Question 1

Lower of cost and net realizable value

Accepted Answer

A)  is most conservative if applied to the total inventory. 
B)  is most conservative if applied to major categories of inventory. 
C)  is most conservative if applied to individual items of inventory. 
D)  must be applied to major categories for income tax purposes. 
A)  is most conservative if applied to the total inventory. 
B)  is most conservative if applied to major categories of inventory. 
C)  is most conservative if applied to individual items of inventory. 
D)  must be applied to major categories for income tax purposes.

Question 2

Perpetual FIFO
A record of transactions for the month of May is as follows:
  
Assuming that perpetual inventory records are kept in dollars, calculate the ending inventory using FIFO.

Accepted Answer

The answer of Perpetual FIFO
A record of transactions for the...

Question 3

Under IFRs, liabilities related to non-cancellable purchase commitments are typically recognized

Accepted Answer

A)  on the date the contract takes effect. 
B)  at the time of payment. 
C)  when the purchase is recorded in the accounting system. 
D)  in the period a decline in market price occurs. 
A)  on the date the contract takes effect. 
B)  at the time of payment. 
C)  when the purchase is recorded in the accounting system. 
D)  in the period a decline in market price occurs.

Question 4

An estimated loss on purchase commitments is reported

Accepted Answer

A)  under other expenses and losses. 
B)  as a deduction from purchases. 
C)  as a current liability. 
D)  as an extraordinary item. 
A)  under other expenses and losses. 
B)  as a deduction from purchases. 
C)  as a current liability. 
D)  as an extraordinary item.

Question 5

Which of the following best describes the concept of product costs?

Accepted Answer

A)  They are costs that are "attached" to inventory. 
B)  They are costs that are usually expenses. 
C)  They usually don't include freight charges. 
D)  They usually don't include conversion costs. 
A)  They are costs that are "attached" to inventory. 
B)  They are costs that are usually expenses. 
C)  They usually don't include freight charges. 
D)  They usually don't include conversion costs.

Question 6

On June 25, Veranda Corp. accepted delivery of merchandise that it purchased on account. As at June 30, Veranda had NOT recorded the transaction nor included the merchandise in its inventory. The effect of this on Veranda's June 30 statement of financial position would be

Accepted Answer

A)  assets and shareholders' equity were overstated but liabilities were not affected. 
B)  shareholders' equity was the only item affected by the omission. 
C)  assets, liabilities, and shareholders' equity were understated. 
D)  assets and liabilities were understated but shareholders' equity was not affected. 
A)  assets and shareholders' equity were overstated but liabilities were not affected. 
B)  shareholders' equity was the only item affected by the omission. 
C)  assets, liabilities, and shareholders' equity were understated. 
D)  assets and liabilities were understated but shareholders' equity was not affected.

Question 7

Use the following information to solve the following questions:
Shanti Inc. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:
 $$\begin{array} { l l l } 
&2020&2019\
\text { Ending inventory } & \$ 6,000 \text { overstated } & \$ 16,000 \text { overstated } \
\text { Depreciation experse } & \$ 4,000 \text { understated } & \$ 12,000 \text { overstated }
\end{array}$$
-Assume that no correcting entries were made at December 31, 2019. Ignoring income taxes, by how much will retained earnings at December 31, 2020 be overstated or understated?

Accepted Answer

A)  $2,000 understated 
B)  $18,000 understated 
C)  $10,000 overstated 
D)  $18,000 overstated 
A)  $2,000 understated 
B)  $18,000 understated 
C)  $10,000 overstated 
D)  $18,000 overstated

Question 8

On December 27, Cloud Corp. accepted delivery of merchandise that it purchased on account. As at December 31, Cloud had recorded the transaction, but did not include the merchandise in its year-end inventory. The effect of this on its December 31 financial statements would be

Accepted Answer

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

Question 9

Inventory cost flow assumptions
Kanga Corp.’s records reported an inventory cost of $51,400 and a net realizable value of $48,500 at December 31, 2019. At December 31, 2020, the records indicated a cost of $67,900 and a net realizable value of $59,500. All opening inventory had been sold during the year.
Instructions
Assuming that Kanga Corp. uses a perpetual inventory system, prepare the necessary December 31, 2020 entry under the direct method and the indirect method.

Accepted Answer

@#IMG-DLM&
($67,900 – $59,500) $8,400 less allowan

Question 10

Tennessee Ltd.'s accounting records reported the following information: $$\begin{array} { l l } 
\text { Inventory, dan } 1,2020 & \$300,000 \
\text { Purchases during } 2020 & 1,500,000 \
5 a l e = \text { during } 2020 & 2,000,000
\end{array}$$ A physical inventory taken on December 31, 2020, resulted in an ending inventory of $350,000. Tennessee's gross profit on sales has remained constant at 30% in recent years. Tennessee suspects some inventory may have been taken by a new employee. At December 31, 2020, what is the estimated cost of the missing inventory?

