Question 1

A trade discount that is granted as an incentive for a first-time customer or as a reward for large order should be accounted for by the purchaser as revenue.

Accepted Answer

A) True 
 B)False

Question 2

Where should goods in transit that were recently purchased F.o.b. destination be included on the statement of financial position?

Accepted Answer

A)  Accounts payable. 
B)  Inventory. 
C)  Equipment. 
D)  Not on the statement of financial position.

Question 3

Tang, Inc. sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position.

Accepted Answer

A) True 
 B)False

Question 4

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

A)  invoice price. 
B)  invoice price plus the purchase discount lost. 
C)  invoice price less the purchase discount taken. 
D)  invoice price less the purchase discount allowable whether taken or not.

Question 5

Oats Company offers a trade discount to its customers as a reward for large orders. According to the International Accounting Standards Board (IASB) how should the customers of Oats Company account for these trade discounts?

Accepted Answer

A)  As an expense. 
B)  As a revenue. 
C)  As a reduction in the cost of inventory. 
D)  The IASB allows any of these treatments so long as the company applies it consistently.

Question 6

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

A)  invoice price. 
B)  invoice price plus any purchase discount lost. 
C)  invoice price less the purchase discount taken. 
D)  invoice price less the purchase discount allowable whether taken or not.

Question 7

Which of the following is a characteristic of a perpetual inventory system?

Accepted Answer

A)  Inventory purchases are debited to a Purchases account. 
B)  Inventory records are not kept for every item. 
C)  Cost of goods sold is recorded with each sale. 
D)  Cost of goods sold is determined as the amount of purchases less the change in inventory.

Question 8

Tanner Corporation's inventory cost on its statement of financial position was lower using first-in, first-out than it would have been using average cost. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Accepted Answer

A)  Up 
B)  Down 
C)  Steady 
D)  Cannot be determined

Question 9

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Accepted Answer

A) True 
 B)False

Question 10

Homes 4 You builds single-family homes throughout the United States and Europe. The International Accounting Standards Board (IASB) Requires Homes 4 You to use which of the following cost flow assumptions for its inventory?

Accepted Answer

A)  FIFO (first-in, first-out). 
B)  Specific identification. 
C)  Weighted-average. 
D)  The IASB allows any of these cost flow assumptions as long as the company uses it consistently.

Question 11

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

Accepted Answer

A)  FIFO. 
B)  LIFO. 
C)  specific identification. 
D)  weighted-average.

Question 12

How is a significant amount of consignment inventory reported in the statement of financial position?

Accepted Answer

A)  The inventory is reported separately on the consignor's statement of financial position. 
B)  The inventory is combined with other inventory on the consignor's statement of financial position. 
C)  The inventory is reported separately on the consignee's statement of financial position. 
D)  The inventory is combined with other inventory on the consignee's statement of financial position.

Question 13

The LIFO perpetual method results in the same ending inventory and cost of goods sold amounts as under the LIFO periodic method.

Accepted Answer

A) True 
 B)False

Question 14

Which method may be used to record cash discounts a company receives for paying suppliers promptly?

Accepted Answer

A)  Net method. 
B)  Gross method. 
C)  Average method. 
D)  Both the net method and the gross method.

Question 15

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Accepted Answer

A)  Raw materials. 
B)  Work-in-process. 
C)  Finished goods. 
D)  Supplies.

Question 16

If both purchases and ending inventory are overstated by the same amount, net income is not affected.

Accepted Answer

A) True 
 B)False

Question 17

Abnormal freight costs are not included on the statement of financial position as part of the cost of inventory.

Accepted Answer

A) True 
 B)False

Question 18

IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes.

Accepted Answer

A) True 
 B)False

Question 19

Computers For You is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account reported on the statement of financial position for Computers For You at December 31, 2019?

Accepted Answer

A)  Computer purchased for resale during November 2019. 
B)  Shelving materials purchased during December 2019. 
C)  Freight costs related to the computers purchased in November. 
D)  All of the choices are included in the merchandise inventory account at December 31, 2019.

Question 20

Which of the following is a product cost as it relates to inventory?

Accepted Answer

A)  Selling costs. 
B)  Interest costs. 
C)  Raw materials. 
D)  Abnormal spoilage.

Exam 8: Valuation of Inventories: a Cost-Basis Approach

A trade discount that is granted as an incentive for a first-time customer or as a reward for large order should be accounted for by the purchaser as revenue.

Where should goods in transit that were recently purchased F.o.b. destination be included on the statement of financial position?

Tang, Inc. sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position.

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Oats Company offers a trade discount to its customers as a reward for large orders. According to the International Accounting Standards Board (IASB) how should the customers of Oats Company account for these trade discounts?

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

Which of the following is a characteristic of a perpetual inventory system?

Tanner Corporation's inventory cost on its statement of financial position was lower using first-in, first-out than it would have been using average cost. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Homes 4 You builds single-family homes throughout the United States and Europe. The International Accounting Standards Board (IASB) Requires Homes 4 You to use which of the following cost flow assumptions for its inventory?

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

How is a significant amount of consignment inventory reported in the statement of financial position?

The LIFO perpetual method results in the same ending inventory and cost of goods sold amounts as under the LIFO periodic method.

Which method may be used to record cash discounts a company receives for paying suppliers promptly?

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

If both purchases and ending inventory are overstated by the same amount, net income is not affected.

Abnormal freight costs are not included on the statement of financial position as part of the cost of inventory.

IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes.

Computers For You is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account reported on the statement of financial position for Computers For You at December 31, 2019?

Which of the following is a product cost as it relates to inventory?