ch06 - 6-1CHAPTER 6InventoriesANSWERS TO QUESTIONS1.July...

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Unformatted text preview: 6-1CHAPTER 6InventoriesANSWERS TO QUESTIONS1.July 24Accounts Payable ($2,000 $200) ..................................................1,800Purchase Discounts ($1,800 X 2%)..........................................36Cash ($1,800 $36) ................................................................1,7642.AccountsAdded/DeductedNormal Bal-ancePurchase Returns and Allow-ancesPurchase DiscountsFreight-inDeductedDeductedAddedCreditCreditDebit3.(a)X = Purchase Returns and Allowances andY = Purchase Discounts, or vice versa.(b)X = Freight-in.(c)X = Cost of Goods Purchased.(d)X = Ending Merchandise Inventory.4.Agree. Effective inventory management is frequently the key to successful business operations.Management attempts to maintain sufficient quantities and types of goods to meet expected cus-tomer demand. It also seeks to avoid the cost of carrying inventories that are clearly in excess ofanticipated sales.5.Inventory items have two common characteristics: (1) they are owned by the company and (2) theyare in a form ready for sale to customers in the ordinary course of business.6.Taking a physical inventory involves actually counting, weighing or measuring each kind of inven-tory on hand. Retailers, such as a hardware store, generally have thousands of different items tocount. This is normally done when the store is closed. Tom will probably count items, and mark thequantity, description, and inventory number on prenumbered inventory tags.7.(a)(1)The goods will be included in Janine Companys inventory if the terms of sale are FOBdestination.(2)They will be included in Laura Companys inventory if the terms of sale are FOB shippingpoint.(b)Janine Company should include goods shipped to a consignee in its inventory. Goods heldby Janine Company on consignment should not be included in inventory.8.Inventoriable costs are $3,020 (invoice cost $3,000 + freight charges $80 purchase discounts$60). The amount paid to negotiate the purchase is a buying cost that normally is not included inthe cost of inventory because of the difficulty of allocating these costs. Buying costs are expensedin the year incurred.6-29.The primary basis of accounting for inventories is cost in accordance with the cost principle. Themajor objective of accounting for inventories is the proper determination of net income in accor-dance with the matching principle.10.There are three distinguishing features in the income statement of a merchandising company:(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.11.Actual physical flow may be impractical because many items are indistinguishable from one an-other. Actual physical flow may be inappropriate because management may be able to manipulatenet income through specific identification of items sold....
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ch06 - 6-1CHAPTER 6InventoriesANSWERS TO QUESTIONS1.July...

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