Question 1

Explain how ethical issues may arise in the application of Lower of Cost & NRV rules.

Accepted Answer

Estimates and judgements may be required

Question 2

Purchase discounts should be reported as a(n):

Accepted Answer

A)  Deduction from the purchase cost of the goods. 
B)  Adjustment in full to the ending inventory amount. 
C)  Contra inventory account. 
D)  Adjustment in full to cost of goods sold. 
A)  Deduction from the purchase cost of the goods. 
B)  Adjustment in full to the ending inventory amount. 
C)  Contra inventory account. 
D)  Adjustment in full to cost of goods sold.

Question 3

Inventories are assets consisting of goods owned by the business and held for future sale or for use in the manufacture of goods for sale.

Accepted Answer

A) True 
 B)False

Question 4

Nuts-2-U Ltd. purchased 1,000 bags of pecans at a total cost of $6,920. In addition, the company incurred $100 for transportation and grading. The pecans were graded as follows:$\begin{array} { | l | l | l | } 
\hline \text { Grade } & \text { Quantity } & \text { Current Market Price Per Bag } \
\hline \text { A } & 500 & \$ 12.00 \
\hline \text { B } & 150 & 10.00 \
\hline \text { C } & 300 & 4.00 \
\hline \text { Waste } & 50 & - 0 - \
\hline
\end{array}$
 Assuming the relative sales value method is used to allocate joint costs:
(a) Give the entry to record the purchase, assuming perpetual inventory records are kept. Include transportation and sorting costs in the entry. Show computations.
(b) Give the valuation of the ending inventory, assuming the following quantities on hand (show computations):$\begin{array} { | l | l | l | l | } 
\hline \text { Grade } & \text { Quantity on Hand } & \text { Unit Cost } & \text { Valuation } \
\hline \text { A } & 100 \text { bags } & \$ & \$ \
\hline \text { B } & 50 \text { bags } & \$ & \$ \
\hline \text { C } & 10 \text { bags } & \$ & \$ \
\hline
\end{array}$
 Total $

Accepted Answer

The answer of Nuts-2-U Ltd. purchased 1,000 bags of pecans...

Question 5

Based on the following data, determine the approximate valuation of ending inventory in each case given below: $\begin{array} { | l | l | l | } 
\hline \text { Cost of goods available for sale } & \$ 400 & \
\hline \text { Net sales } & & 600 \
\hline
\end{array}$
Case A-Gross margin rate on sales = 40 percent:
Inventory valuation is $________________________ Case B-Gross margin rate on cost = 100 percent:
Inventory valuation is $________________________

Accepted Answer

The answer of Based on the following data, determine the...

Question 6

State-of-the-Art Inc. uses a perpetual inventory system. A fire damaged certain merchandise that had a sale price of $10,000 and cost $4,000. The insurance company agreed to pay $1,000 for the damage and let the company keep the merchandise. The company estimated that the goods can be sold for $3,800 and that $600 will be spent to clean and sell the damage goods. Give the entry to record the fire damage, including the receivable from the insurance company.

Accepted Answer

The answer of State-of-the-Art Inc. uses a perpetual inventory system....

Question 7

Lumber Number Ltd. began business in 2001. It uses a periodic inventory system and values inventory at lower-of-cost-or-market. The following data represents price information related to the inventory on a unit basis: $\begin{array} { | l | l | l | l | l | } 
\hline & 2002 \text { Inventory } & &{ 2003 \text { Inventory } } \
\hline & \text { Beginning } & \text { Ending } & \text { Beginning } & \text { Ending } \
\hline \text { Cost } & \$ 80 & \$ 86 & \$ 86 & \$ 98 \
\hline \text { Market } 80 & 84 & 84 & 90 \
\hline
\end{array}$
 What effect will this information have on the 2003 statement of income if the allowance method is used?

Accepted Answer

A)  $2 holding loss 
B)  $4 holding loss 
C)  $6 holding loss 
D)  $8 holding loss 
A)  $2 holding loss 
B)  $4 holding loss 
C)  $6 holding loss 
D)  $8 holding loss

Question 8

ASPE provides separate guidance for Biological Assets.

Accepted Answer

A) True 
 B)False

Question 9

Many department stores allow their employees to purchase goods from the store at a discount. Explain the treatment and rationale for such sales in the retail method (average, LCM).

Accepted Answer

Sales to employees at a discount are jus

Question 10

The balance in a company's accounts payable at December 31, 2012 was $900,000 before any necessary year-end adjustment relating to the following: Goods were in transit from a vendor to the company on December 31, 2012. The invoice cost was $50,000, and the goods were shipped f.o.b. shipping point on December 29, 2012. The goods were received on January 4, 2013.
Goods shipped f.o.b. shipping point on December 20, 2012 from a vendor to the company were lost in transit. The invoice cost was $25,000. On January 5, 2013, the company filed a $25,000 claim against the common carrier.
Goods shipped f.o.b. destination on December 21, 2012 from a vendor to the company were received on January 6, 2013. The invoice cost was $15,000.
What amount should the company report as accounts payable on its December 31, 2012 balance sheet?

Accepted Answer

A)  $925,000 
B)  $940,000 
C)  $950,000 
D)  $975,000 
A)  $925,000 
B)  $940,000 
C)  $950,000 
D)  $975,000

Question 11

Goods held on consignment from a supplier should be included in the ending inventory count of the retailer.

Accepted Answer

A) True 
 B)False

Question 12

The allowance method and the direct reduction method of reporting the holding losses on lower-of-cost or NRV inventory valuation will produce the same cost of goods sold amount.

Accepted Answer

A) True 
 B)False

Question 13

The purchases account used in a periodic inventory system contains a running balance of the inventory during the accounting period.

