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Questions and Answers
What is the primary characteristic of consignment sales?
What is the primary characteristic of consignment sales?
- Transfer of title along with merchandise
- Transfer of possession without transferring title (correct)
- Sales completed before possession transfer
- Full ownership transfer during the sale
When is revenue recognized by the consignor in consignment sales?
When is revenue recognized by the consignor in consignment sales?
- When the consignee sells the goods (correct)
- When the consignee reports inventory
- When the consignee returns unsold goods
- When the consignee receives the goods
Which of the following costs is NOT considered capitalizable in consignment sales?
Which of the following costs is NOT considered capitalizable in consignment sales?
- Cost of conversion
- Sales commission (correct)
- Cost of purchase
- Manufacturing costs
What type of costs are included in capitalizable costs under consignment sales?
What type of costs are included in capitalizable costs under consignment sales?
Which statement accurately describes the role of the consignee in consignment sales?
Which statement accurately describes the role of the consignee in consignment sales?
Which of the following is true regarding costs of goods sold in consignment sales?
Which of the following is true regarding costs of goods sold in consignment sales?
What happens to unsold goods in a consignment arrangement?
What happens to unsold goods in a consignment arrangement?
Which statement correctly describes control in consignment sales?
Which statement correctly describes control in consignment sales?
Study Notes
Consignment Sales Defined
- Consignment sales involve transferring merchandise possession without transferring ownership.
- The consignor (owner) sends goods to the consignee (agent) for sale on commission.
- Revenue recognition for the consignor occurs only upon the consignee's sale of the goods, signifying control transfer.
Revenue Recognition and Inventory
- The consignor recognizes revenue using a point-in-time method.
- Capitalizable costs, including manufacturing costs (purchase price, conversion costs [direct labor, factory overhead], and costs to ready inventory), are inventoriable.
Cost of Goods Sold Calculation
- Cost of goods sold for the consignor includes the cost of units sold.
- This cost is calculated based on manufacturing costs per unit multiplied by the number of units sold.
- Costs associated with returned goods are also factored into the cost of goods sold.
Remittance and Expenses
- The consignee remits proceeds from sales to the consignor.
- Reimbursable expenses, like freight-out and freight-returned costs, are separately handled in the remittance.
Parties Involved
- Consignor: The owner of the goods.
- Consignee: The agent selling the goods on behalf of the consignor.
- Customer: The ultimate purchaser of the goods.
- Supplier: Provides the goods to the consignor.
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Description
Explore the intricacies of consignment sales, including the roles of consignor and consignee, as well as the methods of revenue recognition. This quiz covers cost of goods sold calculations, capitalizable costs, and the remittance process for consigned goods. Test your understanding of how inventory and sales dynamics affect financial reporting.
