inventory - Question: INVY-0001 From a theoretical...

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Unformatted text preview: Question: INVY-0001 From a theoretical viewpoint, which of the following costs would be considered inventoriable? Freight-In Warehousing A. No No B. No Yes C. Yes No D. Yes Yes Answers A : A. B : B. C : C. D : D. Answer Explanations A. Answer A is incorrect. Refer to the correct answer explanation. B. Answer B is incorrect. Refer to the correct answer explanation. C. Answer C is incorrect. Refer to the correct answer explanation. D. Answer D is correct because all costs incurred to acquire goods or to prepare them for sale are inventoriable. Freight-in is a cost incurred to acquire goods, and warehousing is a cost incurred to store goods awaiting sale. Therefore, both freight-in and warehousing are inventoriable costs. Question: INVY-0002 Theoretically, cash discounts permitted on purchased raw materials should be Answers A : Added to other income, whether taken or not. B : Added to other income, only if taken. C : Deducted from inventory, whether taken or not. D : Deducted from inventory, only if taken. Answer Explanations A. Answer A is incorrect. Refer to the correct answer explanation. B. Answer B is incorrect. Refer to the correct answer explanation. C. Answer C is correct. There are two methods of accounting for cash discounts: the gross method and the net method. The gross method records purchases before any discounts, and records cash discounts only when taken. The net method records purchases net of cash discounts whether taken or not, and any discounts foregone are considered to be financing expenses. Theoretically, purchases and accounts payable should be shown net of cash discounts whether taken or not because this net method allows for a more correct reporting of the related asset and liability, and it allows for a measure of the inefficiency of financial management if the discount is not taken. D. Answer D is incorrect. Refer to the correct answer explanation. Question: INVY-0003 The following costs were among those incurred by Woodcroft Corporation during 2008: Merchandise purchased for resale $500,000 Salesmen's commissions 40,000 Interest on notes payable to vendors 5,000 How much should be charged to the cost of the merchandise purchases? Answers A : $500,000 B : $505,000 C : $540,000 D : $545,000 Answer Explanations A. Answer A is correct. The costs to be charged to merchandise purchases should include those costs necessary to prepare the merchandise for sale. Salesmen's commissions are a selling expense and not related to the acquisition of the merchandise. These costs are expensed in the period incurred. The interest is a financing expense and is also expensed in the period incurred. Thus, only the $500,000 should be included in the cost of the merchandise purchases....
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This note was uploaded on 12/08/2009 for the course FAR 5745 taught by Professor Philoreily during the Spring '09 term at Nova Southeastern University.

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inventory - Question: INVY-0001 From a theoretical...

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