Question 1

The cost flow assumption adopted must be consistent with the physical movement of the goods.

Accepted Answer

A) True 
 B)False

Question 2

Use the following information for questions 125 through 127.
Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2013. Its inventory at that date was $550,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:  
-What is the cost of the ending inventory at December 31, 2015 under dollar-value LIFO?

Accepted Answer

A)  $580,000. 
B)  $578,500. 
C)  $582,100. 
D)  $600,000. 
A)  $580,000. 
B)  $578,500. 
C)  $582,100. 
D)  $600,000.

Question 3

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Accepted Answer

A)  net income, current assets, and retained earnings were overstated. 
B)  net income was correct and current assets were understated. 
C)  net income and current assets were overstated and current liabilities were understated. 
D)  net income, current assets, and retained earnings were understated. 
A)  net income, current assets, and retained earnings were overstated. 
B)  net income was correct and current assets were understated. 
C)  net income and current assets were overstated and current liabilities were understated. 
D)  net income, current assets, and retained earnings were understated.

Question 4

Which of the following is not considered an advantage of LIFO when prices are rising?

Accepted Answer

A)  The inventory will be overstated. 
B)  The more recent costs are matched against current revenues. 
C)  There will be a deferral of income tax. 
D)  A company's future reported earnings will not be affected substantially by future price declines. 
A)  The inventory will be overstated. 
B)  The more recent costs are matched against current revenues. 
C)  There will be a deferral of income tax. 
D)  A company's future reported earnings will not be affected substantially by future price declines.

Question 5

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

Accepted Answer

A)  The potential for manipulation of net income is reduced. 
B)  There is no arbitrary allocation of costs. 
C)  The cost flow matches the physical flow. 
D)  Able to use on all types of inventory. 
A)  The potential for manipulation of net income is reduced. 
B)  There is no arbitrary allocation of costs. 
C)  The cost flow matches the physical flow. 
D)  Able to use on all types of inventory.

Question 6

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported

Accepted Answer

A)  on the income statement in the Other Revenues and Gains section. 
B)  on the income statement in the Cost of Goods Sold section. 
C)  on the income statement in the Other Expenses and Losses section. 
D)  on the balance sheet in the Current Assets section. 
A)  on the income statement in the Other Revenues and Gains section. 
B)  on the income statement in the Cost of Goods Sold section. 
C)  on the income statement in the Other Expenses and Losses section. 
D)  on the balance sheet in the Current Assets section.

Question 7

Bell Inc. took a physical inventory at the end of the year and determined that $830,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped F.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

Accepted Answer

A)  $830,000. 
B)  $890,000. 
C)  $920,000. 
D)  $980,000. 
A)  $830,000. 
B)  $890,000. 
C)  $920,000. 
D)  $980,000.

Question 8

Both merchandising and manufacturing companies normally have multiple inventory accounts.

Accepted Answer

A) True 
 B)False

Question 9

In the double-extension method, the value of the units in inventory is extended at:

Accepted Answer

A)  twice the base-year prices. 
B)  twice the current year prices. 
C)  both base-year prices and current-year prices. 
D)  only the base-year prices. 
A)  twice the base-year prices. 
B)  twice the current year prices. 
C)  both base-year prices and current-year prices. 
D)  only the base-year prices.

Question 10

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

Accepted Answer

A) True 
 B)False

Question 11

Use the following information for questions 92 through 94.
Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014 contained errors as follows:  
-Assume that the proper correcting entries were made at December 31, 2014. By how much will 2015 income before taxes be overstated or understated?

Accepted Answer

A)  $ 2,000 understated 
B)  $ 2,000 overstated 
C)  $ 4,000 overstated 
D)  $10,000 overstated 
A)  $ 2,000 understated 
B)  $ 2,000 overstated 
C)  $ 4,000 overstated 
D)  $10,000 overstated

Question 12

With respect to accounting for inventories, which of the following is a difference that exists for IFRS, as opposed to U.S. GAAP?

Accepted Answer

A)  There is required recognition of certain development costs. 
B)  The FIFO method of inventories is prohibited. 
C)  The specific identification method of inventories is only allowed when goods are interchangeable. 
D)  The weighted average method of inventories is prohibited. 
A)  There is required recognition of certain development costs. 
B)  The FIFO method of inventories is prohibited. 
C)  The specific identification method of inventories is only allowed when goods are interchangeable. 
D)  The weighted average method of inventories is prohibited.

Question 13

Under IFRS, inventories are classified as

Accepted Answer

A)  noncurrent assets 
B)  current assets 
C)  stockholders' equity 
D)  current liabilities 
A)  noncurrent assets 
B)  current assets 
C)  stockholders' equity 
D)  current liabilities

Question 14

Accounting for purchase discounts.
Otto Corp. purchased merchandise during 2014 on credit for $500,000; terms 2/10, n/30. All of the gross liability except $80,000 was paid within the discount period. The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2014, 90% of the merchandise had been sold and 10% remained in inventory. The company uses a periodic system.

