sm_09 21e - CHAPTER 9 INVENTORIES CLASS DISCUSSION...

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CHAPTER 9 INVENTORIES CLASS DISCUSSION QUESTIONS 1. To protect inventory from customer theft, retailers use two-way mirrors, cameras, se- curity guards, locked display cabinets, and inventory tags that set off an alarm if the in- ventory is removed from the store. 2. Perpetual. The perpetual inventory system provides the more effective means of con- trolling inventories, since the inventory ac- count is updated for each purchase and sale. This also assists managers in determ- ining when to reorder inventory items. 3. The receiving report should be reconciled to the initial purchase order and the vendor's invoice before recording or paying for inventory purchases. This procedure will verify that the inventory received matches the type and quantity of inventory ordered. It also verifies that the vendor's invoice is charging the company for the actual quant- ity of inventory received at the agreed-upon price. 4. An employee should present a requisition form signed by an authorized manager be- fore receiving inventory items from the company's warehouse. 5. A physical inventory should be taken peri- odically to test the accuracy of the perpetu- al records. 6. a. Gross profit for the year was overstated by $18,500. b. Merchandise inventory and owner’s equity were overstated by $18,500. 7. Fess Company. Since the merchandise was shipped FOB shipping point, title passed to Fess Company when it was shipped and should be reported in Fess Company's financial statements at Decem- ber 31, the end of the fiscal year. 8. Manufacturer's 9. No, they are not techniques for determining physical quantities. The terms refer to cost flow assumptions, which affect the determ- ination of the cost prices assigned to items in the inventory. 10. No, the term refers to the flow of costs rather than the items remaining in the in- ventory. The inventory cost is composed of the earliest acquisitions costs rather than the most recent acquisitions costs. 11. a. Fifo c. Fifo b. Lifo d. Lifo 12. Fifo 13. Lifo. In periods of rising prices, the use of lifo will result in the lowest net income and thus the lowest income tax expense. 14. Yes. The inventory method may be changed for a valid reason. The effect of any change in method and the reason for the change should be fully disclosed in the financial statements for the period in which the change occurred. 15. Net realizable value (estimated selling price less any direct cost of disposition, such as sales commissions). 16. By a notation next to "merchandise invent- ory" on the balance sheet or in a footnote to the financial statements. 17. Inventories estimated by the gross profit method are useful in preparing interim statements and in establishing an estimate of the cost of merchandise destroyed by fire or other disasters.
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sm_09 21e - CHAPTER 9 INVENTORIES CLASS DISCUSSION...

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