Question 1

Which of the following inventory systems uses an adjusting entry to record the cost of sales?

Accepted Answer

A) Periodic system 
B) Perpetual system 
C) Just-in-time system 
D) No system uses an adjusting entry to record the cost of sales. 
A) Periodic system 
B) Perpetual system 
C) Just-in-time system 
D) No system uses an adjusting entry to record the cost of sales. A

Question 2

If a company values inventory at the lower of cost and NRV, where market is defined as replacement cost, and prices are rising, which cost assumption would most likely require the smallest write down?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) The write down is not affected by the cost flow assumption. 
A) FIFO 
B) LIFO 
C) Average cost 
D) The write down is not affected by the cost flow assumption. A

Question 3

Which cost-based inventory valuation system would a company prefer if it wanted their inventory valuation on the balance sheet to approximate replacement cost?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification 
A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification A

Question 4

Despite the fact that IFRS has placed lower emphasis on this accounting principal, accountants tend to favour it, in order to counterbalance management's tendency to be overly optimistic with accounting estimates in:

Accepted Answer

A) materiality. 
B) historical cost. 
C) conservatism. 
D) reliability. 
A) materiality. 
B) historical cost. 
C) conservatism. 
D) reliability.

Question 5

Fundy Corp.has the following information about their inventory at year-end: $\begin{array}{lrr}\text { Item}&\text { Cost }&\text { NRV }\\hline
\# 1 & \$ 12,000 & \$ 12,500 \
\# 2 & 21,250 & 19,750 \
\# 3 & 18,600 & 18,500
\end{array}$ If Fundy values their inventory at the lower of cost and net realizable value on a total inventory basis, what would be the loss on inventory write down for the current year?

Accepted Answer

A) $500 
B) $1,100 
C) $1,600 
D) The loss would not be recorded until the items were sold. 
A) $500 
B) $1,100 
C) $1,600 
D) The loss would not be recorded until the items were sold.

Question 6

During a period of rising prices, which of the following cost flow assumptions will result in the highest net income?

Accepted Answer

A) FIFO 
B) Net realizable value 
C) Average cost 
D) Specific identification 
A) FIFO 
B) Net realizable value 
C) Average cost 
D) Specific identification

Question 7

If management wanted to keep track of inventory that was stolen or damaged separately from their cost of sales, which inventory system should they use?

Accepted Answer

A) Periodic system 
B) Perpetual system 
C) Just-in-time system 
D) No inventory system separates stolen goods from the cost of sales. 
A) Periodic system 
B) Perpetual system 
C) Just-in-time system 
D) No inventory system separates stolen goods from the cost of sales.

Question 8

Kingsway Limited applies the lower of cost or market, defined as net realizable value, to value its three different inventory item.The following information was taken from the company's accounting records at December 31, 2013: $\begin{array}{rrrrrr}
\text { Inventory }&\text { Number } & \text { Cost } & \text { Replacement } & \text { Net realizable } & \text { Inventory } \
&\text { Item } & \text { on hand } & \text { Cost } & \text { Value } & \text { at cost }\\hline
\# 1103 & 200 & \$ 15.00 & \$ 14.50 & \$ 14.35 & \$ 3,000 \
\# 1144 & 300 & \$ 35.00 & \$ 37.00 & \$ 36.00 & \$ 10,500 \
\# 3367 & 225 & \$ 125,00 & \$ 117,00 & \$ 115,00 & \$ 28,125\
\text { Total Cost }&&&&&\$41,625
\end{array}$ Required:
A) Compute the value of inventory applying the lower of cost or market (LCM) on an item-by-item basis.B) Prepare any required journal entries based on your results in Part A.
C) How would your answer be different if they applied LCM on a total inventory basis? D) Which of the two methods is more conservative? Why?
E) Which do you think management would prefer? Why?

Accepted Answer

A) @#IMG-DLM& B) @#IMG-DLM& C) If they had applied LCM on a

Question 9

Which cost flow assumption assumes that the goods purchased first are sold first?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification 
A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification

Question 10

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would have to pay to replace its existing inventory?

Accepted Answer

A) Replacement cost 
B) Net realizable value 
C) Average cost 
D) FIFO 
A) Replacement cost 
B) Net realizable value 
C) Average cost 
D) FIFO

Question 11

Fundy Corp.has the following information about their inventory at year-end: $\begin{array}{lrr}\text { Item}&\text { Cost }&\text { NRV }\\hline
\# 1 & \$ 12,000 & \$ 12,500 \
\# 2 & 21,250 & 19,750 \
\# 3 & 18,600 & 18,500
\end{array}$ If Fundy values their inventory at the lower of cost and net realizable value on a total inventory basis, what would be their year-end inventory balance on the balance sheet?

