Discussion Board

Chapter 5 Discussion Forum Questions Inventory and Cost of Sales INSTRUCTIONS: Select any THREE (3) questions and discuss. If there is more than one part to a question answer all parts. Start by repeating the question and note its number. Then provide your answer. There is no credit for late posts after March 5. One or more of these questions were adapted from the textbook end of chapter Discussion Questions. 1. Discuss the following: a) Goods in transit – In whose inventory are these goods carried – the buyer or the seller? b) Goods on consignment – In whose inventory are these goods carried – the consignor (owner) or consignee (the one who agrees to sell the goods – for a fee)? 2. List the costs that should be included in inventory when an item is purchased. 3. When an item is sold from inventory a cost must be assigned in order to remove the cost of the item from inventory and determine gross profit. Discuss how the following cost methods are applied, including how the inventory is affected: a) FIFO b) LIFO c) Average 4. Inventory errors can be serious. a) Explain the following statement: “Inventory errors correct themselves.” b) If inventory errors are said to correct themselves, why are users of financial statements concerned when such errors are made? 5. Companies invest considerable working capital in inventory. Consequently, there is a need to make the most efficient use of that investment. One way of measuring that efficiency is by the inventory turnover ratio. a) Explain how this is calculated b) Explain how it is interpreted c) What are the ramifications of carrying an inventory that is too small? 6. Accountants follow a constraint of conservatism, which holds that financials should not overstate or understate income. Guidance for accountants on this includes the concept that when choosing between two acceptable alternative choices for accounting, select the one that is least likely to overstate income and assets, or least likely to understate expenses and liabilities. a) What is meant by “lower of cost or market”? b) What is “market” in this context? c) What is “cost”? 7. What two methods are used to estimate cost of goods sold and ending inventory and when, during the year, can they be used?

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