Please give a brief answer to each of the following questions. 1. Why are shippi
ID: 2728647 • Letter: P
Question
Please give a brief answer to each of the following questions.
1. Why are shipping terms such as FOB shipping point or FOB destination point, important in deciding ownership of inventory
at the end of the year?
2. An effective system of internal control is critical to protecting a company’s investment in three of its major assets: cash,
accounts receivable, and inventory. For each of the three assets, describe briefly how a company might protect that asset.
3. What is a cash equivalent? Why is it included with cash on the balance sheet?
4. Define the term goodwill. Give an example of a transaction that would result in the recording of goodwill on the balance
sheet.
Explanation / Answer
(c)
A cash equivalent is a highly liquid investment having a maturity of three months or less. it should be at minimal risk of a change in value. Examples of cash equivalents are:
To be classified as a cash equivalent, an item must be unrestricted, so that it is available for immediate use.
The cash and cash equivalents line item is stated first in the balance sheet, since line items are stated in their order of liquidity, and these assets are the most liquid of all assets.
(d)
Goodwill is the excess of purchase price over the fair market value of a company's identifiable assets and liabilities.
In case of investment in subsidiary company, when amount paid for investment is excess of net assets owned and controlled
Amount ($) Investment at cost $ 100,000 Lesss: Net assets owned $ 85,000 Goodwill $ 15,000