AC222 Final Exam Study Guide 1. If the current year inventory is understated, wi

Question

AC222 Final Exam Study Guide 1. If the current year inventory is understated, will the COGS be over or under stated? 2. Goods on consignment are recorded in an inventory account called what? 3. Goods that are shipped FOB destination that are in transit at the end of the year should be included inventory? 4. Which inventory cost flow method will result in the highest coGS when prices are falling? 5. Which method of inventory costing matches the flow of cost with the physical flow of goods? 6. List the flow of product costs through the inventory accounts. 7. When should goodwill be recorded in the accounting records? 8. What is the journal entry for donated equipment? 9. Does the composite depreciation method recognize a gain/loss on the retirement of specific assets in 10. What method of amortization is normally recommended for intangible assets? 11. For a liability to exist what must have occurred? 12. How is unamortized debt premium reported on the balance sheet? 13. Does the interest expense increase or decrease each period when the effective-interest method of amc bond discount is used? 14. What method of depreciation ignores the salvage value in the early years of an asset's life? 15. What method of depreciation applies a uniform depreciation rate each period to an assets's book valu 16. What does the par value of stock represent? 17. What is the journal entry to record the issuance for fully paid stock subscriptions? 18. Where are the gains and losses on the purchase and resale of treasury stock recorded? 19. Where are the changes in the fair value of trading, AFS and equity securities reported? Know how to apply the different depreciation methods. now how to calculate ending inventory &COGS; using the LIFO, FIFO and the average methods for both perio erpetual inventory systems. how how to allocate cost to the individual assets when you make a lump sum/ basket purchase

Explanation / Answer

1. COGS= OPENING INVENTORY+ PURCHASES - CLOSING INVENTORY

if you understated the OPENING current year inventory, then the COGS will also be understated with same propotion but if you understated the closing inventory the cogs will be overstated.

2. Goods sent on consigment to consignee will be record in seprate inventory account called consignment inventory account. there are many other names also like goods sent on consignment account etc, the basic idea is to diiferentiate the inventory in hand with inventory sent to consignee(agent)

3. the seller will record the inventory in transit in case of FOB DESTINATION point. but if it is fob shipping point then buyer will record it .

4. Basically there are three types of method FIFO, LIFO , WEIGHTED AVERAGE method

in FIFO we take the cogs at the price of inventory which came first
in lifo we take the price of cogs at price of inventory which came last
in weihted average we take average of price of all inveornty

so if the price are falling that means earlier price are high but know it is decreasin so the cogs will be highre if we take the early prices which can be taken by using FIFO method a it use first in first out i.e price of inventory which came first

5. AS expalined in 4th point , fifo mathches the physical flow of inventroy,First in first out i.e take the price of inventory which come first.

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