Question 1

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Accepted Answer

A) True 
 B)False

Question 2

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, n/30, the entry to record a payment for half of the purchase within the discount period would include a debit to:

Accepted Answer

A)  Accounts payable for $4,850 and a credit to cash for $4,850 
B)  Accounts payable for $5,000 and a credit to cash for $5,000 
C)  Accounts payable for $4,850 and to interest expense for $150, and a credit to cash for $5,000 
D)  Accounts payable for $5,000 and to interest revenue for $150 and to cash for $4,850 
A)  Accounts payable for $4,850 and a credit to cash for $4,850 
B)  Accounts payable for $5,000 and a credit to cash for $5,000 
C)  Accounts payable for $4,850 and to interest expense for $150, and a credit to cash for $5,000 
D)  Accounts payable for $5,000 and to interest revenue for $150 and to cash for $4,850

Question 3

If Company A were to ship goods to Company B under the terms f.o.b. shipping point and if the goods were destroyed in transit, the loss incurred on these goods ordinarily would not accrue to Company
A.

Accepted Answer

A) True 
 B)False

Question 4

The inventory records of a corporation provided the following information at the end of 2013: $\begin{array} { | l | l | } 
\hline \text { Cost per unit } & \$ 10,000 \
\hline \text { Insurance premium paid per unit } & 500 \
\hline \text { Financing expense per unit } & 600 \
\hline \text { Cost of permanent security system per unit (allocated) } & 1,500 \
\hline \text { Freight per unit (when purchased) } & 300 \
\hline \text { Cost of permanent reusable display case for this product only, per unit }& 400 \
\hline \text { Advertising expense per unit (allocated) } & 1,000 \
\hline
\end{array}$ What unit cost should be used for valuing inventory on hand at the end of 2013?

Accepted Answer

A)  $10,800 
B)  $12,200 
C)  $12,800 
D)  $13,700 
A)  $10,800 
B)  $12,200 
C)  $12,800 
D)  $13,700

Question 5

Inventory items purchased on credit that are correctly debited to 2013 purchases, but improperly included in the 2013 ending inventory cause:

Accepted Answer

A)  2013 assets to be understated and 2013 pre-tax income to be overstated. 
B)  both 2013 pre-tax income and 2013 assets to be understated. 
C)  both 2013 assets and pre-tax income to be overstated. 
D)  both accounts payable for 2013 and 2013 pre-tax income to be overstated. 
A)  2013 assets to be understated and 2013 pre-tax income to be overstated. 
B)  both 2013 pre-tax income and 2013 assets to be understated. 
C)  both 2013 assets and pre-tax income to be overstated. 
D)  both accounts payable for 2013 and 2013 pre-tax income to be overstated.

Question 6

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

Accepted Answer

a. When a purchase contract is subject t

Question 7

Listed below are some items of inventory for a company at May 31, 2001. A substantial portion of the merchandise is stored in a separate warehouse and the company transfers damaged goods to a special inventory account. The company policy is "satisfied customers." $\begin{array} { | l | l | l | } 
\hline \text { (1) } & \text { tems counted in warehouse, May 31, 2001 } & \$ 70,000 \
\hline \text { (2) } & \text { tems shipped today*. FOB destination, invoice mailed to customer } & 70 \
\hline \text { (3) } & \text { Invoice received for goods ordered. FOB destination, goods not yet received } & 800 \
\hline \text { (4) } & \text { Items shipped today*. FOB shipping point, invoice mailed to customer } & 400 \
\hline
\end{array}$ *Shipped after the count in (1) was made. The correct inventory to be shown on the May 31, 2001 balance sheet would be:

Accepted Answer

A)  $69,600 
B)  $70,000 
C)  $70,070 
D)  $70,470 
A)  $69,600 
B)  $70,000 
C)  $70,070 
D)  $70,470

Question 8

The following costs were associated with the acquisition of an inventory item purchased by a firm (the item is to be resold by the firm): $\begin{array} { | l | l | } 
\hline \text { Freight costs, FOB shipping point } & \$ 2,000 \
\hline \text { Sales and excise taxes } & 800 \
\hline \text { Interest on debt used to purchase item } & 600 \
\hline \text { Special material added to item by firm } & 900 \
\hline \text { Labour costs to add the special material } & 400 \
\hline \text { Gross invoice price } & 90,000 \
\hline
\end{array}$Terms: 3/10, n/30 Payment was made on the 12th day after purchase
What is the proper inventoriable cost for this item of inventory?

Accepted Answer

A)  $91,400 
B)  $94,100 
C)  $92,000 
D)  $90,100 
A)  $91,400 
B)  $94,100 
C)  $92,000 
D)  $90,100

Question 9

Choose the correct statement concerning periodic and perpetual inventory systems.

Accepted Answer

A)  Only the periodic system requires a physical count once per year 
B)  The balance in the inventory account is known twice per fiscal year under the periodic system 
C)  Both systems provide a means of estimating shrinkage loss 
D)  Only the periodic system ever requires an adjusting entry at the end of each year after the physical count 
A)  Only the periodic system requires a physical count once per year 
B)  The balance in the inventory account is known twice per fiscal year under the periodic system 
C)  Both systems provide a means of estimating shrinkage loss 
D)  Only the periodic system ever requires an adjusting entry at the end of each year after the physical count

Question 10

If one were applying the FIFO retail method in a period of rising prices to estimate the ending inventory the dollar amount would be:

Accepted Answer

A)  the same as the average cost method. 
B)  lower than the average cost method. 
C)  higher than the average cost method. 
D)  the same cost ratio as was used for the opening inventory. 
A)  the same as the average cost method. 
B)  lower than the average cost method. 
C)  higher than the average cost method. 
D)  the same cost ratio as was used for the opening inventory.

Question 11

DEF Inc. entered into a non-cancellable commitment to purchase raw materials in the amount of $30,000 on December 31st, 2010. Replacement cost was estimated at $25,000 on November 30th, 2010 and this amount was not expected to change. Which of the following statements is correct?

Accepted Answer

A)  This is an onerous contract. A loss must be accrued in the amount of $5,000. 
B)  This is not an onerous contract. A loss must be accrued in the amount of $5,000. 
C)  This is an onerous contract. However, the $5,000 loss should only be disclosed in the financial statements and not accrued. 
D)  This is not an onerous contract. 
A)  This is an onerous contract. A loss must be accrued in the amount of $5,000. 
B)  This is not an onerous contract. A loss must be accrued in the amount of $5,000. 
C)  This is an onerous contract. However, the $5,000 loss should only be disclosed in the financial statements and not accrued. 
D)  This is not an onerous contract.

Question 12

A retail company uses the retail method of inventory valued at average cost, lower-of-cost-or-market. The following information relates to 2007 (in 000's): $\begin{array} { | l | l | l | } 
\hline & \text { Retail } & \text { Cost } \
\hline \text { Beginning inventory, January 1, 2007 } & \$ 120 & \$ 72 \
\hline \text { Sales revenue } & \$ 352 & \
\hline \text { Purchases } & \$ 312 & \$ 480 \
\hline \text { Net markdowns } & \$ 128 & \
\hline \text { Net mark-ups } & \$ 40 & \
\hline
\end{array}$
 What cost ratio should be used to determine the 2007 ending inventory valuation? Do not round to the nearest intermediate value.

Accepted Answer

A)  0.485 
B)  0.600 
C)  0.640 
D)  0.721 
A)  0.485 
B)  0.600 
C)  0.640 
D)  0.721

Question 13

The following data pertain to a retail inventory situation: $\begin{array} { | l | l | l | } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginning inventory } & \$ 5,808 & \$ 7,440 \
\hline \text { Purchases during period } & 37,248 & 58,000 \
\hline \text { Sales during period } & 56,400 & \
\hline \text { Additional mark-ups } & 1,000 & \
\hline \text { Additional mark-up cancellations } & & 200 \
\hline \text { Markdowns } & 840 & \
\hline \text { Markdown cancellations } & 240 & \
\hline
\end{array}$

Accepted Answer

Compute the ending F

Question 14

The following information was available from the inventory records of a company for July 2008: $\begin{array} { | l | l | l | l | } 
\hline & \text { Units } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Balance at July 1, 2008 } & 2,000 & \$ 19.55 & \$ 39,100 \
\hline \text { Purchases July 6, 2008 } & 1,500 & 20.60 & 30,900 \
\hline \text { July 16, 2008 } & 3,400 & 21.50 & 73,100 \
\hline \text { Sales July 7, 2008 } & ( 1,800 ) & & \
\hline \text { July 31, 2008 } & ( 3,200 ) & & \
\hline \text { Balance at July 31,2008 } & 1,900 & & \
\hline
\end{array}$
 Assuming that the company uses the periodic inventory system, what would be the inventory valuation at July 31, 2008, using the weighted-average inventory method (rounded to the nearest dollar)?

Accepted Answer

A)  $39,046 
B)  $39,406 
C)  $39,900 
D)  $39,996 
A)  $39,046 
B)  $39,406 
C)  $39,900 
D)  $39,996

Question 15

Under a periodic inventory system, the ending inventory balance is computed as a residual amount.

Accepted Answer

A) True 
 B)False

Question 16

On December 31, 2013, a company had an item (that it sells regularly) which was returned by a customer because it was defective. Although it originally cost $150, and was sold to the customer for $280, it can be sold as used for only $140. Prior to making it saleable the company must spend $30 to repair it and the estimated cost to resell it is $20. The company expects a normal profit of 10 percent on the resale of damaged merchandise. The net realizable value (NRV) of this item is:

Accepted Answer

A)  $76 
B)  $90 
C)  $110 
D)  $150 
A)  $76 
B)  $90 
C)  $110 
D)  $150

Question 17

The weighted-average inventory method rarely is used with periodic inventory procedures.