Accepted Answer

A)  $400,000 
B)  $100,000 
C)  $75,000 
D)  $50,000 
A)  $400,000 
B)  $100,000 
C)  $75,000 
D)  $50,000

Question 11

Which of the following is correct regarding vendor rebates?

Accepted Answer

A)  Vendor rebates are generally recorded as a reduction from sales. 
B)  The rebate is never recognized until it is actually received. 
C)  If the rebate meets asset recognition criteria, the receivable is allocated to goods sold. 
D)  Vendor rebates are generally recorded as a reduction in the purchase cost of inventory. 
A)  Vendor rebates are generally recorded as a reduction from sales. 
B)  The rebate is never recognized until it is actually received. 
C)  If the rebate meets asset recognition criteria, the receivable is allocated to goods sold. 
D)  Vendor rebates are generally recorded as a reduction in the purchase cost of inventory.

Question 12

The inventory turnover ratio is calculated by dividing the cost of goods sold by

Accepted Answer

A)  beginning inventory. 
B)  ending inventory. 
C)  average inventory. 
D)  number of days in the year. 
A)  beginning inventory. 
B)  ending inventory. 
C)  average inventory. 
D)  number of days in the year.

Question 13

Gross profit method
Explain why the gross profit method is not normally acceptable for financial reporting purposes.

Accepted Answer

Because the result is only an estimate,

Question 14

Gross profit method
Select information for Neonplus Corp.'s inventory was available as follows for calendar 2020:
 Sales....................................................$540,000
Net purchases.......................................380,000
Begeinning irventory.............................75,000 Neonplus' gross profit on sales was 30% last year, its first year of operations. A fire on December 31, 2020, destroyed the entire inventory. Calculate the inventory lost in the fire.
Instructions 
a) Calculate the estimated cost of the inventory.
b) Prepare entries at December 31, 2020 to close the sales and merchandise accounts.

Accepted Answer

The answer of Gross profit method
Select information for Neonplus Corp.'s...

Question 15

Interpretation of inventory ratios
Explain the meaning of inventory turnover and average days to sell inventory. What do these ratios say about the company's performance? What additional information would you require to improve your assessment?

Accepted Answer

The inventory turnover ratio measures th

Question 16

Finkler Inc.'s net sales and gross profit were $335,250 and $117,750 respectively. Assuming the cost of goods available for sale were $271,000, what was the cost value of the ending inventory?

Accepted Answer

A)  $217,500 
B)  $117,750 
C)  $61,750 
D)  $53,500 
A)  $217,500 
B)  $117,750 
C)  $61,750 
D)  $53,500

Question 17

The gross profit method of inventory valuation

Accepted Answer

A)  can be used as a substitute for the annual physical count of inventory. 
B)  assumes past percentages are appropriate for the current period. 
C)  uses markups but not markdowns. 
D)  is designed to approximate inventory valuation at the lower of cost and net realizable value. 
A)  can be used as a substitute for the annual physical count of inventory. 
B)  assumes past percentages are appropriate for the current period. 
C)  uses markups but not markdowns. 
D)  is designed to approximate inventory valuation at the lower of cost and net realizable value.

Question 18

Gross profit method
In the early morning of January 1, 2021, Minnesota Corp.'s inventory was destroyed by fire. The following information was available for calendar 2020:
Sales........................................$950,000
Net purchases.......................600,000

Begeinning irventory.............110,000 Minnesota's gross profit on sales has averaged 35% for several years.
Instructions 
a) Calculate the estimated cost of the inventory destroyed.
b) Prepare entries at December 31, 2020, to close the sales and merchandise accounts.

Accepted Answer

The answer of Gross profit method
In the early morning of...

Question 19

If two factories produce the exact same product having the same costs, and factory costs are completely allocated to the individual products, the factory operating at 80% capacity (while the other operates at 100% capacity)

Accepted Answer

A)  would have a lower rate of cost allocation to each unit of production. 
B)  would have a higher rate of cost allocation to each unit of production. 
C)  would have the same rate of cost allocation to each unit of production as the 100% capacity operation. 
D)  would be operating at a loss, because of unused capacity. 
A)  would have a lower rate of cost allocation to each unit of production. 
B)  would have a higher rate of cost allocation to each unit of production. 
C)  would have the same rate of cost allocation to each unit of production as the 100% capacity operation. 
D)  would be operating at a loss, because of unused capacity.

