Question 1

The gross margin method is frequently used for all of the following except to:

Accepted Answer

A) Estimate replacement cost of ending inventory lost or damaged. 
B) Test the reasonableness of an inventory valuation made by some other means. 
C) Estimate ending inventory for interim financial reports. 
D) Estimate the required inventory quantity needed for the next period. 
A) Estimate replacement cost of ending inventory lost or damaged. 
B) Test the reasonableness of an inventory valuation made by some other means. 
C) Estimate ending inventory for interim financial reports. 
D) Estimate the required inventory quantity needed for the next period. D

Question 2

A company manufactures and sells four products; the related inventories are valued at lower-of-cost-or-market.The company considers a profit margin of 20 percent of sales to be normal for all four products.The following information was compiled as of December 31: $\begin{array}{|l|l|l|l|l|}
\hline \text { Product } & \text { Original cost} & \text { Cost to replace } & \begin{array}{l}
\text { Estimated Cost } \
\text { to Complete and } \
\text { sell }
\end{array} & \begin{array}{l}
\text { Expected Selling } \
\text { Price }
\end{array} \
\hline \text { A } & \$ 70 & \$ 84 & \$ 30 &\$160 \
\hline\text { B } & 94 & 90 & 41 &190 \
\hline \text { C } & 35 & 30 & 10 & 60 \
\hline\text { D } & 90 & 92 & 118 & 200 \
\hline
\end{array}$ Using lower-of-cost-or-NRV,the reported unit amount of the ending inventory for Product D is:

Accepted Answer

A) $90 
B) $92 
C) $82 
D) $118 
A) $90 
B) $92 
C) $82 
D) $118 C

Question 3

The following information was available from the inventory records of a company for July 2008: $\begin{array} {| l|l| l|l| } 
\hline&& \text {unit }& \text {total }\
\hline& \text {units }& \text { cost}& \text { costs}\
\hline \text { Balance at July 1, 2008 .}&2,000&\$19.55&\$39,100\
\hline \text {Purchases: July $ 6,2008 $. }&1,500&20.60&30,900\
\hline \text {July 16,2008 }&3,400&21.50&73,100\
\hline \text { Sales: July 7, 2008}&(1,800)\
\hline \text { July 31, 2008}&(3,200)\
\hline \text { Balance at July 31, 2008 .}&1,900\\hline
\end{array}$
 Assuming that the company uses the periodic inventory system,what would be the inventory valuation at July 31,2008,using the weighted-average inventory method (rounded to the nearest dollar)?

Accepted Answer

A) $39,046 
B) $39,406 
C) $39,900 
D) $39,996 
A) $39,046 
B) $39,406 
C) $39,900 
D) $39,996 C

Question 4

Under a periodic inventory system,cost of goods sold is a residual amount and,for all practical purposes,cannot be verified independently from the inventory records.

Accepted Answer

A) True 
 B)False

Question 5

A retail company uses the retail method of inventory valued at average cost,lower-of-cost-or-market.The following information relates to 2007 (in 000's): $\begin{array} {|l|l|l|  } 
\hline& \text {Retail }& \text {cost  }\
\hline \text { Beginning inventory, January 1, 2007.}&\$120&\$72\
\hline \text {Sales revenue. }&\$352\
\hline \text {Purchases. }&\$312&\$480\
\hline \text {Net markdowns. }&\$128\
\hline \text { Net mark-ups..}&\$40\\hline
\end{array}$
 What cost ratio should be used to determine the 2007 ending inventory valuation? Do not round to the nearest intermediate value.

Accepted Answer

A) 0.485 
B) 0.600 
C) 0.640 
D) 0.721 
A) 0.485 
B) 0.600 
C) 0.640 
D) 0.721

Question 6

During Year 1,ABC Inc.'s ending inventory was overstated by $10,000.During Year 2,ABC Inc.'s ending inventory was understated by $20,000.Assuming that the Year 2 books have not yet been closed,the adjustment to Cost of Goods sold would be:

Accepted Answer

A) A $30,000 decrease. 
B) A $30,000 increase. 
C) A $20,000 decrease. 
D) A $20,000 increase. 
A) A $30,000 decrease. 
B) A $30,000 increase. 
C) A $20,000 decrease. 
D) A $20,000 increase.