Accepted Answer

A) $50,250 
B) $50,750 
C) $51,850 
D) $52,350 
A) $50,250 
B) $50,750 
C) $51,850 
D) $52,350

Question 12

In a periodic inventory system, what kind of entry is necessary to record the cost of sales?

Accepted Answer

A) A closing entry 
B) A reversing entry 
C) An adjusting entry 
D) A transactional entry 
A) A closing entry 
B) A reversing entry 
C) An adjusting entry 
D) A transactional entry

Question 13

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would receive from selling the inventory, less any additional selling costs?

Accepted Answer

A) Replacement cost 
B) Net realizable value 
C) Average cost 
D) FIFO 
A) Replacement cost 
B) Net realizable value 
C) Average cost 
D) FIFO

Question 14

Frontenac Corporation has just developed a new on-line ordering system with their primary supplier.They expect the new system to reduce their average number of days of inventory on hand from 42 days to 22 days.If their cost of goods sold was $642,000 last year and is expected to be about the same this year, how much smaller should their investment in inventory be this year?

Accepted Answer

A) $15,285 
B) $32,100 
C) $35,178 
D) $38,695 
A) $15,285 
B) $32,100 
C) $35,178 
D) $38,695

Question 15

Toyland Town was counting on Wireless Wendy's being the hot new toy for the 2013 Christmas season.They made the following purchases and sales related to the toy: $\begin{array}{l}&\text { Units }\
&\text { Purchased}&\text { Unit Cost}&\text { Total Costs}&\text { Units Sold }\
\text { Opening Inventory: }\
\text { Purchases: }\
\text { August } 15 & 4,000 & \$ 6.00 & \$ 24,000 \
\text { September } 30 & 12,000 & \$ 7.00 & \$ 84,000 \
\text { November } 10 & 15,000 & \$ 7.50 & \$ 112,500
\end{array}$ Sales
$\begin{array}{lr}
\text { October } & 6,000 \text { units } \
\text { November } & 10,500 \text { units } \
\text { December } & 1.500 \text { units }
\end{array}$ Unfortunately, in December there was a story in the newspaper about quality problems with the doll and low customer satisfaction.The manufacturer offered to sell Toyland the rest of their inventory at the original price of $6.00 per unit.The company uses a periodic inventory system.
Required:
A) If Toyland Town uses FIFO and the lower of cost or market, where market is defined as replacement cost, what would be the value of the Wireless Wendy inventory on December 31, 2013?
B) Based on your answer in part A) what costs related to Wireless Wendy would be on the 2013 income statement?
C) Do you have any other concerns about Toyland's inventory valuation at year-end?

Accepted Answer

A) Total purchases: 31,000, Total sales

Question 16

For each of the following economic events, prepare the necessary journal entries.If no entry is required, explain briefly.Assume a perpetual inventory system.
A) Opening inventory is recounted and confirmed to be $8,500.B) Inventory costing $14,000 is purchased on credit.
C) Inventory worth $2,000 is damaged in the warehouse and written off.
D) Inventory costing $16,000 is sold during the month for $22,000.$4,000 was received in cash and the balance is on account.
E) Paid the amount owing from this month's purchases of inventory.
F) A month end count reveals 1,000 units on hand.The cost of these units is $4,000 and the net realizable value is estimated to be $4,700

Accepted Answer

A) No entry - count agrees wit

Question 17

Which cost-based inventory valuation system provides more relevant information about a company's gross margin and net income when the prices of inventory are rising?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identifications 
A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identifications

Question 18

Which of the following should be included in the cost of the inventory?

Accepted Answer

A) Salaries paid to warehouse employees. 
B) The construction cost of shelves used to store inventory. 
C) Shipping and handling on inventory purchases. 
D) Advertising of inventory for sale. 
A) Salaries paid to warehouse employees. 
B) The construction cost of shelves used to store inventory. 
C) Shipping and handling on inventory purchases. 
D) Advertising of inventory for sale.

Question 19

A company values its inventory at net realizable value (NRV).It paid $250 for, and still has on hand, 10 units that it expects to sell for $400 less selling costs of $40.Which of the following statements is true related to these goods in this period?

