Question 1

Which statement is correct about overhead?

Accepted Answer

A) Fixed overhead is capitalized under absorption costing. 
B) Fixed overhead is capitalized under variable costing. 
C) Variable overhead is always expensed. 
D) Selling costs are part of fixed overhead. 
A) Fixed overhead is capitalized under absorption costing. 
B) Fixed overhead is capitalized under variable costing. 
C) Variable overhead is always expensed. 
D) Selling costs are part of fixed overhead.

Question 2

What journal entry is required when inventory is sold during the year under the perpetual inventory system?

Accepted Answer

A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  $$\text { No Journal Entry is made }$$ 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable 
A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  $$\text { No Journal Entry is made }$$ 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable

Question 3

Use the chart provided below to determine the impact of a company expensing $4,000 transportation costs related to the purchase of its inventory. At year end, the company had sold 50% of the affected inventory items.
 $$\begin{array} { | l | l | l | } 
\hline \text { Goods included in inventory count } & \
\hline \text { Purchases recorded during the year } &\
\hline \text { Transportation costs included in inventory }&\
\hline & 2020 & 2021 \
\hline \text { Beginning inventory } & & \
\hline + \text { Purchases } &  & \
\hline \text { -Ending inventory } & & \
\hline  \text { =Cost of goods sold } &  &  \
\hline & & \
\hline \text {Operating expense } &\text{NA}  &\text{NA}  \
\hline \text { Net income } & --- &---\
\hline & & \
\hline \text { Assets } &  &  \
\hline \text { Liabilities } & &  \
\hline \text { Equity } &  &\
\hline
\end{array}$$

Accepted Answer

None

Question 4

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) No effect on gross margin. 
C) Operating expenses are overstated by $500. 
D) Operating profit is overstated by $500. 
A) Cost of sales is understated by $500. 
B) No effect on gross margin. 
C) Operating expenses are overstated by $500. 
D) Operating profit is overstated by $500.

Question 5

The following information was taken from the inventory records of Penelope Ltd.: $$\begin{array} { | l | l | } 
\hline \text { Dates } & \text { Inventory units } \
\hline \text { Inventory - Feb 1 } & 100 \text { units at } \$ 3.00 \
\hline \text { Purchases - April 1 } & 300 \text { units at } \$ 3.10 \
\hline \text { Purchases - July 15 } & 200 \text { units at } \$ 3.20 \
\hline \text { Units available for sale } & 600 \text { units } \
\hline & \
\hline \text { Sales - May 10 } & 200 \text { units at } \$ 6.00 \
\hline \text { Sales - November 15 } & 100 \text { units at } \$ 6.10 \
\hline
\end{array}$$ What would be the gross margin, assuming that the weighted-average method is used in a periodic inventory system?

Accepted Answer

A) $310 
B) $875 
C) $935 
D) $1,810 
A) $310 
B) $875 
C) $935 
D) $1,810

Question 6

Identify whether the following are benefits of using a perpetual inventory system (in comparison to a periodic system).
$$\begin{array} { | l | l | } 
\hline \text { Potential benefit } & \text { True/False } \
\hline \text { A perpetual system is less costly than a periodic system. } & \
\hline \text { A perpetual system produces information that is more useful for inventory } & \
\text { management. } & \
\hline \begin{array} { l } 
\text { A perpetual system allows a company to avoid conducting costly inventory } \
\text { counts. }
\end{array} & \
\hline \text { A perpetual system is required by IFRS and ASPE. } & \
\hline
\end{array}$$

Accepted Answer

None

Question 7

Which statement is correct for about inventory systems?

Accepted Answer

A) The periodic inventory system provides more information to allow an enterprise to better manage its inventories. 
B) Cost of goods sold is a not a calculated number under the periodic inventory system. 
C) The final amounts reported in statements are the same under both the periodic and perpetual systems. 
D) The periodic inventory system continuously updates information about the amount of inventory on hand. 
A) The periodic inventory system provides more information to allow an enterprise to better manage its inventories. 
B) Cost of goods sold is a not a calculated number under the periodic inventory system. 
C) The final amounts reported in statements are the same under both the periodic and perpetual systems. 
D) The periodic inventory system continuously updates information about the amount of inventory on hand.