Question 7

A company completed the following transactions in the order given in its first year of operations: $\begin{array} { |l|l|l|  } 
\hline&& \text { unit}\
\hline \text { transaction}& \text {units }& \text {coasts }\
\hline \text { Purchase.}&300&\$4.00\
\hline \text { Purchase.}&200&4.20\
\hline \text { Sales (@ \$8.00)}&280\
\hline \text { Purchase.}&400&4.40\
\hline \text { Sales (@ \$8.00)}&360\\hline
\end{array}$
 Using the weighted-average inventory cost method (rounding each calculation to the nearest cent) the gross margin would be:

Accepted Answer

A) $2,463.78 
B) $2,422.84 
C) $2,433.20 
D) $2,376.00 
A) $2,463.78 
B) $2,422.84 
C) $2,433.20 
D) $2,376.00

Question 8

A company uses a periodic inventory system.At the end of 2013 a purchase on credit of $5,000 was not recorded.Also,it was incorrectly excluded from the 2013 ending inventory.What effect,will these errors have on the 2013 financial statements of the company if they are undetected?

Accepted Answer

A) Pre-tax income will be overstated $5,000 and assets and liabilities each will be understated. 
B) Pre-tax income will be correct, but liabilities and assets each will be understated by $5,000. 
C) Pre-tax income and liabilities will be understated $5,000 each. 
D) Pre-tax income, assets, and liabilities will be overstated $5,000 each. 
E) Pre-tax income, assets and liabilities each will be understated. 
A) Pre-tax income will be overstated $5,000 and assets and liabilities each will be understated. 
B) Pre-tax income will be correct, but liabilities and assets each will be understated by $5,000. 
C) Pre-tax income and liabilities will be understated $5,000 each. 
D) Pre-tax income, assets, and liabilities will be overstated $5,000 each. 
E) Pre-tax income, assets and liabilities each will be understated.

Question 9

The specific cost identification inventory cost flow method has all of the following characteristics except:

Accepted Answer

A) It is especially applicable when small and expensive items are handled in large quantities. 
B) It relates cost flow to the specific flow of physical goods. 
C) It identifies the cost of each physical item available for sale with either the ending inventory or cost of goods sold. 
D) It is particularly susceptible to income manipulation. 
A) It is especially applicable when small and expensive items are handled in large quantities. 
B) It relates cost flow to the specific flow of physical goods. 
C) It identifies the cost of each physical item available for sale with either the ending inventory or cost of goods sold. 
D) It is particularly susceptible to income manipulation.

Question 10

The average cost method of inventory valuation can be applied in exactly the same way by using either the periodic or perpetual inventory system.

Accepted Answer

A) True 
 B)False

Question 11

If the cost ratio used in the retail inventory method were overstated (e.g.,80 percent instead of 70 percent),the estimated cost of ending inventory would be:

Accepted Answer

A) more than its retail value. 
B) correctly stated. 
C) overstated. 
D) understated. 
A) more than its retail value. 
B) correctly stated. 
C) overstated. 
D) understated.

Question 12

Under the Lower of Cost and Market (LCM) rules,inventory write-downs are irreversible.

Accepted Answer

A) True 
 B)False

Question 13

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required when:

Accepted Answer

A) The general price level has changed materially. 
B) The FIFO method of inventory valuation is adopted. 
C) There is evidence that the replacement cost of the goods at the date they are sold will be less than their cost when purchased. 
D) There is evidence that the net realizable value of the goods has declined. 
A) The general price level has changed materially. 
B) The FIFO method of inventory valuation is adopted. 
C) There is evidence that the replacement cost of the goods at the date they are sold will be less than their cost when purchased. 
D) There is evidence that the net realizable value of the goods has declined.

Question 14

An inventory item was purchased for $3.00.Before it was finally sold it was given an initial markup of $1.00,followed by an additional markup of 50 cents,and then a markup cancellation of 50 cents,and finally a markdown of 40 cents.It was then sold for:

Accepted Answer

A) $3.00 
B) $3.50 
C) $3.60 
D) $4.00 
A) $3.00 
B) $3.50 
C) $3.60 
D) $4.00

Question 15

Items that were incorrectly omitted from 2013 credit purchases,but correctly included in the 2013 ending inventory would have the following 2013 effects:

Accepted Answer

A) overstate pre-tax income but have no effect on current liabilities. 
B) overstate pre-tax income and understate liabilities. 
C) cancel out with no effect on pre-tax income but would understate current liabilities. 
D) understate pre-tax income but have no effect on liabilities. 
A) overstate pre-tax income but have no effect on current liabilities. 
B) overstate pre-tax income and understate liabilities. 
C) cancel out with no effect on pre-tax income but would understate current liabilities. 
D) understate pre-tax income but have no effect on liabilities.

Question 16

On June 1,2013,Yenex Corporation signed a binding,non-cancellable contract with AB Corporation to purchase,during the following 12 months,500 units of Product Z at $30 each.By December 31,2013,Yenex Corporation had purchased and paid for 400 of the units (debit inventory and credit cash,$12,000).At the end of 2013,Product Z could be purchased at a firm cash price of $27 per unit.(Assume amounts are material.)
(a) Give any entry required at December 31,2013 (end of the accounting period).
(b) On March 30,2013,Yenex Corporation purchased the remaining units under the contract.At that date,the units could have been purchased for a firm cash price of $28.Give the required entry (entries) under IFRS.

Accepted Answer

None

Question 17

The retail inventory method may be used for all of the following except:

Accepted Answer

A) Cost the raw materials inventory in a production facility. 
B) Used to provide a means of converting a physical inventory, at retail, to a cost basis. 
C) Adapted to approximate both lower-of-cost or market and FIFO cost. 
D) Used to provide estimated inventory valuations when a physical inventory count is impracticable. 
A) Cost the raw materials inventory in a production facility. 
B) Used to provide a means of converting a physical inventory, at retail, to a cost basis. 
C) Adapted to approximate both lower-of-cost or market and FIFO cost. 
D) Used to provide estimated inventory valuations when a physical inventory count is impracticable.

Question 18

Which of the following should be included in the inventory cost of an item purchased?

Accepted Answer

A) Purchase discounts lost 
B) Insurance premium on item during transit 
C) Costs incurred to build a permanent display cabinet for this, and similar items 
D) Costs to train employees on a new computerized inventory control system 
A) Purchase discounts lost 
B) Insurance premium on item during transit 
C) Costs incurred to build a permanent display cabinet for this, and similar items 
D) Costs to train employees on a new computerized inventory control system

Question 19

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end.This merchandise was omitted from the year end physical count.How will these errors affect assets,liabilities,owners' equity at year end and net earnings for the year? $$\begin{array} { | l | l | l | l | l | } 
\hline & & & \text { Owners' } & \text { Net } \
\hline & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Earnings } \
\hline 1 & \text { No effect } & \text { overstate } & \text { understate } & \text { understate } \
\hline 2 & \text { No effect } & \text { understate } & \text { overstate } & \text { overstate } \
\hline 3 & \text { Understate } & \text { no effect } & \text { understate } & \text { understate } \
\hline 4 & \text { Understate } & \text { understate } & \text { no effect } & \text { no effect } \
\hline
\end{array}$$

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4 
A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4

Question 20

A company has just completed its second year of operations.It will use the FIFO,LCM retail method for external reporting.The following information is available $$\begin{array} { | l | r| r| } 
\hline & \text { Cost } & \text { Retail } \
\hline \text {Beginning inventory, January 1, 2002.}&\$7,200&\$12,000\
\hline \text {Sales revenues. }&35,200\
\hline \text {Purchases. }&31,200&48,000\
\hline \text {Net markdowns. }&12,800\
\hline \text {Net mark-ups. }&4,000\
\hline
\end{array}$$ The 2002 cost of goods sold will be:

Accepted Answer

A) $25,787 
B) $27,663 
C) $25,600 
D) $28,333 
A) $25,787 
B) $27,663 
C) $25,600 
D) $28,333

The gross margin method is frequently used for all of the following except to:

Under a periodic inventory system,cost of goods sold is a residual amount and,for all practical purposes,cannot be verified independently from the inventory records.

During Year 1,ABC Inc.'s ending inventory was overstated by $10,000.During Year 2,ABC Inc.'s ending inventory was understated by $20,000.Assuming that the Year 2 books have not yet been closed,the adjustment to Cost of Goods sold would be:

A company uses a periodic inventory system.At the end of 2013 a purchase on credit of $5,000 was not recorded.Also,it was incorrectly excluded from the 2013 ending inventory.What effect,will these errors have on the 2013 financial statements of the company if they are undetected?

The specific cost identification inventory cost flow method has all of the following characteristics except:

The average cost method of inventory valuation can be applied in exactly the same way by using either the periodic or perpetual inventory system.

If the cost ratio used in the retail inventory method were overstated (e.g.,80 percent instead of 70 percent),the estimated cost of ending inventory would be:

Under the Lower of Cost and Market (LCM) rules,inventory write-downs are irreversible.

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required when:

An inventory item was purchased for $3.00.Before it was finally sold it was given an initial markup of $1.00,followed by an additional markup of 50 cents,and then a markup cancellation of 50 cents,and finally a markdown of 40 cents.It was then sold for:

Items that were incorrectly omitted from 2013 credit purchases,but correctly included in the 2013 ending inventory would have the following 2013 effects:

The retail inventory method may be used for all of the following except:

Which of the following should be included in the inventory cost of an item purchased?

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Financial Instruments: Investments in Debt and Equity Securities

Filters

Exam 8: Cost-Based Inventories and Cost of Sales

The gross margin method is frequently used for all of the following except to:

Under a periodic inventory system,cost of goods sold is a residual amount and,for all practical purposes,cannot be verified independently from the inventory records.

During Year 1,ABC Inc.'s ending inventory was overstated by $10,000.During Year 2,ABC Inc.'s ending inventory was understated by $20,000.Assuming that the Year 2 books have not yet been closed,the adjustment to Cost of Goods sold would be:

A company uses a periodic inventory system.At the end of 2013 a purchase on credit of $5,000 was not recorded.Also,it was incorrectly excluded from the 2013 ending inventory.What effect,will these errors have on the 2013 financial statements of the company if they are undetected?

The specific cost identification inventory cost flow method has all of the following characteristics except:

The average cost method of inventory valuation can be applied in exactly the same way by using either the periodic or perpetual inventory system.

If the cost ratio used in the retail inventory method were overstated (e.g.,80 percent instead of 70 percent),the estimated cost of ending inventory would be:

Under the Lower of Cost and Market (LCM) rules,inventory write-downs are irreversible.

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required when:

An inventory item was purchased for $3.00.Before it was finally sold it was given an initial markup of $1.00,followed by an additional markup of 50 cents,and then a markup cancellation of 50 cents,and finally a markdown of 40 cents.It was then sold for:

Items that were incorrectly omitted from 2013 credit purchases,but correctly included in the 2013 ending inventory would have the following 2013 effects:

The retail inventory method may be used for all of the following except:

Which of the following should be included in the inventory cost of an item purchased?

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Financial Instruments: Investments in Debt and Equity Securities

Filters