Question 1

What journal entry is required when inventory is purchased 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)  Dr Inventory
$\mathrm { Cr }$ Accounts Payable 
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)  Dr Inventory
$\mathrm { Cr }$ Accounts Payable 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable

Question 2

Which statement is not correct about the retail inventory method?

Accepted Answer

A) It is an alternative to using a cost flow assumption. 
B) It is acceptable for annual financial reporting in Canada. 
C) It should only be used if reliable information is available about profit margins. 
D) It is a method that estimates ending inventory by applying an average sales margin. 
A) It is an alternative to using a cost flow assumption. 
B) It is acceptable for annual financial reporting in Canada. 
C) It should only be used if reliable information is available about profit margins. 
D) It is a method that estimates ending inventory by applying an average sales margin.

Question 3

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

Accepted Answer

A) Goods purchased with terms F.O.B. destination point that were received at year end. 
B) Goods purchased with terms F.O.B. shipping point that were received at year end. 
C) Goods purchased with terms F.O.B. destination point that were received after year end. 
D) Goods purchased F.O.B. shipping point that were lost in shipment. 
A) Goods purchased with terms F.O.B. destination point that were received at year end. 
B) Goods purchased with terms F.O.B. shipping point that were received at year end. 
C) Goods purchased with terms F.O.B. destination point that were received after year end. 
D) Goods purchased F.O.B. shipping point that were lost in shipment.

Question 4

A company has fixed production overhead costs totalling $20,000. The normal production level is 2,000 units per year, yielding a standard fixed overhead rate of $10.00 per unit. If the actual production level is 3,200 units, how much would be the amount of fixed overhead per unit and the amount of total fixed overhead included in inventory? Select the letter for the best answer:

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 32,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 6.25 & 12,500
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 6.25 & 20,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 32,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 6.25 & 12,500
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 6.25 & 20,000 \
\hline
\end{array}$$

Question 5

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 not affected by the prior year inventory counting error. 
D) Beginning inventory is overstated by $1,000. 
A) Gross margin is understated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is not affected by the prior year inventory counting error. 
D) Beginning inventory is overstated by $1,000.

Question 6

SimBis Enterprises incurred the following costs to produce and sell its inventory in 2019:
 $$\begin{array} { l | r } 
\hline \text { Raw materials consumed } & \$ 100,000 \
\hline \text { Labour used } & 75,000 \
\hline \text { Variable overhead incurred } & 50,000 \
\hline \text { Fixed overhead incurred } & 25,000 \
\hline \text { Selling costs } & 20,000 \
\hline \text { General administration } & 10,000 \
\hline \text { Freight costs to bring in raw materials } & 12,000 \
\hline \text { Freight costs on shipments to customers } & 7,000 \
\hline
\end{array}$$ SimBis also noted that the following errors were made in recording transactions in 2019 (note that these errors only affect part (d)of this question):
 $$\begin{array} {| l | r | } 
\hline \text { Omitted recording the purchase invoice in 2019; } & \$ 6,000 \
 \text { ending inventory was properly stated } & \
\hline \text { Omitted counting inventory in 2019; purchase } & 7,000 \
 \text { account was properly stated } &  \
\hline \text { Omitted from inventory count and from }&3,000  \
\text { purchase account in 2019 } \
\hline \text { Counted inventory twice in error in 2019 } &  5,000 \
\hline \text { Consignment inventory out at consignee } &10,000 \
\text { excluded in error in 2019 } \
\hline \text { Recorded a purchase invoice twice in } 2019&7,500\
\hline
\end{array}$$ Required:
a)Determine the cost of inventory under the absorption costing method.
b)Determine the cost of inventory under the variable costing method.
c)Explain how management could potentially manipulate net income by using absorption costing. What can an analyst or investor do to check if income has been manipulated through the use of absorption costing?
d)Assume that, before any corrections, gross margin was $500,000 and ending retained earnings was $750,000. Determine the impact of any inventory errors on cost of goods sold and ending retained earnings for 2019.

Accepted Answer

a)and b)
 \[\begin{array} { | l | r | r

Question 7

Give some examples of how a merchandising company can manipulate earnings through its year-end inventories. What can an auditor do to detect this type of manipulation?

Accepted Answer

Inventories need to be assessed for impa

Question 8

What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.

Accepted Answer

IFRS and ASPE permit specific identifica

Question 9

Compare the FIFO and LIFO methods of inventory valuation. Which method provides better quality information and why?