Instructions

(a) Assuming that the net method is used for recording purchases, prepare the entries for the purchase and two subsequent payments.
(b) What dollar amounts should be reported for the final inventory and cost of goods sold under the (1) net method; (2) gross method? Assume that there was no beginning inventory.

Accepted Answer

@#IMG-DLM& (Assuming that the $8,400 discount is (

Question 15

The accountant for the Pryor Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. Pryor uses the periodic inventory system. The January 1, 2014 merchandise inventory balance will appear

Accepted Answer

A)  only as an asset on the balance sheet. 
B)  only in the cost of goods sold section of the income statement. 
C)  as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. 
D)  as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet. 
A)  only as an asset on the balance sheet. 
B)  only in the cost of goods sold section of the income statement. 
C)  as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. 
D)  as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

Question 16

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

Accepted Answer

A) True 
 B)False

Question 17

Under IFRS, an entity should initially recognize inventory when

Accepted Answer

A)  it has control of the inventory 
B)  it expects it to provide future economic benefits 
C)  the cost of the inventory can be reliably measured 
D)  All of these choices are correct 
A)  it has control of the inventory 
B)  it expects it to provide future economic benefits 
C)  the cost of the inventory can be reliably measured 
D)  All of these choices are correct

Question 18

Use the following information for questions 35 and 36.
During 2014 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2015. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
-On whose books should the cost of the inventory appear at the December 31, 2014 balance sheet date?

Accepted Answer

A)  Carne Corporation 
B)  Nolan Corporation 
C)  Norwalk Bank 
D)  Nolan Corporation, with Carne making appropriate note disclosure of the transaction 
A)  Carne Corporation 
B)  Nolan Corporation 
C)  Norwalk Bank 
D)  Nolan Corporation, with Carne making appropriate note disclosure of the transaction

Question 19

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Accepted Answer

A)  manufacturing overhead costs for a product manufactured and sold in the same accounting period. 
B)  costs which will not benefit any future period. 
C)  costs from idle manufacturing capacity resulting from an unexpected plant shutdown. 
D)  costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. 
A)  manufacturing overhead costs for a product manufactured and sold in the same accounting period. 
B)  costs which will not benefit any future period. 
C)  costs from idle manufacturing capacity resulting from an unexpected plant shutdown. 
D)  costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

Question 20

Which of the following statements is true about specific-goods pooled LIFO approach?

Accepted Answer

A)  It determines and measures any increases and decreases in a pool in terms of total dollar value 
B)  Most companies using a LIFO system prefer specific-goods pooled LIFO approach over dollar-value LIFO 
C)  It usually results in large LIFO liquidation 
D)  The reduction of one quantity in the pool may be offset by an increase in another 
A)  It determines and measures any increases and decreases in a pool in terms of total dollar value 
B)  Most companies using a LIFO system prefer specific-goods pooled LIFO approach over dollar-value LIFO 
C)  It usually results in large LIFO liquidation 
D)  The reduction of one quantity in the pool may be offset by an increase in another

The cost flow assumption adopted must be consistent with the physical movement of the goods.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Which of the following is not considered an advantage of LIFO when prices are rising?

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported

Both merchandising and manufacturing companies normally have multiple inventory accounts.

In the double-extension method, the value of the units in inventory is extended at:

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

With respect to accounting for inventories, which of the following is a difference that exists for IFRS, as opposed to U.S. GAAP?

Under IFRS, inventories are classified as

The accountant for the Pryor Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. Pryor uses the periodic inventory system. The January 1, 2014 merchandise inventory balance will appear

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

Under IFRS, an entity should initially recognize inventory when

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Which of the following statements is true about specific-goods pooled LIFO approach?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters

Exam 8: Valuation of Inventories: a Cost-Basis Approach

The cost flow assumption adopted must be consistent with the physical movement of the goods.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Which of the following is not considered an advantage of LIFO when prices are rising?

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported

Both merchandising and manufacturing companies normally have multiple inventory accounts.

In the double-extension method, the value of the units in inventory is extended at:

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

With respect to accounting for inventories, which of the following is a difference that exists for IFRS, as opposed to U.S. GAAP?

Under IFRS, inventories are classified as

The accountant for the Pryor Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. Pryor uses the periodic inventory system. The January 1, 2014 merchandise inventory balance will appear

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

Under IFRS, an entity should initially recognize inventory when

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Which of the following statements is true about specific-goods pooled LIFO approach?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters