Question 1

Which statement best explains the gross margin method?

Accepted Answer

A) A method for estimating cost of goods sold by applying an average gross margin to the amount of sales recorded in a period. 
B) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
C) A method of estimating the cost of ending inventory by applying an average sales margin to the retail price of products. 
D) This method is least appropriate for inventory items that are not distinguishable from one another. 
A) A method for estimating cost of goods sold by applying an average gross margin to the amount of sales recorded in a period. 
B) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
C) A method of estimating the cost of ending inventory by applying an average sales margin to the retail price of products. 
D) This method is least appropriate for inventory items that are not distinguishable from one another.

Question 2

Give some examples of how manufacturing companies can manipulate earnings through its production process. What should an auditor or financial statement user do to detect this type of manipulation?

Accepted Answer

For manufacturing companies, producing m

Question 3

Which goods in transit would be recorded in inventory at year end?

Accepted Answer

A) Goods sold with terms F.O.B. destination point that were shipped at year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped before year end. 
C) Goods purchased F.O.B. destination that have not been received by year-end. 
D) Goods returned for credit before year-end, with terms F.O.B. shipping point. 
A) Goods sold with terms F.O.B. destination point that were shipped at year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped before year end. 
C) Goods purchased F.O.B. destination that have not been received by year-end. 
D) Goods returned for credit before year-end, with terms F.O.B. shipping point.

Question 4

What is the difference between the gross margin and the retail method for estimating ending inventory?

Accepted Answer

Gross margin method: A method for estima

Question 5

Which statement best explains the specific identification method?

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 6

For the year ended December 31, 2019, Complex Company reported gross margin of $29,700, which was 30% of the sales for the period. The cost of goods available for sale was 120% of the cost of goods sold. The beginning inventory was twice as much as the ending inventory. What was the amount of purchases for 2019?

Accepted Answer

A) $13,860 
B) $29,700 
C) $41,580 
D) $55,440 
A) $13,860 
B) $29,700 
C) $41,580 
D) $55,440

Question 7

Which statement best explains the LIFO 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 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) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) Beginning inventory is understated by $1,000. 
A) Gross margin is understated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) Beginning inventory is understated by $1,000.

Question 9

Which statement is correct about the specific identification method?

Accepted Answer

A) It is prone to earnings management if used for distinguishable items. 
B) This method is most appropriate for low-value inventory items. 
C) It is inexpensive to maintain inventory records under this method. 
D) This method is most appropriate for high-value inventory items. 
A) It is prone to earnings management if used for distinguishable items. 
B) This method is most appropriate for low-value inventory items. 
C) It is inexpensive to maintain inventory records under this method. 
D) This method is most appropriate for high-value inventory items.

Question 10

Which statement best depicts the inventory cost flow equation?

Accepted Answer

A) Beginning inventory + Sales = Cost of sales + Ending inventory. 
B) Beginning inventory + Goods manufactured = Cost of sales + Ending inventory. 
C) Beginning inventory - Purchase returns = Cost of sales + Ending inventory. 
D) Ending inventory + Purchases = Cost of sales + Beginning inventory. 
A) Beginning inventory + Sales = Cost of sales + Ending inventory. 
B) Beginning inventory + Goods manufactured = Cost of sales + Ending inventory. 
C) Beginning inventory - Purchase returns = Cost of sales + Ending inventory. 
D) Ending inventory + Purchases = Cost of sales + Beginning inventory.

Question 11

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

Question 12

Which goods in transit would not be recorded in the seller's inventory at year end?

Accepted Answer

A) Goods sold with terms F.O.B. destination point that were shipped at year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped one day before year end. 
C) Goods sold F.O.B. destination point that remained on the shipping dock until one day after year end. 
D) Goods sold F.O.B. shipping point that were shipped two days after year end. 
A) Goods sold with terms F.O.B. destination point that were shipped at year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped one day before year end. 
C) Goods sold F.O.B. destination point that remained on the shipping dock until one day after year end. 
D) Goods sold F.O.B. shipping point that were shipped two days after year end.

Question 13

Outdoor Devices Inc. manufactures sport hunting equipment. The company's operations had the following results for 2019. Actual production volume approximated normal levels. F = favourable variance, meaning actual costs were below standard; U = unfavourable variance, meaning actual costs exceeded standard. Assume all variances are considered to be material.
 $$\begin{array} { l l } 
\text { Item } & \text { Standerd Cost } \
\text { Raw materials, at standard cost } & \$ 220,000 \
\text { Production wayes, at standard cost } & 719,000 \
\text { Variable production overhead, at standard cost } & 310,000 \
\text { Fixed production overhead, at standard cost } &\underline{ \text {825,000 }} \
\text { Total production cost, at standard cost } &\underline{ \$ 2074,000}
\end{array}$$ Raw material variance  $\quad $ $\quad $ $\quad $47,000 U
Labour variance  $\quad $  $\quad $  $\quad $   $\quad $  $\quad $   22,000 F
Variable overhead variance $\quad $  $\quad $  3,100 F
Fixed overhead variance $\quad $  $\quad $  $\quad $ 59,000 F
Net variance $\quad $  $\quad $  $\quad $  $\quad $  $\quad $  $\quad $ 80,900 U Required:
a. Determine the amount that Outdoor should include in the cost of inventories produced in the year.
b. If actual production volume were higher than normal, what would be the effect on the cost of inventories on a per unit basis? What if actual production volume were lower than normal?

Accepted Answer

a. This question indicates that the actu

Question 14

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

Accepted Answer

A) $920 
B) $930 
C) $940 
D) $950 
A) $920 
B) $930 
C) $940 
D) $950

Question 15

At the end of 2019, a company reported cost of goods sold of $4,800, which represented 80% of the goods available for sale. The beginning inventory amount was twice as much as the ending inventory amount. What was the amount of purchases for 2019?

Accepted Answer

A) $1,200 
B) $2,400 
C) $3,600 
D) $5,400 
A) $1,200 
B) $2,400 
C) $3,600 
D) $5,400

Question 16

Consider the following inventory information for last year:
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Number of units } & \text { Cost per unit } & \text { Total cost } \
\hline \text { Beginning inventory, Jan 1 } & 8,000 & \$ 20 & \$ 160,000 \
\hline \text { Purchase, March } & 7,000 & 25 & 175,000 \
\hline \text { Purchase, July } & 10,000 & 30 & 300,000 \
\hline \text { Purchase, October } & 5,000 & 41 & 205,000 \
\hline \text { Goods available for sale } & 30,000 & & 840,000 \
\hline
\end{array}$$ The company uses a periodic inventory system. The year-end inventory count indicated 3,700 units in inventory.
Required:
a. Calculate the weighted-average cost per unit for the year.
b. Calculate the ending inventory value and the cost of goods sold for the year.

Accepted Answer

a. Cost of goods available for sale / un

Question 17

Which statement is correct about the various cost allocation methods available in GAAP?

Accepted Answer

A) FIFO is used in the initial recognition and measurement of inventory. 
B) LIFO is used to measure the ending inventory balance on the balance sheet. 
C) Weighted average is not an acceptable allocation method for the income statement. 
D) Moving weighted average is the perpetual weighted average cost method. 
A) FIFO is used in the initial recognition and measurement of inventory. 
B) LIFO is used to measure the ending inventory balance on the balance sheet. 
C) Weighted average is not an acceptable allocation method for the income statement. 
D) Moving weighted average is the perpetual weighted average cost method.

Question 18

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 overstated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) Beginning inventory is overstated by $1,000. 
A) Gross margin is overstated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) Beginning inventory is overstated by $1,000.

Question 19

Explain what problems are created for the auditor by the use of the absorption costing method under GAAP.

Accepted Answer

While consistent with the conceptual fra

Question 20

What issues arise on the subsequent measurement of inventory?

Accepted Answer

A) Determining which expenditures to capitalize into the "inventory" account. 
B) Determining which expenditures to expense into the "cost of goods sold" account. 
C) Determining how much of the costs recognized in inventory should be expensed in the year. 
D) Determining the appropriate valuation of inventories that remain on hand. 
A) Determining which expenditures to capitalize into the "inventory" account. 
B) Determining which expenditures to expense into the "cost of goods sold" account. 
C) Determining how much of the costs recognized in inventory should be expensed in the year. 
D) Determining the appropriate valuation of inventories that remain on hand.

Which statement best explains the gross margin method?

Give some examples of how manufacturing companies can manipulate earnings through its production process. What should an auditor or financial statement user do to detect this type of manipulation?

Which goods in transit would be recorded in inventory at year end?

What is the difference between the gross margin and the retail method for estimating ending inventory?

Which statement best explains the specific identification method?

Which statement best explains the LIFO cost flow assumption?

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 the specific identification method?

Which statement best depicts the inventory cost flow equation?

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

Which goods in transit would not be recorded in the seller's inventory at year end?

At the end of 2019, a company reported cost of goods sold of $4,800, which represented 80% of the goods available for sale. The beginning inventory amount was twice as much as the ending inventory amount. What was the amount of purchases for 2019?

Which statement is correct about the various cost allocation methods available in GAAP?

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?

Explain what problems are created for the auditor by the use of the absorption costing method under GAAP.

What issues arise on the subsequent measurement of inventory?

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 best explains the gross margin method?

Give some examples of how manufacturing companies can manipulate earnings through its production process. What should an auditor or financial statement user do to detect this type of manipulation?

Which goods in transit would be recorded in inventory at year end?

What is the difference between the gross margin and the retail method for estimating ending inventory?

Which statement best explains the specific identification method?

Which statement best explains the LIFO cost flow assumption?

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 the specific identification method?

Which statement best depicts the inventory cost flow equation?

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

Which goods in transit would not be recorded in the seller's inventory at year end?

At the end of 2019, a company reported cost of goods sold of $4,800, which represented 80% of the goods available for sale. The beginning inventory amount was twice as much as the ending inventory amount. What was the amount of purchases for 2019?

Which statement is correct about the various cost allocation methods available in GAAP?

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?

Explain what problems are created for the auditor by the use of the absorption costing method under GAAP.

What issues arise on the subsequent measurement of inventory?

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