Accepted Answer

•To evaluate the quality of the informat

Question 10

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 11

Which statement is correct about cost allocation methods under GAAP?

Accepted Answer

A) FIFO method expenses the oldest costs first. 
B) FIFO method has the oldest costs on the balance sheet. 
C) FIFO method has the most recent costs in the income statement. 
D) FIFO is not an acceptable cost allocation method. 
A) FIFO method expenses the oldest costs first. 
B) FIFO method has the oldest costs on the balance sheet. 
C) FIFO method has the most recent costs in the income statement. 
D) FIFO is not an acceptable cost allocation method.

Question 12

Explain what happens if the value of inventory recovers after it has been written down. How often will such an adjustment actually be made to inventory?

Accepted Answer

•If the market value of inventory recove

Question 13

Garrit Limited's income statement reported the following for the year ended Dec 31, 2019: $$\begin{array} { | l | r | } 
\hline \text { Sales revenue } & 881,000 \
\hline \text { Cost of goods sold } & 573,000 \
\hline \text { Expenses } & 129,000 \
\hline \text { Net income } & 179,000 \
\hline
\end{array}$$ Which is the correct statement about the income statement?

Accepted Answer

A) Mark-up on selling price is $573,000. 
B) Mark-up on cost is 53.75%. 
C) Gross margin percentage is 20.32%. 
D) Mark-up on the selling price is $308,000. 
A) Mark-up on selling price is $573,000. 
B) Mark-up on cost is 53.75%. 
C) Gross margin percentage is 20.32%. 
D) Mark-up on the selling price is $308,000.

Question 14

What costs are not included in the cost of manufactured inventories?

Accepted Answer

A) Raw materials. 
B) Labour to make the finished product. 
C) Administrative costs. 
D) Manufacturing overhead. 
A) Raw materials. 
B) Labour to make the finished product. 
C) Administrative costs. 
D) Manufacturing overhead.

Question 15

Explain how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

Accepted Answer

When an enterprise incurs an expenditure

Question 16

ABHAY Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is 25%. The following information relates to the month of June.
$\begin{array}{llcc}
  \text {  Accounts receivable, June 1} & \$121,000 \
 \text {  Inventory, June 1} &147,000\
 \text { Collections of accounts during June } &184,000\
 \text {Purchases during June  } &165,000\
 \text { Accounts receivable, June 30 } &127,000\
\end{array}$

Instructions
Calculate the estimated cost of the inventory on June 30.

Accepted Answer

GP % = 25% /(1 +25%)= 20%
Cost of goods

Question 17

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) No effect on retained earnings. 
D) The retained earnings will be correctly stated. 
A) Retained earnings is overstated by $1,000. 
B) Retained earnings is understated by $1,000. 
C) No effect on retained earnings. 
D) The retained earnings will be correctly stated.

What journal entry is required when inventory is purchased under the perpetual inventory system?

Which statement is not correct about the retail inventory method?

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

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?

Give some examples of how a merchandising company can manipulate earnings through its year-end inventories. What can an auditor do to detect this type of manipulation?

What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.

Compare the FIFO and LIFO methods of inventory valuation. Which method provides better quality information and why?

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

Which statement is correct about cost allocation methods under GAAP?

Explain what happens if the value of inventory recovers after it has been written down. How often will such an adjustment actually be made to inventory?

Garrit Limited's income statement reported the following for the year ended Dec 31, 2019: Sales revenue 881,000 Cost of goods sold 573,000 Expenses 129,000 Net income 179,000 Which is the correct statement about the income statement?

What costs are not included in the cost of manufactured inventories?

Explain how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

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

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

What journal entry is required when inventory is purchased under the perpetual inventory system?

Which statement is not correct about the retail inventory method?

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

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?

Give some examples of how a merchandising company can manipulate earnings through its year-end inventories. What can an auditor do to detect this type of manipulation?

What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.

Compare the FIFO and LIFO methods of inventory valuation. Which method provides better quality information and why?

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

Which statement is correct about cost allocation methods under GAAP?

Explain what happens if the value of inventory recovers after it has been written down. How often will such an adjustment actually be made to inventory?

Garrit Limited's income statement reported the following for the year ended Dec 31, 2019: Sales revenue 881,000 Cost of goods sold 573,000 Expenses 129,000 Net income 179,000 Which is the correct statement about the income statement?

What costs are not included in the cost of manufactured inventories?

Explain how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

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

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