Question 1

In a period of falling prices which inventory method generally provides the lowest reported inventory?

Accepted Answer

A) Average cost. 
B) FIFO. 
C) Moving average. 
D) Specific identification. 
A) Average cost. 
B) FIFO. 
C) Moving average. 
D) Specific identification.

Question 2

Use the following information for questions 
During 2015 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2016.Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne.In 2016 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
-This transaction is known as a(n)

Accepted Answer

A) consignment. 
B) installment sale. 
C) assignment for the benefit of creditors. 
D) product financing arrangement. 
A) consignment. 
B) installment sale. 
C) assignment for the benefit of creditors. 
D) product financing arrangement.

Question 3

Which inventory costing method most closely approximates current cost for ending inventory?

Accepted Answer

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

Question 4

Freight costs incurred by the seller to ship merchandise to the purchaser are accounted for by the seller as part of inventory on the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 5

Purchase Discounts Lost is a financial expense and is reported in the "other income and expense" section of the income statement.

Accepted Answer

A) True 
 B)False

Question 6

In a period of declining prices, the inventory method which tends to give the highest reported cost of goods sold is

Accepted Answer

A) specific identification. 
B) average cost. 
C) FIFO. 
D) None of these are correct. 
A) specific identification. 
B) average cost. 
C) FIFO. 
D) None of these are correct.

Question 7

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 8

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Accepted Answer

A) True 
 B)False

Question 9

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the average cost method?

Accepted Answer

A) Prices decreased. 
B) Prices remained unchanged. 
C) Prices increased. 
D) Price trend cannot be determined from information given. 
A) Prices decreased. 
B) Prices remained unchanged. 
C) Prices increased. 
D) Price trend cannot be determined from information given.

Question 10

Tang, Inc.sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position.

Accepted Answer

A) True 
 B)False

Question 11

Companies must allocate the cost of all the goods available for sale (or use) between the income statement and the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 12

IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes.

Accepted Answer

A) True 
 B)False

Question 13

If the beginning inventory for 2015 is overstated, the effects of this error on cost of goods sold for 2015, net income for 2015, and assets at December 31, 2016, respectively, are

Accepted Answer

A) overstatement, understatement, overstatement. 
B) overstatement, understatement, no effect. 
C) understatement, overstatement, overstatement. 
D) understatement, overstatement, no effect. 
A) overstatement, understatement, overstatement. 
B) overstatement, understatement, no effect. 
C) understatement, overstatement, overstatement. 
D) understatement, overstatement, no effect.

Question 14

Both merchandising and manufacturing companies normally have multiple inventory accounts.

Accepted Answer

A) True 
 B)False

Question 15

Tang, Inc.sells collectible jewelry on consignment from various manufacturers.Additionally, Tang sells its own line of specialty jewelry manufactured in-house.On December 31, 2015, during Tang, Inc 's annual inventory count, an inexperienced new staff member included in Tang's ending inventory $350,000 worth of inventory held on consignment from Metcalf Associates.Which of the following is correct regarding the impact of this error on Tang's income statement and statement of financial position at December 31, 2015?

Accepted Answer

A) Ending inventory is understated by $350,000. 
B) Retained earnings is overstated by $350,000. 
C) Cost of goods sold is overstated by $350,000. 
D) The financial statements are correctly stated. 
A) Ending inventory is understated by $350,000. 
B) Retained earnings is overstated by $350,000. 
C) Cost of goods sold is overstated by $350,000. 
D) The financial statements are correctly stated.

Question 16

Which of the following is correct?

Accepted Answer

A) Selling costs are product costs. 
B) Manufacturing overhead costs are product costs. 
C) Interest costs for routine inventories are product costs. 
D) All of these are correct. 
A) Selling costs are product costs. 
B) Manufacturing overhead costs are product costs. 
C) Interest costs for routine inventories are product costs. 
D) All of these are correct.

Question 17

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

A) invoice price. 
B) invoice price plus the purchase discount lost. 
C) invoice price less the purchase discount taken. 
D) invoice price less the purchase discount allowable whether taken or not. 
A) invoice price. 
B) invoice price plus the purchase discount lost. 
C) invoice price less the purchase discount taken. 
D) invoice price less the purchase discount allowable whether taken or not.

Question 18

What is the effect of a $50,000 overstatement of last year's inventory on current year's ending retained earning balance?

Accepted Answer

A) Understated by $50,000. 
B) No effect. 
C) Overstated by $50,000. 
D) Need more information to determine. 
A) Understated by $50,000. 
B) No effect. 
C) Overstated by $50,000. 
D) Need more information to determine.

Question 19

Which of the following accounts is not reported in inventory?

Accepted Answer

A) Raw materials. 
B) Equipment. 
C) Finished goods. 
D) Supplies. 
A) Raw materials. 
B) Equipment. 
C) Finished goods. 
D) Supplies.

Question 20

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

Accepted Answer

A) Purchase discounts lost 
B) Interest incurred during the production of discrete projects such as ships or real estate projects 
C) Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis 
D) All of these should be capitalized. 
A) Purchase discounts lost 
B) Interest incurred during the production of discrete projects such as ships or real estate projects 
C) Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis 
D) All of these should be capitalized.

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

In a period of falling prices which inventory method generally provides the lowest reported inventory?

Which inventory costing method most closely approximates current cost for ending inventory?

Freight costs incurred by the seller to ship merchandise to the purchaser are accounted for by the seller as part of inventory on the statement of financial position.

Purchase Discounts Lost is a financial expense and is reported in the "other income and expense" section of the income statement.

In a period of declining prices, the inventory method which tends to give the highest reported cost of goods sold is

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

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the average cost method?

Tang, Inc.sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position.

Companies must allocate the cost of all the goods available for sale (or use) between the income statement and the statement of financial position.

IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes.

If the beginning inventory for 2015 is overstated, the effects of this error on cost of goods sold for 2015, net income for 2015, and assets at December 31, 2016, respectively, are

Both merchandising and manufacturing companies normally have multiple inventory accounts.

Which of the following is correct?

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

What is the effect of a $50,000 overstatement of last year's inventory on current year's ending retained earning balance?

Which of the following accounts is not reported in inventory?

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

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

Inventories: Additional Valuation Issues

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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