Question 1

Which statement is correct about cost allocation methods under GAAP?

Accepted Answer

A) LIFO method expenses the oldest costs first. 
B) LIFO method has the most recent costs on the balance sheet. 
C) LIFO method has the most recent costs in the income statement. 
D) LIFO is an acceptable cost allocation method. 
A) LIFO method expenses the oldest costs first. 
B) LIFO method has the most recent costs on the balance sheet. 
C) LIFO method has the most recent costs in the income statement. 
D) LIFO is an acceptable cost allocation method. C

Question 2

West Retail uses the retail method of inventory valued at average cost, lower of cost and market. The following information relates to 2019: $$\begin{array} { | l | r | r | } 
\hline & \text { Cost (\$) } & \text { Retail (\$) } \
\hline \text { Beginning inventory, January 1, 2019 } & \$ 700 & \$ 1,000 \
\hline \text { Sales revenue } & & 4,300 \
\hline \text { Purchases } & 2,940 & 4,000 \
\hline \text { Net mark-downs } & & 100 \
\hline \text { Net mark-ups } & & 200 \
\hline
\end{array}$$ What is the retail value of the 2019 ending inventory?

Accepted Answer

A) $560 
B) $700 
C) $800 
D) $1,000 
A) $560 
B) $700 
C) $800 
D) $1,000 C

Question 3

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Accepted Answer

A) Purchases are overstated. 
B) Purchases are understated. 
C) Gross margin is understated. 
D) Cost of sales is overstated. 
A) Purchases are overstated. 
B) Purchases are understated. 
C) Gross margin is understated. 
D) Cost of sales is overstated. B

Question 4

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?

Accepted Answer

A) Beginning inventory is understated by $1,000. 
B) Gross margin is overstated by $1,000. 
C) Cost of sales is understated by $1,000. 
D) Inventory is understated on the balance sheet. 
A) Beginning inventory is understated by $1,000. 
B) Gross margin is overstated by $1,000. 
C) Cost of sales is understated by $1,000. 
D) Inventory is understated on the balance sheet.

Question 5

Crossway Outfitters is a retailer of outdoor clothing and equipment. The company has a standard mark-up of 60% on invoiced cost. Inventory at the beginning of the year was $1,840,000. During the year, the company purchased $14,300,000 of goods and recorded sales of $24,000,000. The year-end inventory count showed $2,590,000 in inventory measured at actual retail prices. Included in this total of $2,590,000 is $390,000 of goods that had been discounted by 25% relative to regular prices.
Required:
Using the retail inventory method, estimate the cost of inventory at the year-end and the amount of cost of goods sold.

Accepted Answer

@#IMG-DLM&
 COGS = Beginning inventory +

Question 6

What is the meaning of the terms "F.O.B. destination point"?

Accepted Answer

A) The buyer has ownership of the goods only when they arrive. 
B) The point at which the buyer takes legal possession of the goods. 
C) The buyer has ownership of the goods as soon as they are shipped. 
D) The buyer remains liable for any loss during shipment. 
A) The buyer has ownership of the goods only when they arrive. 
B) The point at which the buyer takes legal possession of the goods. 
C) The buyer has ownership of the goods as soon as they are shipped. 
D) The buyer remains liable for any loss during shipment.

Question 7

What definition is used for "market" under IFRS and ASPE?

Accepted Answer

A) Replacement cost. 
B) Net realizable value. 
C) Net recoverable amount. 
D) Fair value. 
A) Replacement cost. 
B) Net realizable value. 
C) Net recoverable amount. 
D) Fair value.

Question 8

Which statement best explains "net realizable value"?

Accepted Answer

A) The amount required to re-manufacture an item of inventory. 
B) The amount that can be obtained from the sale of inventory less selling costs. 
C) The amount it would cost to repurchase an item of inventory. 
D) The lowest amount that can be obtained from the sale of inventory. 
A) The amount required to re-manufacture an item of inventory. 
B) The amount that can be obtained from the sale of inventory less selling costs. 
C) The amount it would cost to repurchase an item of inventory. 
D) The lowest amount that can be obtained from the sale of inventory.