Accepted Answer

A) True 
 B)False

Question 18

If ending inventories are overstated, net income is understated.

Accepted Answer

A) True 
 B)False

Question 19

If the cost ratio used in the retail inventory method were overstated (e.g., 80 percent instead of 70 percent), the estimated cost of ending inventory would be:

Accepted Answer

A)  more than its retail value. 
B)  correctly stated. 
C)  overstated. 
D)  understated. 
A)  more than its retail value. 
B)  correctly stated. 
C)  overstated. 
D)  understated.

Question 20

The following information relates to 2013: $\begin{array} { | l | l | l | } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginning inventory } & \$ 29,000 & \$ 45,000 \
\hline \text { Purchases } & 140,000 & 190,000 \
\hline \text { Purchases discounts taken } & 3,000 & \
\hline \text { Purchases returns } & 5,000 & 8,000 \
\hline \text { Freight-in } & 20,000 & \
\hline \text { Net mark-ups } & & 40,000 \
\hline \text { Net markdowns } & & 12,000 \
\hline \text { Sales } & & 190,000 \
\hline \text { Employee discounts } & & 3,000 \
\hline
\end{array}$
 Using the retail inventory method and LCM (based on the average cost flow assumption), what is the value of the ending inventory? When performing your calculations, round your cost ratios to one decimal point.

Accepted Answer

A)  $44,888 
B)  $44,020 
C)  $42,036 
D)  $41,614 
A)  $44,888 
B)  $44,020 
C)  $42,036 
D)  $41,614

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, n/30, the entry to record a payment for half of the purchase within the discount period would include a debit to:

If Company A were to ship goods to Company B under the terms f.o.b. shipping point and if the goods were destroyed in transit, the loss incurred on these goods ordinarily would not accrue to Company A.

Inventory items purchased on credit that are correctly debited to 2013 purchases, but improperly included in the 2013 ending inventory cause:

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

Choose the correct statement concerning periodic and perpetual inventory systems.

If one were applying the FIFO retail method in a period of rising prices to estimate the ending inventory the dollar amount would be:

DEF Inc. entered into a non-cancellable commitment to purchase raw materials in the amount of $30,000 on December 31^st, 2010. Replacement cost was estimated at $25,000 on November 30^th, 2010 and this amount was not expected to change. Which of the following statements is correct?

The following data pertain to a retail inventory situation: Cost Retail Beginning inventory \ 5,808 \ 7,440 Purchases during period 37,248 58,000 Sales during period 56,400 Additional mark-ups 1,000 Additional mark-up cancellations 200 Markdowns 840 Markdown cancellations 240

Under a periodic inventory system, the ending inventory balance is computed as a residual amount.

The weighted-average inventory method rarely is used with periodic inventory procedures.

If ending inventories are overstated, net income is understated.

If the cost ratio used in the retail inventory method were overstated (e.g., 80 percent instead of 70 percent), the estimated cost of ending inventory would be:

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

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, n/30, the entry to record a payment for half of the purchase within the discount period would include a debit to:

If Company A were to ship goods to Company B under the terms f.o.b. shipping point and if the goods were destroyed in transit, the loss incurred on these goods ordinarily would not accrue to Company A.

Inventory items purchased on credit that are correctly debited to 2013 purchases, but improperly included in the 2013 ending inventory cause:

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

Choose the correct statement concerning periodic and perpetual inventory systems.

If one were applying the FIFO retail method in a period of rising prices to estimate the ending inventory the dollar amount would be:

DEF Inc. entered into a non-cancellable commitment to purchase raw materials in the amount of $30,000 on December 31st, 2010. Replacement cost was estimated at $25,000 on November 30th, 2010 and this amount was not expected to change. Which of the following statements is correct?

The following data pertain to a retail inventory situation: Cost Retail Beginning inventory \ 5,808 \ 7,440 Purchases during period 37,248 58,000 Sales during period 56,400 Additional mark-ups 1,000 Additional mark-up cancellations 200 Markdowns 840 Markdown cancellations 240

Under a periodic inventory system, the ending inventory balance is computed as a residual amount.

The weighted-average inventory method rarely is used with periodic inventory procedures.

If ending inventories are overstated, net income is understated.

If the cost ratio used in the retail inventory method were overstated (e.g., 80 percent instead of 70 percent), the estimated cost of ending inventory would be:

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

DEF Inc. entered into a non-cancellable commitment to purchase raw materials in the amount of $30,000 on December 31^st, 2010. Replacement cost was estimated at $25,000 on November 30^th, 2010 and this amount was not expected to change. Which of the following statements is correct?