ENABLING ASSESSMENT

1. In accounting for sales on consignment, sales revenue and the related cost of goods sold should be
recognized by the consignee when the goods are shipped to the third party
False

2. Transportation costs of consigned goods from the consignor to the consignee form part of the cost of
inventory of the consignee
False

3. The consignor recognizes revenue from a consignment sale when the consignee sells the goods to the
end customer.
True

4. Transportation costs of consigned goods from the consignee to end customers may be treated as
freight out by the consignor.
True

5. Prime Co enters into an agreement with Smile Co. whereby Prime undertakes to manufacture a product
for Smile Co. Prime shall be held liable for the quality of the manufactured product and its conformance
with the customer’s specified design. However, Prime does not have the expertise in manufacturing the
product so it enters into a contract with Sully Co. Sully Co. shall do the manufacturing in accordance
with the specifications of the customer.

If the entire manufacturing process is outsourced from Sully Co., Prime is acting as a
consignor.
False

6. In consignment sales, the consignee records a liability for the merchandise held on consignment.
False

7. Revenue is recognized by the consignor when it receives an account sales from the consignee.
True

8. Prime Co enters into an agreement with Smile Co. whereby Prime undertakes to manufacture a product
for Smile Co. Prime shall be held liable for the quality of the manufactured product and its conformance
with the customer’s specified design. However, Prime does not have the expertise in manufacturing the
product so it enters into a contract with Sully Co. Sully Co. shall do the manufacturing in accordance
with the specifications of the customer.

If only a portion of the manufacturing process is outsourced from Sully Co., Prime is acting not
as a consignor but as an agent.
False

9. Ted Suavillo is an artist who sells his work under consignment. Recently, he transferred a painting on
consignment to a local shop. Suavillo most likely should recognize revenue when the local shop sells
the painting.
True (NOTE: SEVERAL TED SUAVILLO CASES)

10. If another party is primarily responsible for fulfilling a contract with a customer, this may indicate that the
arrangement is a consignment contract.
True

11. Under a consignment arrangement, the consignor recognizes revenue equal to the gross amount of the
consideration in the contract.
 True

12. In a consignment arrangement, the consignor bears the inventory risk and credit risk.
True

13. Revenue from consignment arrangements is normally recognized by the consignor when the consigned
goods are delivered to the consignee.
False

14. Goods out on consignment are properly included in the consignee’s inventory.
False

15. Ted Suavillo is an artist who sells his work under consignment. Recently, he transferred a painting on
consignment to a local shop. After Suavillo transferred the painting to the local shop, the painting
should be counted in the local shop’s inventory because the painting is in its possession.
False (NOTE: SEVERAL TED SUAVILLO CASES)

16. The gross amount of sales price represents consignor’s revenue while commission represents
consignee’s revenue.
True