Question 9

If the gross margin percentage used in the gross margin method were overstated (for example, 36% instead of 32%), what would happen?

Accepted Answer

A) Cost of goods sold would be overstated. 
B) Ending inventory would be understated. 
C) Ending inventory would be overstated. 
D) Ending inventory would be correctly stated, but beginning inventory would be incorrect. 
A) Cost of goods sold would be overstated. 
B) Ending inventory would be understated. 
C) Ending inventory would be overstated. 
D) Ending inventory would be correctly stated, but beginning inventory would be incorrect.

Question 10

Lee Limited began operations on January 1, 2019. The following data relate to the company's first 2 years in business: $$\begin{array} { | l | r | r | } 
\hline \text { Inventory } & \text { Reported Amount } & \text { Correct Amount } \
\hline \text { December } 31,2019 & 25,000 & 20,000 \
\hline \text { December } 31,2020 & 35,000 & 30,000 \
\hline \text { Cost of goods sold } & & \
\hline \text { For } 2019 & 400,000 & ? ? ? ? ? ? \
\hline \text { For } 2020 & 450,000 & ? ? ? ? ? ? \
\hline
\end{array}$$ What is the correct cost of goods sold for 2020?

Accepted Answer

A) $400,000 
B) $405,000 
C) $450,000 
D) $460,000 
A) $400,000 
B) $405,000 
C) $450,000 
D) $460,000

Question 11

Use the chart provided below to determine the impact of a company processing a $3,500 purchase invoice in fiscal 2021 for a purchase made near its fiscal 2020 year end. The goods were appropriately included in the year end inventory count.
 $$\begin{array} { | l | l | l | } 
\hline \text { Goods included in inventory count } & \
\hline \text { Purchases recorded during the year } &\
\hline & 2020 & 2021 \
\hline \text { Beginning inventory } & & \
\hline + \text { Purchases } &  & \
\hline \text { -Ending inventory } & & \
\hline  \text { =Cost of goods sold } &  &  \
\hline & & \
\hline \text {Operating expense } &\text{NA}  &\text{NA}  \
\hline \text { Net income } &  &\
\hline & & \
\hline \text { Assets } &  &  \
\hline \text { Liabilities } & &  \
\hline \text { Equity } &  &\
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | l | } 
\hlin

Question 12

Which statement is correct about variable costing?

Accepted Answer

A) Under this method, fixed overhead is considered a product cost because production cannot take place without these costs. 
B) Under this method, fixed overhead is considered a period cost because such costs do not vary according to production level. 
C) Under this method, variable overhead is considered a period cost because production cannot take place without these costs. 
D) Under this method, selling costs are considered a product cost because production cannot take place without these costs. 
A) Under this method, fixed overhead is considered a product cost because production cannot take place without these costs. 
B) Under this method, fixed overhead is considered a period cost because such costs do not vary according to production level. 
C) Under this method, variable overhead is considered a period cost because production cannot take place without these costs. 
D) Under this method, selling costs are considered a product cost because production cannot take place without these costs.

Question 13

Which statement best depicts the inventory cost flow equation?

Accepted Answer

A) Cost of goods available for sale = Beginning inventory + Ending inventory. 
B) Beginning inventory + Purchases = Cost of sales + Ending inventory. 
C) Sales - Cost of goods sold = Gross margin. 
D) Gross margin - Operating expenses = Operating income. 
A) Cost of goods available for sale = Beginning inventory + Ending inventory. 
B) Beginning inventory + Purchases = Cost of sales + Ending inventory. 
C) Sales - Cost of goods sold = Gross margin. 
D) Gross margin - Operating expenses = Operating income.

Question 14

Explain how items of inventory should be grouped for purposes of testing for impairment.

