventory system?

Perpetual inventory system tracks changes in the inventory account continuously. Signup and view all the answers

Why might companies using the periodic inventory system face challenges in valuing ending inventories and determining cost of goods sold?

They face difficulties in identifying which cost price to use. Signup and view all the answers

What is the rationale behind companies recording abnormal freight, handling costs, and spoilage as period costs instead of inventory costs?

Because such costs are considered part of normal operating expenses. Signup and view all the answers

Why is a specific identification approach considered optimal when determining cost price for ending inventories?

It minimizes errors in valuation of inventories. Signup and view all the answers

What is the total net realizable value of frozen items for ABC Foods?

Birr 270,000 Signup and view all the answers

Why does the total net realizable value increase from birr 384,000 to birr 394,000 when applying the LCNRV rule to major groups at ABC Foods?

The net realizable value of mixed vegetables increased Signup and view all the answers

Which approach totally offsets the high net realizable value for spinach at ABC Foods?

Total-inventory approach Signup and view all the answers

What costs are included in product cost?

Transportation costs and handling costs Signup and view all the answers

How does the company avoid reporting a loss in the income statement when using the cost-of-goods-sold method?

By adjusting the cost of goods sold for the write-down of inventory Signup and view all the answers

Which of the following is considered part of conversion costs for a manufacturing company?

Indirect materials Signup and view all the answers

What is debited when using the cost-of-goods-sold method to write down inventory to net realizable value at ABC Foods?

Cost of goods sold account Signup and view all the answers

Why are period costs like selling expenses and general administrative expenses not included in inventory cost?

Because they are indirectly related to the cost of goods sold Signup and view all the answers

Which method partially offsets a high net realizable value for spinach by including similar or related items at ABC Foods?

Individual items approach Signup and view all the answers

Which of the following is NOT a component of manufacturing overhead costs?

Direct materials Signup and view all the answers

What does the Cost of Purchase include?

Purchase price less purchase discount Signup and view all the answers

Why are interest costs and general administrative expenses considered period costs?

Because they are indirectly related to production processes Signup and view all the answers