5. Goods in transit which are shipped f.o.b. shipping point should be A) include

Question

5. Goods in transit which are shipped f.o.b. shipping point should be A) included in the inventory of the seller. B included in the inventory of the buyer C) included in the inventory of the shipping company D) None of these answer choices are correct. 6. The accountant for the Prvor Sales Company is preparing the income statement for 2017 and the balance sheet at December 31, 2017. P ryor uses the periodic inventory system. The anuary 1, 2017 merchandise inventory balance will appear A) only as an asset on the balance sheet. B) only in the cost of goods sold section of the income statement as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet. C) D) this error on cost of goods sold for 2017, net income for 2017, and assets at December 31, 2018, respectively, are A) overstatement, understatement, overstatement. B) overstatement, understatement, no effect. C) understatement, overstatement, overstatement D) understatement, overstatement, no effect. 7. If the beginning inventory for 2017 is overstated, the effects of Page 2

Explanation / Answer

Question - 1 .............. Option - C. Cost of goods sold is recorded with each sale.

cost of goods sold is debited and Merchandise inventory is credited

Question - 2 ...............Option - D Not on the Balance sheet.

FOB destination, ownership in goods is not transfered until the goods reach the buyer. Hence the transaction is not recognized as accounts payable and no inventory is recorded

Question - 3 ..............Option - B Understate the net income

Inclusion in purchases, there will be increase in cost with out corresponding decrease by ending inventory.

Question - 4 ........... Option - A No purchase account is used

Question - 5 .............Option - B Included in the inventory of buyer

FOB shipping point, we have transfer to ownership to buyer, hence inventory is recorded.

Question - 6 ............Option - D

Question - 7 ............Option - B

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