6.5 Illustrate the reporting of inventory in the financial statements
1) An example of full disclosure would be a footnote to the financial statements indicating what method was used to value inventory.
2) Knowledgeable decisions that are made by outsiders who read financial reports are a result of the concept of conservatism.
3) Shrinkage refers to the loss of inventory due to theft, damage, or other similar occurrences.
4) Which of the following is probably NOT used when taking a physical inventory?
A) Pre-numbered count sheets
B) Tags to show what inventory has been counted
C) Maps of the location of the inventory
D) Random counts of items
E) Prewritten inventory instructions
5) Which is usually NOT a common practice in taking a physical inventory?
A) Taking inventory during slow store hours
B) Hiring an outside firm
C) Taking inventory during the November and December holidays
D) Taking inventory in team of two persons
E) Having prewritten instructions
6) Which is NOT an assurance of footnote disclosures?
A) Conservative information
B) Reliable information
C) Comparable information
D) Relevant information
E) Materiality
7) Which of the following would probably NOT need to be disclosed in a footnote?
A) A change of inventory methods
B) A material change in estimated shrinkage
C) A change in depreciation method
D) A 10% increase in sales
E) The accounting policy used
8) Which of the following would probably NOT cause inventory shrinkage?
A) Employee theft
B) Spoilage of items
C) Spills of items
D) Correct counting of all inventory
E) Customer theft
9) Footnotes are used with what concept or principle of accounting?
10) What is the term called that describes the decrease in inventory due to employee theft, customer theft,
and the damage, spillage, or spoilage of inventory items?
11) Which account would always be used for an inventory adjustment?
12) If shrinkage is found for $500, what is the adjusting entry that would be required?
13) After a physical count, the ending inventory is adjusted. Where on the balance sheet is the ending inventory shown?
14) If the actual inventory count determines an inventory value of $350 while the perpetual inventory records
show a value of $339, what is the adjusting entry for the $11?
15) What are the two things about inventory that must be disclosed in the notes of the financial statements?