Accepted Answer

A) The company recognizes $400 of selling costs. 
B) The inventory is valued at $2,100. 
C) The inventory is valued at $2,500. 
D) The inventory is valued at $3,600. 
A) The company recognizes $400 of selling costs. 
B) The inventory is valued at $2,100. 
C) The inventory is valued at $2,500. 
D) The inventory is valued at $3,600.

Question 20

According to IFRS, all of the following costs should be included in the cost of inventory except:

Accepted Answer

A) cost of materials for a special order. 
B) direct labour involved in manufacturing the product. 
C) supervisors' salaries in the plant. 
D) storage costs. 
A) cost of materials for a special order. 
B) direct labour involved in manufacturing the product. 
C) supervisors' salaries in the plant. 
D) storage costs.

Which of the following inventory systems uses an adjusting entry to record the cost of sales?

If a company values inventory at the lower of cost and NRV, where market is defined as replacement cost, and prices are rising, which cost assumption would most likely require the smallest write down?

Which cost-based inventory valuation system would a company prefer if it wanted their inventory valuation on the balance sheet to approximate replacement cost?

Despite the fact that IFRS has placed lower emphasis on this accounting principal, accountants tend to favour it, in order to counterbalance management's tendency to be overly optimistic with accounting estimates in:

During a period of rising prices, which of the following cost flow assumptions will result in the highest net income?

If management wanted to keep track of inventory that was stolen or damaged separately from their cost of sales, which inventory system should they use?

Which cost flow assumption assumes that the goods purchased first are sold first?

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would have to pay to replace its existing inventory?

In a periodic inventory system, what kind of entry is necessary to record the cost of sales?

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would receive from selling the inventory, less any additional selling costs?

Which cost-based inventory valuation system provides more relevant information about a company's gross margin and net income when the prices of inventory are rising?

Which of the following should be included in the cost of the inventory?

A company values its inventory at net realizable value (NRV).It paid $250 for, and still has on hand, 10 units that it expects to sell for $400 less selling costs of $40.Which of the following statements is true related to these goods in this period?

According to IFRS, all of the following costs should be included in the cost of inventory except:

The Accounting Environment: What Is Accounting and Why Is It Done

Financial Statements: a Window on an Entity

The Accounting Cycle

Income Measurement and the Objectives of Financial Reporting

Cash Flow, Profitability, and the Cash Flow Statement

Cash, Receivables, and the Time Value of Money

Capital Assets

Liabilities

Owners Equity

Investments in Other Companies

Analyzing and Interpreting Financial Statements

Filters

Exam 7: Inventory

Which of the following inventory systems uses an adjusting entry to record the cost of sales?

If a company values inventory at the lower of cost and NRV, where market is defined as replacement cost, and prices are rising, which cost assumption would most likely require the smallest write down?

Which cost-based inventory valuation system would a company prefer if it wanted their inventory valuation on the balance sheet to approximate replacement cost?

Despite the fact that IFRS has placed lower emphasis on this accounting principal, accountants tend to favour it, in order to counterbalance management's tendency to be overly optimistic with accounting estimates in:

During a period of rising prices, which of the following cost flow assumptions will result in the highest net income?

If management wanted to keep track of inventory that was stolen or damaged separately from their cost of sales, which inventory system should they use?

Which cost flow assumption assumes that the goods purchased first are sold first?

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would have to pay to replace its existing inventory?

In a periodic inventory system, what kind of entry is necessary to record the cost of sales?

What method of inventory valuation is it when the cost of inventory is defined as the amount that an entity would receive from selling the inventory, less any additional selling costs?

Which cost-based inventory valuation system provides more relevant information about a company's gross margin and net income when the prices of inventory are rising?

Which of the following should be included in the cost of the inventory?

A company values its inventory at net realizable value (NRV).It paid $250 for, and still has on hand, 10 units that it expects to sell for $400 less selling costs of $40.Which of the following statements is true related to these goods in this period?

According to IFRS, all of the following costs should be included in the cost of inventory except:

The Accounting Environment: What Is Accounting and Why Is It Done

Financial Statements: a Window on an Entity

The Accounting Cycle

Income Measurement and the Objectives of Financial Reporting

Cash Flow, Profitability, and the Cash Flow Statement

Cash, Receivables, and the Time Value of Money

Capital Assets

Liabilities

Owners Equity

Investments in Other Companies

Analyzing and Interpreting Financial Statements

Filters