 In this presentation we will look at multiple choice questions related to inventory and inventory cost assumptions. First question. Consignment goods A. Are goods given by owner to the consignee who sells the goods for owner or B. Are consignees inventory C. Goods given to consigner who sells the goods for the owner D. Not consigner's inventory E. Paid by the consignee when they take possession. Once again we're going to go through these and then see if we can cross out or eliminate some of the options the question being consignment goods and we'll go through these and see if we can eliminate some of these. Now it's of course good if we can try to define what consignment is first and note that the consignment is something that will come up from time to time it's not where the major focus typically is but it's something we need to be aware of because it does affect how much we are going to be recording in the inventory and it means basically that the owner of the goods is giving the goods to some other person to sell them although the goods have not been sold to that second individual they're still owned by the owner for example if we had a painter that had paintings and they want to put those paintings in a restaurant to be sold then and hang them up and see if people would want to buy them in the restaurant as they eat then they could ask the restaurant to put the paintings up on consignment meaning the restaurant doesn't buy the paintings they just put them up for the painter and then once they're sold then the restaurant would take up percent and give the difference to the painter and so that's one form now note that those paintings are still the painters they're the inventory of the painter even though the restaurant has possession of them so here we go first one says our goods so consignment goods a are goods given by owner to the consignee who sells the goods for the owner and that sounds pretty good according to our definition but if we didn't quite know it we'll go through all these and see if we can eliminate some of them our consignee's inventory now there's going to be these terms all the time with it with different types of accounting terms like consignee consign or lisi lisor and so the consignee is the person who is who is receiving the inventory in our case the restaurant and they're getting the inventory and they and they have it physically but it's not really theirs it's the consignee or inventory and that's the tricky thing about consignment so it's not b and then c says goods given to consignee or who sells the goods for the owner now this one sounds a lot like a and so i'm going to keep it for now and then we'll go back through those and see see which of those is the most correct because they look very similar d says not consignee or inventory uh so the consignee or is the one who is giving the inventory in our case the paintings to the restaurant but the consignee or is the is the one the painter in our case and they are the owners of the inventory they just don't have physical possession of it at the time it's at the restaurant although it's owned by the consignee or the painter so it's not that one e says paid for by the consignee when they take possession and that's the difference between the consignee buying the inventory and it being on consignment they pay the restaurant in our case isn't paying for the paintings they're just holding on to the paintings and displaying them for the owner of the paintings so that's not correct and note if we didn't know any of these we might be suspicious just about a and c anyways so if i had no idea what a consignment was and i read these options i might be saying well hmm a and c sound exactly the same they sound the most descriptive of all of these uh descriptions and there's only a few words difference so if i had no idea what consignment was i might look through a and c and see what uh you know what the difference between those two are and can possibly narrow it down to them just by the format of the answers so once again the the question is consignment goods a are goods given by owner to the consignee who sells the goods for the owner or c goods given to the consignor who sells the goods for the owner now the the difference between this goods given by the owner or goods given by the consignor are the difference so who's giving the goods well the owner sounds correct giving the goods to the consignee who is the restaurant if we're talking about goods given to the consignor. The problem there is the consignor is the owner. So the consignee is the one who would be receiving the goods in this case and then selling them and obviously also who sells the goods to the owner. The consignee should be getting the goods and wouldn't be selling them to the owner. They'd be selling them for goods for the owner. That's not right. For the owner. So it would be the consignee selling the goods for the owner. So in any case it's going to be A here. It's going to be our best option. So once again consignment goods A are goods given by owner to the consignee who sells the goods for the owner. Next question. Cost of goods available for sale is allocated at the end of the period between A beginning inventory and ending inventory B ending inventory and shrinkage C net purchases and ending inventory D beginning inventory and cost of goods sold and E ending inventory and cost of goods sold. Once again we'll read this question often go through then see if we can eliminate some of the answers. Cost of goods available for sale is allocated at the end of the period between. So if we consider that cost of goods available for sale we should have an idea of what that is and we should once we see anything that that is within our cost of goods sold formula I would just write down that formula and see if it gives us any clue to what the answer would be. So the cost of goods sold is beginning inventory plus purchases and that's going to give us our goods available for sale. So cost goods available for sale that's our subtotal and then we say minus ending inventory. Now this is really terrible graph here and that gives us cost of goods sold. What happened there? So beginning inventory plus purchases gives us cost of goods available for sale that's this item minus the ending inventory gives us cost of goods sold. So the cost of goods available for sale is basically what we could have sold during the time period which is then going to be subtracted by the ending inventory the amount we count to be there to give us the cost of goods sold what we did sell the cost of things we sold the expense on the income statement. So if we read through this cost of goods available for sale is allocated at the end of the period between a beginning inventory and ending inventory. Well if I look at the formula here I don't I see ending inventory but not beginning inventory. I see ending inventory and cost of goods sold. So I don't think it's going to be that these says ending inventory and shrinkage that you know you might think that at first because we might be thinking we're trying to figure out what is an ending inventory and what you know we lost. So I'll leave that for now. C says net purchases and ending inventory. Net purchases that's going to be what this is our purchases here and ending inventory here. So that you know those are both in our equation but we're really breaking out the cost of goods available for sale between ending inventory and cost of goods sold. So I don't think that's going to D says beginning inventory and cost of goods sold. Beginning inventory is in our formula but it's way up here and we're really down here we're really working below the cost of goods sold because we're breaking out that cost of goods sold. So I don't think it's that E says ending inventory and cost of goods sold. And I think that's going to be it of course because in our formula we have cost of goods available for sale minus the ending inventory gives us cost of goods sold. In other words cost of goods sold is being broken out between ending inventory and cost of goods and cost of goods sold. So once again cost of goods available for sale is allocated at the end of the period between either B inventory and shrinkage and I don't think that's going to be it. There's no shrinkage in here or E which I believe is the answer ending inventory and cost of goods sold. So the answer is going to be E. One more time cost of goods available for sale is allocated at the end of the period between E ending inventory and cost of goods sold. Next question merchandise inventory does not include A. invoice price of inventory purchased minus any discount B inventory transportation in costs C inventory storage costs D inventory insurance costs E inventory that cannot be sold. Once again we're going to go through these and see if we can cross out anything that doesn't belong. Merchandise inventory does not include A inventory price of inventory purchased minus the discount and that that would be the most obvious thing that would be included in inventory the price of it and we would have to take out the discount for the inventory as well. So I don't think it's going to be a B inventory transportation in cost. Now if we paid for the transportation cost it is something that we would want to record in inventory it wouldn't be just a freight in expense we would be included in inventory because we used the transportation in order to buy the inventory we will expense it in the form of cost of goods sold when we sell it. So it's not going to be B. C says inventory storage and that's going to be the same scenario if we have to pay for the storage in order to get the inventory in place for sale then we're not just going to expense it at the time we pay the storage we are going to include that cost in the inventory so it will be an inventory cost. D says inventory insurance same concept here the insurance if we have to pay for it in order to get that inventory ready for sale will be included in the cost of inventory and E says inventory that cannot be sold and so that's got to be it because we crossed everything else out and E and it makes sense because if it cannot be sold it should no longer be an inventory we should write it off as a loss it shouldn't be in the inventory price because the definition of inventory is something we're holding on to with the expectation of selling so that answer is merchandise inventory does not include E inventory that cannot be sold