Question 8

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 have on fiscal 2020 financial reporting?

Accepted Answer

A) Gross margin is understated by $1,000. 
B) No effect on cost of goods available for sale. 
C) Cost of sales is understated by $1,000. 
D) Beginning inventory is overstated by $1,000. 
A) Gross margin is understated by $1,000. 
B) No effect on cost of goods available for sale. 
C) Cost of sales is understated by $1,000. 
D) Beginning inventory is overstated by $1,000.

Question 9

Which statement is correct about using a cost flow assumption?

Accepted Answer

A) An organization must use the same cost flow assumption as other organizations in its industry. 
B) There is only one acceptable cost flow assumption under GAAP in Canada. 
C) In Canada, organizations can use the FIFO or weighted average cost flow assumptions. 
D) In Canada, organizations can use the FIFO, LIFO or weighted average cost flow assumptions. 
A) An organization must use the same cost flow assumption as other organizations in its industry. 
B) There is only one acceptable cost flow assumption under GAAP in Canada. 
C) In Canada, organizations can use the FIFO or weighted average cost flow assumptions. 
D) In Canada, organizations can use the FIFO, LIFO or weighted average cost flow assumptions.

Question 10

A fire destroyed the inventory of Mantis Company in June. Reconstructed data follows: $$\begin{array} { | l | r } 
\hline \text { Gross margin as a percentage of sales } & 40 \% \
\hline \text { Sales to date of fire } & 460,000 \
\hline \text { Gross purchases to date of fire } & 280,000 \
\hline \text { Purchase returns and allowances to date of fire } & 8,000 \
\hline \text { Freight-in } & 4,000 \
\hline \text { Sales returns } & 10,000 \
\hline \text { Beginning inventory } & 28,000 \
\hline
\end{array}$$ What was the cost of the inventory lost in the fire?

Accepted Answer

A) $50,000 
B) $34,000 
C) $30,000 
D) $26,000 
A) $50,000 
B) $34,000 
C) $30,000 
D) $26,000

Question 11

Why are inventories reported at the lower of cost and market?

Accepted Answer

A) Neutrality. 
B) Matching. 
C) Conservatism (prudence). 
D) Comparability. 
A) Neutrality. 
B) Matching. 
C) Conservatism (prudence). 
D) Comparability.

Question 12

Which statement best explains the weighted average cost flow assumption?

Accepted Answer

A) A method that uses the most recent costs in the calculation of cost of sales. 
B) A method that uses the cost of goods available for sale divided by the number of units available for sale. 
C) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
D) A method that uses the oldest costs in the calculation of cost of sales. 
A) A method that uses the most recent costs in the calculation of cost of sales. 
B) A method that uses the cost of goods available for sale divided by the number of units available for sale. 
C) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
D) A method that uses the oldest costs in the calculation of cost of sales.

Question 13

Given the following information, what would the ending inventory value per unit be on April 30 under the weighted-average method in a perpetual inventory system? $$\begin{array} { | l | l | } 
\hline \text { Dates } & \text { Units of Inventory } \
\hline \text { Opening Inventory } & 200 \text { units at } \$ 5.00 \
\hline \text { Purchases: } & \
\hline  \text { April } 12 & 300 \text { units at } \$ 5.10 \
\hline \text {  July 7 } & 400 \text { units at } \$ 5.25 \
\hline \text { Sales: }& \
\hline \text { August } 12 & 100 \text { units at } \$ 8.00 \
\hline \text { December } 15 & 500 \text { units at } \$ 8.20 \
\hline
\end{array}$$

Accepted Answer

A) $5.05 
B) $5.06 
C) $5.075 
D) $5.15 
A) $5.05 
B) $5.06 
C) $5.075 
D) $5.15

Question 14

Which statement is not correct about overhead?

Accepted Answer

A) Fixed overhead is capitalized under absorption costing. 
B) Fixed overhead is expensed under variable costing. 
C) Variable overhead is expensed under both absorption and variable costing. 
D) Both fixed and variable overhead are capitalized under absorption costing. 
A) Fixed overhead is capitalized under absorption costing. 
B) Fixed overhead is expensed under variable costing. 
C) Variable overhead is expensed under both absorption and variable costing. 
D) Both fixed and variable overhead are capitalized under absorption costing.