Question 20

At the end of its accounting year, Colin Corp.'s physical inventory count indicated that 180,000 units of inventory, costing $1.75 each, were on hand. The company's perpetual inventory system reported a balance of $357,600. The year-end adjusting entry is

Accepted Answer

A)  debit Inventory and credit Loss on Inventory Due to Count, $42,600. 
B)  debit Loss on Inventory Due to Count and credit Inventory, $42,600. 
C)  debit Inventory and credit Loss on Inventory Due to Count, $92,400. 
D)  debit Loss on Inventory Due to Count and credit Inventory, $92,400. 
A)  debit Inventory and credit Loss on Inventory Due to Count, $42,600. 
B)  debit Loss on Inventory Due to Count and credit Inventory, $42,600. 
C)  debit Inventory and credit Loss on Inventory Due to Count, $92,400. 
D)  debit Loss on Inventory Due to Count and credit Inventory, $92,400.

Lower of cost and net realizable value

Perpetual FIFO A record of transactions for the month of May is as follows: Assuming that perpetual inventory records are kept in dollars, calculate the ending inventory using FIFO.

Under IFRs, liabilities related to non-cancellable purchase commitments are typically recognized

An estimated loss on purchase commitments is reported

Which of the following best describes the concept of product costs?

On June 25, Veranda Corp. accepted delivery of merchandise that it purchased on account. As at June 30, Veranda had NOT recorded the transaction nor included the merchandise in its inventory. The effect of this on Veranda's June 30 statement of financial position would be

On December 27, Cloud Corp. accepted delivery of merchandise that it purchased on account. As at December 31, Cloud had recorded the transaction, but did not include the merchandise in its year-end inventory. The effect of this on its December 31 financial statements would be

Which of the following is correct regarding vendor rebates?

The inventory turnover ratio is calculated by dividing the cost of goods sold by

Gross profit method Explain why the gross profit method is not normally acceptable for financial reporting purposes.

Interpretation of inventory ratios Explain the meaning of inventory turnover and average days to sell inventory. What do these ratios say about the company's performance? What additional information would you require to improve your assessment?

Finkler Inc.'s net sales and gross profit were $335,250 and $117,750 respectively. Assuming the cost of goods available for sale were $271,000, what was the cost value of the ending inventory?

The gross profit method of inventory valuation

If two factories produce the exact same product having the same costs, and factory costs are completely allocated to the individual products, the factory operating at 80% capacity (while the other operates at 100% capacity)

At the end of its accounting year, Colin Corp.'s physical inventory count indicated that 180,000 units of inventory, costing $1.75 each, were on hand. The company's perpetual inventory system reported a balance of $357,600. The year-end adjusting entry is

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

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Exam 8: Inventory

Lower of cost and net realizable value

Perpetual FIFO A record of transactions for the month of May is as follows: Assuming that perpetual inventory records are kept in dollars, calculate the ending inventory using FIFO.

Under IFRs, liabilities related to non-cancellable purchase commitments are typically recognized

An estimated loss on purchase commitments is reported

Which of the following best describes the concept of product costs?

On June 25, Veranda Corp. accepted delivery of merchandise that it purchased on account. As at June 30, Veranda had NOT recorded the transaction nor included the merchandise in its inventory. The effect of this on Veranda's June 30 statement of financial position would be

On December 27, Cloud Corp. accepted delivery of merchandise that it purchased on account. As at December 31, Cloud had recorded the transaction, but did not include the merchandise in its year-end inventory. The effect of this on its December 31 financial statements would be

Which of the following is correct regarding vendor rebates?

The inventory turnover ratio is calculated by dividing the cost of goods sold by

Gross profit method Explain why the gross profit method is not normally acceptable for financial reporting purposes.

Interpretation of inventory ratios Explain the meaning of inventory turnover and average days to sell inventory. What do these ratios say about the company's performance? What additional information would you require to improve your assessment?

Finkler Inc.'s net sales and gross profit were $335,250 and $117,750 respectively. Assuming the cost of goods available for sale were $271,000, what was the cost value of the ending inventory?

The gross profit method of inventory valuation

If two factories produce the exact same product having the same costs, and factory costs are completely allocated to the individual products, the factory operating at 80% capacity (while the other operates at 100% capacity)

At the end of its accounting year, Colin Corp.'s physical inventory count indicated that 180,000 units of inventory, costing $1.75 each, were on hand. The company's perpetual inventory system reported a balance of $357,600. The year-end adjusting entry is

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters