Question 1

Agricultural produce is

Accepted Answer

A) Harvested from biological assets. 
B) Valued at the time of harvest at its cost to produce. 
C) Valued at each reporting period at its fair value less costs to sell. 
D) All of the choices are correct regarding agricultural produce. 
A) Harvested from biological assets. 
B) Valued at the time of harvest at its cost to produce. 
C) Valued at each reporting period at its fair value less costs to sell. 
D) All of the choices are correct regarding agricultural produce.

Question 2

Replenish, Inc.develops and produces sports drinks for sale throughout the United States and Europe.The International Accounting Standards Board (IASB) prohibits Replenish, Inc.from using which of the following cost flow assumptions for its inventory?

Accepted Answer

A) LIFO (last-in, first-out). 
B) Specific identification. 
C) Weighted-average. 
D) The IASB allows any of these cost flow assumptions as long as the company uses it consistently. 
A) LIFO (last-in, first-out). 
B) Specific identification. 
C) Weighted-average. 
D) The IASB allows any of these cost flow assumptions as long as the company uses it consistently.

Question 3

In 2015, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2016 for $700,000.Before the December 31, 2015 statement of financial position date, the market price for these materials dropped to $510,000.The journal entry to record this situation at December 31, 2015 will result in a credit that should be reported

Accepted Answer

A) as a valuation account to Inventory on the statement of financial position. 
B) as a current liability. 
C) as an appropriation of retained earnings. 
D) on the income statement. 
A) as a valuation account to Inventory on the statement of financial position. 
B) as a current liability. 
C) as an appropriation of retained earnings. 
D) on the income statement.

Question 4

Under IFRS, LIFO is permitted for financial reporting purposes if the company's host country permits it for tax purposes.

Accepted Answer

A) True 
 B)False

Question 5

LCNRV of inventory

Accepted Answer

A) is always either the net realizable value or its cost. 
B) should always be equal to net realizable value. 
C) may sometimes be less than net realizable value. 
D) should always be equal to net realizable value less costs to complete. 
A) is always either the net realizable value or its cost. 
B) should always be equal to net realizable value. 
C) may sometimes be less than net realizable value. 
D) should always be equal to net realizable value less costs to complete.

Question 6

Which statement is true about the retail inventory method?

Accepted Answer

A) It may not be used to estimate inventories for interim statements. 
B) It may not be used to estimate inventories for annual statements. 
C) It may not be used by auditors. 
D) None of these are correct. 
A) It may not be used to estimate inventories for interim statements. 
B) It may not be used to estimate inventories for annual statements. 
C) It may not be used by auditors. 
D) None of these are correct.

Question 7

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

Accepted Answer

A) True 
 B)False

Question 8

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative standalone sales value.

Accepted Answer

A) True 
 B)False

Question 9

What condition is not necessary in order to use the retail method to provide inventory results?

Accepted Answer

A) Retailer keeps a record of the total costs of products sold for the period. 
B) Retailer keeps a record of the total costs and retail value of goods purchased. 
C) Retailer keeps a record of the total costs and retail value of goods available for sale. 
D) Retailer keeps a record of sales for the period. 
A) Retailer keeps a record of the total costs of products sold for the period. 
B) Retailer keeps a record of the total costs and retail value of goods purchased. 
C) Retailer keeps a record of the total costs and retail value of goods available for sale. 
D) Retailer keeps a record of sales for the period.

Question 10

Lower-of-cost-or-net realizable value

Accepted Answer

A) gives the lowest valuation if applied to the total inventory. 
B) gives the lowest valuation if applied to major groups of inventory. 
C) gives the lowest valuation if applied to individual items of inventory. 
D) must be applied to major groups for taxes. 
A) gives the lowest valuation if applied to the total inventory. 
B) gives the lowest valuation if applied to major groups of inventory. 
C) gives the lowest valuation if applied to individual items of inventory. 
D) must be applied to major groups for taxes.

Question 11

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing commodities held by broker-traders.

Accepted Answer

A) True 
 B)False

Question 12

The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

Accepted Answer

A) True 
 B)False

Question 13

To produce an inventory valuation which approximates the lower-of-cost-or-net realizable value using the conventional retail inventory method, the computation of the ratio of cost to retail should

Accepted Answer

A) include markups but not markdowns. 
B) include markups and markdowns. 
C) ignore both markups and markdowns. 
D) include markdowns but not markups. 
A) include markups but not markdowns. 
B) include markups and markdowns. 
C) ignore both markups and markdowns. 
D) include markdowns but not markups.

Question 14

Under International Financial Reporting Standards (IFRS), agricultural activity can result in the production of both agricultural produce and biological assets.

Accepted Answer

A) True 
 B)False

Question 15

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

Accepted Answer

A) True 
 B)False

Question 16

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory?

Accepted Answer

A) Commodities held by broker-traders. 
B) Computer components held for sale to manufacturers. 
C) Inventories priced on an item by-item basis, but not those priced on a total-inventory basis. 
D) All of the choices are held at NRV under IFRS. 
A) Commodities held by broker-traders. 
B) Computer components held for sale to manufacturers. 
C) Inventories priced on an item by-item basis, but not those priced on a total-inventory basis. 
D) All of the choices are held at NRV under IFRS.

Question 17

Net realizable value is

Accepted Answer

A) fair value plus estimated costs to complete and make a sale. 
B) selling price. 
C) selling price plus estimated costs to complete and make a sale. 
D) selling price less estimated costs to complete and make a sale. 
A) fair value plus estimated costs to complete and make a sale. 
B) selling price. 
C) selling price plus estimated costs to complete and make a sale. 
D) selling price less estimated costs to complete and make a sale.

Question 18

If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should recognize a liability and corresponding loss in the period in which the market decline takes place.

Accepted Answer

A) True 
 B)False

Question 19

What is the effect of net markups on the cost-retail ratio when using the conventional retail method?

Accepted Answer

A) Increases the cost-retail ratio. 
B) No effect on the cost-retail ratio. 
C) Depends on the amount of the net markdowns. 
D) Decreases the cost-retail ratio. 
A) Increases the cost-retail ratio. 
B) No effect on the cost-retail ratio. 
C) Depends on the amount of the net markdowns. 
D) Decreases the cost-retail ratio.

Question 20

A major advantage of the retail inventory method is that it

Accepted Answer

A) provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. 
B) hides costs from competitors and customers. 
C) gives a more accurate statement of inventory costs than other methods. 
D) provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies. 
A) provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. 
B) hides costs from competitors and customers. 
C) gives a more accurate statement of inventory costs than other methods. 
D) provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.

Exam 9: Inventories: Additional Valuation Issues

Agricultural produce is

Replenish, Inc.develops and produces sports drinks for sale throughout the United States and Europe.The International Accounting Standards Board (IASB) prohibits Replenish, Inc.from using which of the following cost flow assumptions for its inventory?

Under IFRS, LIFO is permitted for financial reporting purposes if the company's host country permits it for tax purposes.

LCNRV of inventory

Which statement is true about the retail inventory method?

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative standalone sales value.

What condition is not necessary in order to use the retail method to provide inventory results?

Lower-of-cost-or-net realizable value

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing commodities held by broker-traders.

The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

To produce an inventory valuation which approximates the lower-of-cost-or-net realizable value using the conventional retail inventory method, the computation of the ratio of cost to retail should

Under International Financial Reporting Standards (IFRS), agricultural activity can result in the production of both agricultural produce and biological assets.

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory?

Net realizable value is

If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should recognize a liability and corresponding loss in the period in which the market decline takes place.

What is the effect of net markups on the cost-retail ratio when using the conventional retail method?

A major advantage of the retail inventory method is that it

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities, Provisions, and Contingencies

Non-Current Liabilities

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

Presentation and Disclosure in Financialreporting

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