Question 15

Which statement is correct about the retail inventory method?

Accepted Answer

A) It represents a cost flow assumption. 
B) It estimates cost of goods sold by applying an average gross margin to the amount of sales recorded in the period. 
C) It can misstate inventory values if unreliable information is used about profit margins. 
D) It provides direct information about actual cost of goods sold or ending inventory. 
A) It represents a cost flow assumption. 
B) It estimates cost of goods sold by applying an average gross margin to the amount of sales recorded in the period. 
C) It can misstate inventory values if unreliable information is used about profit margins. 
D) It provides direct information about actual cost of goods sold or ending inventory.

Question 16

Which method cannot be used in Canada to allocate inventory costs between the income statement and the balance sheet?

Accepted Answer

A) Specific identification. 
B) FIFO. 
C) Retail inventory method. 
D) LIFO. 
A) Specific identification. 
B) FIFO. 
C) Retail inventory method. 
D) LIFO.

Question 17

What journal entry is required when inventory is sold during the year under the periodic inventory system?

Accepted Answer

A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  $$\text { No Journal Entry is made }$$ 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable 
A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  $$\text { No Journal Entry is made }$$ 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable

Question 18

Given the following information, what would the gross margin be for the December 15 sale under the FIFO method in a perpetual inventory system? $$\begin{array} { | c | l | } 
\hline \text { Dates } & \text { Units of Inventory } \
\hline \text { Opening Inventory } & 200 \text { units at } \$ 5.00 \
\hline \text { Purchases: } & \
\hline\text { April } 12 & 300 \text { units at } \$ 5.10 \
\hline \text { July 7 } & 400 \text { units at } \$ 5.25 \
\hline \text {Sales:  } \
\hline \text { August } 12 &100 \text { units at } \$ 8.00  \
\hline \text { December } 15 & 500 \text { units at } \$ 8.20 \
\hline
\end{array}$$

Accepted Answer

A) $1,813 
B) $1,845 
C) $1,785 
D) $3,055 
A) $1,813 
B) $1,845 
C) $1,785 
D) $3,055

Question 19

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

Accepted Answer

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

Question 20

Which statement is correct about inventory errors?

Accepted Answer

A) Misstatements in inventory usually affect two reporting periods. 
B) Misstatements in inventory usually affect only the current accounting period. 
C) Misstatements in inventory usually affect only beginning inventory amounts. 
D) Misstatements in inventory usually affect only ending inventory amounts. 
A) Misstatements in inventory usually affect two reporting periods. 
B) Misstatements in inventory usually affect only the current accounting period. 
C) Misstatements in inventory usually affect only beginning inventory amounts. 
D) Misstatements in inventory usually affect only ending inventory amounts.

Which statement is correct about overhead?

What journal entry is required when inventory is sold during the year under the perpetual inventory system?

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?

Which statement is correct for about inventory systems?

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 have on fiscal 2020 financial reporting?

Which statement is correct about using a cost flow assumption?

Why are inventories reported at the lower of cost and market?

Which statement best explains the weighted average cost flow assumption?

Which statement is not correct about overhead?

Which statement is correct about the retail inventory method?

Which method cannot be used in Canada to allocate inventory costs between the income statement and the balance sheet?

What journal entry is required when inventory is sold during the year under the periodic inventory system?

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

Which statement is correct about inventory errors?

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

Exam 6: Inventories

Which statement is correct about overhead?

What journal entry is required when inventory is sold during the year under the perpetual inventory system?

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?

Which statement is correct for about inventory systems?

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 have on fiscal 2020 financial reporting?

Which statement is correct about using a cost flow assumption?

Why are inventories reported at the lower of cost and market?

Which statement best explains the weighted average cost flow assumption?

Which statement is not correct about overhead?

Which statement is correct about the retail inventory method?

Which method cannot be used in Canada to allocate inventory costs between the income statement and the balance sheet?

What journal entry is required when inventory is sold during the year under the periodic inventory system?

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

Which statement is correct about inventory errors?

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