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Questions and Answers
When should a company record purchases of inventory in the Inventory account?
When should a company record purchases of inventory in the Inventory account?
- When it has control of the asset.
- When it receives the goods. (correct)
- When it obtains legal title to the goods and has control of the asset.
- When it obtains legal title to the goods.
What is the primary consideration for a company to record inventory?
What is the primary consideration for a company to record inventory?
- Receiving the goods.
- Having control of the asset. (correct)
- Obtaining legal title to the goods.
- Preventing other companies from directing the use of the inventory purchased.
Why does a company generally record acquisitions when it receives the goods?
Why does a company generally record acquisitions when it receives the goods?
- To prevent other companies from directing the use of the assets.
- To obtain substantially all the remaining benefits from the inventory purchased.
- Because legal title to the goods is difficult to determine.
- Because it is difficult to determine the exact time of legal passage of title for every purchase. (correct)
What accounts for a company's ability to record inventory?
What accounts for a company's ability to record inventory?
Why is it acceptable for a company to record acquisitions when it receives goods?
Why is it acceptable for a company to record acquisitions when it receives goods?
What factor makes determining legal passage of title challenging for companies?
What factor makes determining legal passage of title challenging for companies?
What is one of the reasons companies use the retail inventory method?
What is one of the reasons companies use the retail inventory method?
Which of the following is NOT required by accounting standards for inventory-related financial statement disclosure?
Which of the following is NOT required by accounting standards for inventory-related financial statement disclosure?
What is one purpose of disclosing the amount of any write-down of inventories recognized as an expense?
What is one purpose of disclosing the amount of any write-down of inventories recognized as an expense?
In the retail inventory method, what is a control measure achieved by companies?
In the retail inventory method, what is a control measure achieved by companies?
What is the purpose of disclosing the circumstances or events that led to the reversal of a write-down of inventories?
What is the purpose of disclosing the circumstances or events that led to the reversal of a write-down of inventories?
What does the carrying amount of inventories pledged as security for liabilities indicate?
What does the carrying amount of inventories pledged as security for liabilities indicate?
What method does the IASB require in cases where inventories are not ordinarily interchangeable?
What method does the IASB require in cases where inventories are not ordinarily interchangeable?
Under what circumstances are the specific identification criteria met for inventory costing?
Under what circumstances are the specific identification criteria met for inventory costing?
Why do companies often use average-cost methods for inventory costing?
Why do companies often use average-cost methods for inventory costing?
What is the basis for pricing items in the inventory under the average-cost method?
What is the basis for pricing items in the inventory under the average-cost method?
In computing the average cost per unit, what must companies include?
In computing the average cost per unit, what must companies include?
Why do proponents of average-cost methods argue against measuring a specific physical flow of inventory?
Why do proponents of average-cost methods argue against measuring a specific physical flow of inventory?
What is the purpose of the retail inventory method?
What is the purpose of the retail inventory method?
In the retail inventory method, what does the retailer need to keep a record of?
In the retail inventory method, what does the retailer need to keep a record of?
What is the first step in determining the estimated inventory at retail using the retail inventory method?
What is the first step in determining the estimated inventory at retail using the retail inventory method?
Why is it necessary to compute the cost-to-retail ratio for all goods in the retail inventory method?
Why is it necessary to compute the cost-to-retail ratio for all goods in the retail inventory method?
Based on the hypothetical data provided, what is the ending inventory at retail (in birr)?
Based on the hypothetical data provided, what is the ending inventory at retail (in birr)?
What is the final step in obtaining ending inventory at cost in the retail inventory method?
What is the final step in obtaining ending inventory at cost in the retail inventory method?
What is the inventory amount at LCNRV when applying it to individual items?
What is the inventory amount at LCNRV when applying it to individual items?
Why does the total inventory amount at LCNRV increase when using major groups instead of individual items?
Why does the total inventory amount at LCNRV increase when using major groups instead of individual items?
Which method records the income effect of valuing inventory at net realizable value by debiting cost of goods sold?
Which method records the income effect of valuing inventory at net realizable value by debiting cost of goods sold?
In ABC Foods' case, why does using the total-inventory approach offset the high net realizable value for spinach?
In ABC Foods' case, why does using the total-inventory approach offset the high net realizable value for spinach?
What happens to the income statement when the cost-of-goods-sold method is used for inventory valuation?
What happens to the income statement when the cost-of-goods-sold method is used for inventory valuation?
How does ABC Foods prevent reporting a loss in their income statement when valuing inventory at net realizable value using the Cost-of-goods-sold method?
How does ABC Foods prevent reporting a loss in their income statement when valuing inventory at net realizable value using the Cost-of-goods-sold method?
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