Accepted Answer

A) True 
 B)False

Question 14

Sporting Goods Galore Ltd. uses the retail method of inventory. Data for the year 2013 follows: $\begin{array} { | l | l | l | } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginning inventory } & \$ 19,840 & \$ 30,000 \
\hline \text { Purchases (net) } & 53,360 & 86,000 \
\hline \text { Mark-ups (net) } & & 6,000 \
\hline \text { Markdowns (net) } & & ( 2,000 ) \
\hline \text { Goods available for sale } & \$ 73,200 & 120,000 \
\hline \text { Net sales } & & 80,000 \
\hline \text { Ending inventory: } & & \
\hline \text { At retail } & & \$ 40,000 \
\hline
\end{array}$ At cost, assuming FIFO, LCM? $_____________.

Accepted Answer

Cost ratio: $53,360

Question 15

Sales taxes paid by the purchaser that cannot be claimed back will usually become a part of the cost of the inventory.

Accepted Answer

A) True 
 B)False

Question 16

The specific cost identification inventory cost flow method has all of the following characteristics except:

Accepted Answer

A)  It is especially applicable when small and expensive items are handled in large quantities. 
B)  It relates cost flow to the specific flow of physical goods. 
C)  It identifies the cost of each physical item available for sale with either the ending inventory or cost of goods sold. 
D)  It is particularly susceptible to income manipulation. 
A)  It is especially applicable when small and expensive items are handled in large quantities. 
B)  It relates cost flow to the specific flow of physical goods. 
C)  It identifies the cost of each physical item available for sale with either the ending inventory or cost of goods sold. 
D)  It is particularly susceptible to income manipulation.

Question 17

Harris company has items that were incorrectly omitted from purchases made in 2013, but entered correctly in ending inventory. These would have overstated pre-tax income and understated liabilities.

Accepted Answer

A) True 
 B)False

Question 18

Salvage Sales Ltd. suffered a loss of some inventory by fire on May 7. Cost of inventory on hand on January 1 was $100,000 and purchases between January 1 and May 7 amounted to $70,000 while freight-in and purchase returns, respectively, amounted to $6,000 and $4,000. Between January 1 and May 7 sales totalled $84,000. Goods which cost $24,500 were undamaged by the fire while the remainder of the inventory was destroyed. What was the approximate cost of the goods destroyed if: $\begin{array} { | l | l | } 
\hline \text { (a) Mark-up is } 25 \text { percent on cost? } & \$ \
\hline \text { (b) Mark-up is } 25 \text { percent on selling price? } & \$ \
\hline
\end{array}$

Accepted Answer

Goods available for sale:
$100,000 + $70

Question 19

F Corporation should include the following in its inventory:

Accepted Answer

A)  Goods purchased FOB destination, still en route. 
B)  Goods held for pick-up by the buyer. 
C)  Goods it sold FOB shipping point, still en route. 
D)  Goods out on consignment to the M Company. 
A)  Goods purchased FOB destination, still en route. 
B)  Goods held for pick-up by the buyer. 
C)  Goods it sold FOB shipping point, still en route. 
D)  Goods out on consignment to the M Company.

Question 20

Which of the following items should not be included in the inventory at year-end?

Accepted Answer

A)  Goods that are owned by a company 
B)  Goods returned by a customer 
C)  Goods out on consignment 
D)  Goods held on consignment for sale on commission 
A)  Goods that are owned by a company 
B)  Goods returned by a customer 
C)  Goods out on consignment 
D)  Goods held on consignment for sale on commission

Explain how ethical issues may arise in the application of Lower of Cost & NRV rules.

Purchase discounts should be reported as a(n):

Inventories are assets consisting of goods owned by the business and held for future sale or for use in the manufacture of goods for sale.

ASPE provides separate guidance for Biological Assets.

Many department stores allow their employees to purchase goods from the store at a discount. Explain the treatment and rationale for such sales in the retail method (average, LCM).

Goods held on consignment from a supplier should be included in the ending inventory count of the retailer.

The allowance method and the direct reduction method of reporting the holding losses on lower-of-cost or NRV inventory valuation will produce the same cost of goods sold amount.

The purchases account used in a periodic inventory system contains a running balance of the inventory during the accounting period.

Sales taxes paid by the purchaser that cannot be claimed back will usually become a part of the cost of the inventory.

The specific cost identification inventory cost flow method has all of the following characteristics except:

Harris company has items that were incorrectly omitted from purchases made in 2013, but entered correctly in ending inventory. These would have overstated pre-tax income and understated liabilities.

F Corporation should include the following in its inventory:

Which of the following items should not be included in the inventory at year-end?

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters

Exam 8: Cost-Based Inventories and Cost of Sales

Explain how ethical issues may arise in the application of Lower of Cost & NRV rules.

Purchase discounts should be reported as a(n):

Inventories are assets consisting of goods owned by the business and held for future sale or for use in the manufacture of goods for sale.

ASPE provides separate guidance for Biological Assets.

Many department stores allow their employees to purchase goods from the store at a discount. Explain the treatment and rationale for such sales in the retail method (average, LCM).

Goods held on consignment from a supplier should be included in the ending inventory count of the retailer.

The allowance method and the direct reduction method of reporting the holding losses on lower-of-cost or NRV inventory valuation will produce the same cost of goods sold amount.

The purchases account used in a periodic inventory system contains a running balance of the inventory during the accounting period.

Sales taxes paid by the purchaser that cannot be claimed back will usually become a part of the cost of the inventory.

The specific cost identification inventory cost flow method has all of the following characteristics except:

Harris company has items that were incorrectly omitted from purchases made in 2013, but entered correctly in ending inventory. These would have overstated pre-tax income and understated liabilities.

F Corporation should include the following in its inventory:

Which of the following items should not be included in the inventory at year-end?

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters