Free on Board

1. Define “cost” as it relates to determining the value of inventory.

2. What is a cash discount?

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3. Explain what the term “3/10 n/30” means.

4. How do cash discounts impact the reported value of inventory?

5. What is a perpetual inventory system?

6. What is a periodic inventory system?

7. Name one advantage of a perpetual inventory system over a periodic inventory system.

8. Name one advantage of a periodic inventory system over a perpetual inventory system.

9. Explain the concept of “free on board.”

10. When does ownership transfer if documents specify “FOB shipping point”?

11. When does ownership transfer if documents specify “FOB destination”?

12. What two journal entries are made when inventory is sold under a perpetual system?

13. Give the formula for computing cost of goods sold under a periodic system.

14. Explain the concept of “lower-of-cost-or-market.”

15. Why would a company that uses a perpetual inventory system still perform a physical inventory count?