Accepted Answer

•Inventories are usually written down to

Question 15

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Accepted Answer

A) Cost of sales is understated by $100. 
B) Gross margin is understated. 
C) Sales are understated by $100. 
D) Operating profit is understated by $100. 
A) Cost of sales is understated by $100. 
B) Gross margin is understated. 
C) Sales are understated by $100. 
D) Operating profit is understated by $100.

Question 16

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Accepted Answer

A) Retained earnings is overstated by $1,000. 
B) Retained earnings is understated by $1,000. 
C) The retained earnings will be correctly stated. 
D) Inventory is understated on the balance sheet. 
A) Retained earnings is overstated by $1,000. 
B) Retained earnings is understated by $1,000. 
C) The retained earnings will be correctly stated. 
D) Inventory is understated on the balance sheet.

Question 17

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Accepted Answer

A) Cost of sales is understated by $500. 
B) Gross margin is understated. 
C) Operating expenses are overstated by $500. 
D) Operating profit is overstated by $500. 
A) Cost of sales is understated by $500. 
B) Gross margin is understated. 
C) Operating expenses are overstated by $500. 
D) Operating profit is overstated by $500.

Question 18

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Accepted Answer

A) Retained earnings is overstated by $1,000. 
B) No effect on inventory value on the balance sheet. 
C) Retained earnings is understated by $1,000. 
D) Inventory is understated on the balance sheet. 
A) Retained earnings is overstated by $1,000. 
B) No effect on inventory value on the balance sheet. 
C) Retained earnings is understated by $1,000. 
D) Inventory is understated on the balance sheet.

Question 19

Using the following cost information regarding finished goods, what would be the ending value of the finished goods inventory if the market value of the goods is $300,000? $$\begin{array} { | l | r | } 
\hline & { \text { Cost } } \
\hline \text { Materials } & \$ 150,000 \
\hline \text { Costs to process into finished product } & 100,000 \
\hline
\end{array}$$

Accepted Answer

A) $ 0 
B) $100,000 
C) $150,000 
D) $250,000 
A) $ 0 
B) $100,000 
C) $150,000 
D) $250,000

Question 20

Which statement best explains the difference between the retail inventory and gross margin methods?

Accepted Answer

A) The gross margin method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period. 
B) The gross margin method estimates ending inventory cost using retail prices and an average gross margin. 
C) The retail inventory method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period. 
D) The retail inventory method estimates ending inventory cost using purchase prices and an average gross margin. 
A) The gross margin method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period. 
B) The gross margin method estimates ending inventory cost using retail prices and an average gross margin. 
C) The retail inventory method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period. 
D) The retail inventory method estimates ending inventory cost using purchase prices and an average gross margin.

Which statement is correct about cost allocation methods under GAAP?

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?

What is the meaning of the terms "F.O.B. destination point"?

What definition is used for "market" under IFRS and ASPE?

Which statement best explains "net realizable value"?

If the gross margin percentage used in the gross margin method were overstated (for example, 36% instead of 32%), what would happen?

Which statement is correct about variable costing?

Which statement best depicts the inventory cost flow equation?

Explain how items of inventory should be grouped for purposes of testing for impairment.

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Using the following cost information regarding finished goods, what would be the ending value of the finished goods inventory if the market value of the goods is $300,000? Cost Materials \ 150,000 Costs to process into finished product 100,000

Which statement best explains the difference between the retail inventory and gross margin methods?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

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Exam 6: Inventories

Which statement is correct about cost allocation methods under GAAP?

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?

What is the meaning of the terms "F.O.B. destination point"?

What definition is used for "market" under IFRS and ASPE?

Which statement best explains "net realizable value"?

If the gross margin percentage used in the gross margin method were overstated (for example, 36% instead of 32%), what would happen?

Which statement is correct about variable costing?

Which statement best depicts the inventory cost flow equation?

Explain how items of inventory should be grouped for purposes of testing for impairment.

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Using the following cost information regarding finished goods, what would be the ending value of the finished goods inventory if the market value of the goods is $300,000? Cost Materials \ 150,000 Costs to process into finished product 100,000

Which statement best explains the difference between the retail inventory and gross margin methods?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters