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Questions and Answers

Under FOB shipping point terms, who is responsible for freight charges?

  • The shipping company upon delivery
  • The seller until the goods reach the destination
  • The buyer from the point of shipment (correct)
  • The seller only if the goods are damaged

    • Which term indicates that the freight charge is already paid by the seller?

  • Ex-ship
  • Freight collect
  • Freight prepaid (correct)
  • CIF

    • What occurs under FAS shipping terms?

  • The buyer bears all costs until the goods reach their final destination
  • The seller is only responsible for loading the goods onto the ship
  • The seller pays all costs until delivery to the dock next to the vessel (correct)
  • The freight charges are split equally between buyer and seller

    • When does ownership of the goods pass under CIF terms?

    <p>Upon delivery of the goods to the carrier</p> Signup and view all the answers

    What does 'freight collect' mean in shipping terms?

    <p>The freight charge is collected from the buyer upon delivery</p> Signup and view all the answers

    In which shipping term does the risk of loss pass to the buyer once the goods are unloaded?

    <p>Ex-ship</p> Signup and view all the answers

    Which of the following statements about 'freight terms' is incorrect?

    <p>They only apply to domestic shipping</p> Signup and view all the answers

    What is the implication of using CIF shipping terms for the buyer?

    <p>The buyer pays for goods, insurance, and freight in one lump sum</p> Signup and view all the answers

    Which statement is true regarding consigned goods?

    <p>The consignor retains ownership of the goods sold by the consignee.</p> Signup and view all the answers

    What is the primary requirement for using the periodic inventory system?

    <p>Performing a physical count of inventory at the end of the period.</p> Signup and view all the answers

    In the event of a sale of consigned goods, what does the consignee retain from the sales proceeds?

    <p>The sales amount minus commission and advertising expenses.</p> Signup and view all the answers

    What is the main difference between the periodic and perpetual inventory systems?

    <p>Perpetual systems track inventory continuously through stock cards.</p> Signup and view all the answers

    How should inventories be presented in the statement of financial position?

    <p>As a single line item with details disclosed in notes.</p> Signup and view all the answers

    Which type of inventory system is generally more beneficial for items with a large individual peso investment?

    <p>Perpetual Inventory System.</p> Signup and view all the answers

    What must be disclosed in the notes to financial statements regarding inventories?

    <p>The composition of inventories like finished goods and raw materials.</p> Signup and view all the answers

    Which statement is accurate regarding the cash remittance made to the consignor?

    <p>It is the sales amount minus the commission and advertising costs.</p> Signup and view all the answers

    What percentage of accounts receivable is estimated for doubtful accounts?

    <p>3%</p> Signup and view all the answers

    What is the correct journal entry for doubtful accounts expense when the total allowance is $60,000?

    <p>Doubtful accounts 50,000; Allowance for doubtful accounts 50,000</p> Signup and view all the answers

    What approach does the percent of sales method primarily favor?

    <p>Income statement approach</p> Signup and view all the answers

    What is a significant drawback of the percent of sales method in accounting for accounts receivable?

    <p>It may not reflect the estimated realizable value accurately.</p> Signup and view all the answers

    Which of the following accurately describes inventories?

    <p>Assets held for sale, production, or as materials for production.</p> Signup and view all the answers

    Which type of inventory classification involves a business buying and selling goods in the same form as purchased?

    <p>Merchandise inventory</p> Signup and view all the answers

    To determine the appropriate rate for calculating doubtful accounts expense, what should prior years' bad debt losses be divided by?

    <p>Total charge sales of prior years</p> Signup and view all the answers

    What may happen if there is a significant fluctuation in the proportion of cash and credit sales?

    <p>It becomes necessary to frequently revise the rate applied.</p> Signup and view all the answers

    What is the primary purpose of trade discounts?

    <p>To increase sales and encourage trading</p> Signup and view all the answers

    How should a physical count of inventory be conducted in a perpetual system?

    <p>At least once a year to confirm stock card balances</p> Signup and view all the answers

    What does cash discount primarily encourage?

    <p>Timely payments from buyers</p> Signup and view all the answers

    Which method records purchases at the gross amount of the invoice?

    <p>Gross method</p> Signup and view all the answers

    Which statement is true regarding the net method of recording purchases?

    <p>It reflects the cash equivalent price at the payment date.</p> Signup and view all the answers

    What is a significant drawback of the gross method?

    <p>It records discounts only when cash is paid.</p> Signup and view all the answers

    Which of the following is NOT a component of the cost of inventories?

    <p>Cost of sale proceeds</p> Signup and view all the answers

    What is the likely outcome when using the gross method consistently over time?

    <p>It typically results in no material errors in financial statements.</p> Signup and view all the answers

    Which component is NOT included in the cost of purchase for inventories?

    <p>Foreign exchange differences</p> Signup and view all the answers

    What does the cost of conversion primarily consist of?

    <p>Direct labor and fixed production overhead</p> Signup and view all the answers

    How is fixed production overhead allocated to the cost of conversion?

    <p>Using normal capacity of production facilities</p> Signup and view all the answers

    Which category of production overhead varies directly with the volume of production?

    <p>Variable production overhead</p> Signup and view all the answers

    What happens to unallocated fixed overhead?

    <p>It is recognized as expense in the current period</p> Signup and view all the answers

    How is variable production overhead allocated to units of production?

    <p>According to actual use of production facilities</p> Signup and view all the answers

    What is NOT considered a direct attributable cost for bringing inventories to their present location?

    <p>Trade discounts</p> Signup and view all the answers

    Which factor does NOT affect the allocation of fixed production overhead?

    <p>Amount of direct labor used</p> Signup and view all the answers

    What inventory costing method is now disallowed under the current accounting standards?

    <p>Last in, First out</p> Signup and view all the answers

    How does the First in, First out (FIFO) method affect net income during periods of inflation?

    <p>It results in the highest net income.</p> Signup and view all the answers

    What measurement approach does PAS 2 state for inventories?

    <p>Measured at the lower of cost and net realizable value</p> Signup and view all the answers

    What does net realizable value (NRV) account for?

    <p>Estimated selling price minus the estimated cost of completion and disposal</p> Signup and view all the answers

    What is a significant drawback of the FIFO inventory method?

    <p>It leads to higher tax liabilities during inflation.</p> Signup and view all the answers

    Which of the following situations does NOT impact the recoverability of inventory costs?

    <p>The selling prices have increased.</p> Signup and view all the answers

    What is a primary conclusion regarding the FIFO method in declining price scenarios?

    <p>It results in lower net income.</p> Signup and view all the answers

    Which statement holds true about the cost of goods sold under the FIFO method?

    <p>It represents early purchasing costs.</p> Signup and view all the answers

    Study Notes

    Trade Receivables

    • Claims arising from the sale of goods/services in the ordinary course of business
    • Examples include accounts receivable, trade debtors, and trade accounts receivable
    • Supported by formal promises to pay (notes receivable)

    Nontrade Receivables

    • Claims from sources other than the sale of goods/services in the ordinary course of business
    • Examples include advances to shareholders, directors, officers, or employees

    Current and Non-current Receivables

    • Receivables expected to be collected within one year are current assets
    • Receivables expected to be collected in more than one year are non-current assets

    Trade and Other Receivables

    • A combined line item on the balance sheet
    • Details are disclosed in the notes to the financial statements

    Accounts Receivable Examples

    • $5,000,000.00
    • ($200,000.00) Allowance for doubtful accounts
    • $1,000,000.00 Notes Receivable
    • $150,000.00 Accrued interest on note receivable
    • $100,000.00 Advances to officers and employees
    • $250,000.00 Dividends receivable

    Total Trade and Other Receivables

    • $6,300,000.00

    Initial Measurement of Accounts Receivable

    • Recognized at fair value plus transaction costs
    • Fair value is typically the transaction price
    • Short-term receivables are measured at face amount or original invoice amount

    Subsequent Measurement

    • Accounts receivable measured at amortized cost (net realizable value)
    • Net realizable value is the amount of cash expected to be collected, or the estimated recoverable amount

    Customer Credit Balances

    • Result from overpayments, returns, allowances, and advance payments from customers

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