PACO 501 EXAM 2 EXAM SCRIPT 2026
QUESTIONS WITH FULL ANSWERS GRADED A+
◉ Merchandise inventory. Answer: Describes the many different
items that make up the total inventory
Two common characteristics:
1. They are owned by the company.
2. They are in a form ready for sale to customers in the ordinary
course of business.
◉ Manufacturing company inventory. Answer: Inventory classified
in 3 categories:
- finished goods inventory: manufactured items that are completed
and ready for sale
- work in process: that portion of manufactured inventory that has
begun the production
- raw materials: the basic goods that will be used in production but
have not yet been placed into production
By observing the levels and changes in the levels of these three
inventory types, financial statement users can gain insight into
management's production plans.
,◉ Finished goods inventory. Answer: Manufactured items that are
completed and ready for sale
◉ Work in process. Answer: That portion of manufactured inventory
that has begun the production
◉ Raw materials. Answer: The basic goods that will be used in
production but have not yet been placed into production
◉ Just in time (JIT) inventory methods. Answer: Inventory system in
which companies manufacture or purchase goods only when needed
◉ Determining inventory quantities. Answer: Companies using a
periodic inventory system must take physical inventory for two
different purposes:
1. To determine the inventory on hand at the balance sheet date
2. To determine the cost of goods sold for the period
Involves 2 steps:
1. Taking a physical inventory of goods on hand
2. Determining the ownership of goods
, ◉ Taking a physical inventory. Answer: Involves actually counting,
weighing, or measuring each kind of inventory on hand
◉ Determining the ownership of goods. Answer: Making sure a
company owns the inventory
*Goods in transit
- The company may have purchased goods that have not yet been
received, or it may have sold goods that have not yet been delivered.
- Should be included in the inventory of the company that has legal
title to the goods
+ Legal title is determined by the terms of the
sale
*Consigned goods
- Goods held for sale by the party although ownership of the goods is
retained by another party
- Avoids the risk of purchasing an item that they will not be able to
sell
◉ Cost. Answer: Includes all expenditures necessary to acquire
goods and place them in a condition ready for sale
QUESTIONS WITH FULL ANSWERS GRADED A+
◉ Merchandise inventory. Answer: Describes the many different
items that make up the total inventory
Two common characteristics:
1. They are owned by the company.
2. They are in a form ready for sale to customers in the ordinary
course of business.
◉ Manufacturing company inventory. Answer: Inventory classified
in 3 categories:
- finished goods inventory: manufactured items that are completed
and ready for sale
- work in process: that portion of manufactured inventory that has
begun the production
- raw materials: the basic goods that will be used in production but
have not yet been placed into production
By observing the levels and changes in the levels of these three
inventory types, financial statement users can gain insight into
management's production plans.
,◉ Finished goods inventory. Answer: Manufactured items that are
completed and ready for sale
◉ Work in process. Answer: That portion of manufactured inventory
that has begun the production
◉ Raw materials. Answer: The basic goods that will be used in
production but have not yet been placed into production
◉ Just in time (JIT) inventory methods. Answer: Inventory system in
which companies manufacture or purchase goods only when needed
◉ Determining inventory quantities. Answer: Companies using a
periodic inventory system must take physical inventory for two
different purposes:
1. To determine the inventory on hand at the balance sheet date
2. To determine the cost of goods sold for the period
Involves 2 steps:
1. Taking a physical inventory of goods on hand
2. Determining the ownership of goods
, ◉ Taking a physical inventory. Answer: Involves actually counting,
weighing, or measuring each kind of inventory on hand
◉ Determining the ownership of goods. Answer: Making sure a
company owns the inventory
*Goods in transit
- The company may have purchased goods that have not yet been
received, or it may have sold goods that have not yet been delivered.
- Should be included in the inventory of the company that has legal
title to the goods
+ Legal title is determined by the terms of the
sale
*Consigned goods
- Goods held for sale by the party although ownership of the goods is
retained by another party
- Avoids the risk of purchasing an item that they will not be able to
sell
◉ Cost. Answer: Includes all expenditures necessary to acquire
goods and place them in a condition ready for sale
