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Specific Identification quiz #1

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  • What is the specific identification method in inventory valuation, and when is it most appropriately used?
    The specific identification method tracks the actual cost of each unique or easily identifiable inventory item sold and remaining. It is most appropriate for businesses dealing with high-value, distinguishable items, such as yachts or custom goods.
  • How does the specific identification method determine the cost of goods sold (COGS) and ending inventory?
    Under the specific identification method, COGS is the actual cost of the specific item sold, while ending inventory is the sum of the costs of the unsold, individually identified items.
  • Using the specific identification method, how would ABC Yacht Company record the sale of Yacht B for $800,000, with $400,000 received in cash and $400,000 as accounts receivable?
    ABC Yacht Company would debit Cash for $400,000, debit Accounts Receivable for $400,000, credit Revenue for $800,000, debit Cost of Goods Sold for $500,000 (cost of Yacht B), and credit Inventory for $500,000.
  • After selling Yacht B, what is the value of ABC Yacht Company's remaining inventory and how is gross profit calculated using the specific identification method?
    The remaining inventory is valued at $950,000 (Yacht A at $350,000 plus Yacht C at $600,000). Gross profit is calculated as revenue from the sale ($800,000) minus the cost of Yacht B ($500,000), resulting in a gross profit of $300,000.
  • What type of inventory items is the specific identification method most suitable for?
    It is most suitable for unique or easily identifiable items, such as high-value or custom goods.
  • How does the specific identification method determine the cost of goods sold (COGS)?
    COGS is determined by the actual cost of the specific item that was sold.
  • How is ending inventory calculated under the specific identification method?
    Ending inventory is the sum of the costs of the unsold, individually identified items.
  • What journal entries are made when ABC Yacht Company sells Yacht B for $800,000, receiving half in cash and half as accounts receivable?
    Debit Cash for $400,000, debit Accounts Receivable for $400,000, credit Revenue for $800,000, debit Cost of Goods Sold for $500,000, and credit Inventory for $500,000.
  • After selling Yacht B, what is the value of ABC Yacht Company's remaining inventory?
    The remaining inventory is valued at $950,000, which includes Yacht A at $350,000 and Yacht C at $600,000.
  • How is gross profit calculated for the sale of Yacht B using the specific identification method?
    Gross profit is calculated as the revenue from the sale ($800,000) minus the cost of Yacht B ($500,000), resulting in a gross profit of $300,000.