Question 1

Oats and Honey Company produces healthy snacks for sale throughout the United States and Europe.The International Accounting Standards Board (IASB) prohibits Oats and Honey from using which of the following cost flow assumptions for its inventory?

Accepted Answer

A)  LIFO (last-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. A

Question 2

Why are inventories included in the computation of net income?

Accepted Answer

A)  To determine cost of goods sold.
B)  To determine sales revenue.
C)  To determine merchandise returns.
D)  Inventories are not included in the computation of net income. A

Question 3

Willy World began using dollar-value LIFO for costing its inventory two years ago.The ending inventory for the past two years in end-of-year dollars was $100,000 and $150,000 and the year-end price indices were 1.0 and 1.2, respectively.Assuming the current inventory at end of year prices equals $215,000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO?

Accepted Answer

A)  $177,500.
B)  $186,400.
C)  $190,000.
D)  $188,750. D

Question 4

Hite Co.was formed on January 2, 2010, to sell a single product.Over a two-year period, Hite's acquisition costs have increased steadily.Physical quantities held in inventory were equal to three months' sales at December 31, 2010, and zero at December 31, 2011.Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is

Accepted Answer

The answer of Hite Co.was formed on January 2, 2010,...

Question 5

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

Accepted Answer

A) True 
 B)False

Question 6

Use the following information for 
RF Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112.
-What is RF Company's gross profit?

Accepted Answer

A)  $428,000.
B)  $431,360.
C)  $443,460.
D)  $868,640.

Question 7

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 8

Wise Company adopted the dollar-value LIFO method on January 1, 2010, at which time its inventory consisted of 6,000 units of Item A @ $5.00 each and 3,000 units of Item B @ $16.00 each.The inventory at December 31, 2010 consisted of 12,000 units of Item A and 7,000 units of Item B.The most recent actual purchases related to these items were as follows:  Using the double-extension method, what is the price index for 2010 that should be computed by Wise Company?

Accepted Answer

A)  108.33%
B)  109.59%
C)  111.05%
D)  220.51%

Question 9

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

Accepted Answer

A)  weighted-average method.
B)  moving average method.
C)  FIFO method.
D)  None of these.

Question 10

Milford Company had 400 units of "Tank" in its inventory at a cost of $4 each.It purchased 600 more units of "Tank" at a cost of $6 each.Milford then sold 700 units at a selling price of $10 each.The LIFO liquidation overstated normal gross profit by

Accepted Answer

A)  $ -0-
B)  $200.
C)  $400.
D)  $600.

Question 11

Opera Corp.uses dollar-value LIFO method of computing its inventory cost.Data for the past four years is as follows:  What is the 2011 inventory balance using dollar-value LIFO?

Accepted Answer

A)  $126,000.
B)  $128,500.
C)  $122,750.
D)  $125,750.

Question 12

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, 2011?

Accepted Answer

A)  Computer purchased for resale during November 2011.
B)  Shelving materials purchased during December 2011.
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, 2011.

Question 13

Elkins Corporation uses the perpetual inventory method.On March 1, it purchased $10,000 of inventory, terms 2\10, n\30.On March 3, Elkins returned goods that cost $1,000.On March 9, Elkins paid the supplier.On March 9, Elkins should credit

Accepted Answer

A)  purchase discounts for $200.
B)  inventory for $200.
C)  purchase discounts for $180.
D)  inventory for $180.

Question 14

If a supplier ships goods

Accepted Answer

A) True 
 B)False

Question 15

Use the following information for questions.
Winsor Co.records purchases at net amounts.On May 5 Winsor purchased merchandise on account, $16,000, terms 2\10, n\30.Winsor returned $1,200 of the May 5 purchase and received credit on account.At May 31 the balance had not been paid.
-The amount to be recorded as a purchase return is

Accepted Answer

A)  $1,080.
B)  $1,224.
C)  $1,200.
D)  $1,176.

Question 16

In a period of declining prices, the inventory method which tends to give the highest reported cost of goods sold is

Accepted Answer

A)  specific identification.
B)  average cost.
C)  FIFO.
D)  none of these.

Question 17

Which of the following costs should not be included on the statement of financial position as part of the cost of inventory?

Accepted Answer

A)  Abnormal freight.
B)  Import duties.
C)  Conversion costs.
D)  All of the choices are included on the statement of financial position as part of the cost of inventory.

Question 18

Use the following information for questions.
Transactions for the month of June were: 
-Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

Accepted Answer

A)  $4,110.
B)  $4,160.
C)  $4,290.
D)  $4,470.

Question 19

Use the following information for questions.
Niles Co.has the following data related to an item of inventory: 
-The value assigned to ending inventory if Niles uses LIFO is

Accepted Answer

A)  $579.
B)  $552.
C)  $546.
D)  $585.

Question 20

Jarvis, Inc.manufactures cruise ships for sale.Each ship costs approximately $25,000,000 to build and takes 3 years to fully construct.During the time it takes to construct one cruise ship, Jarvis incurs $2,400,000 in interest cost related to the construction.The interest cost is incurred evenly throughout the construction period.During the first year of construction, Jarvis builds a shell that can be customized for any purchaser according to specifications; construction during the final 2 years is all based on client specification.The International Accounting Standards Board requires that Jarvis account for this interest cost as

Accepted Answer

A)  $2,400,000 is recorded as interest expense as incurred.
B)  $2,400,000 is capitalized to the cruise ship.
C)  $800,000 incurred in 1st year is expensed as incurred; the remaining amount is capitalized to the cruise ship.
D)  $800,000 is capitalized to the cruise ship; the remaining amount is expensed as incurred.

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

Oats and Honey Company produces healthy snacks for sale throughout the United States and Europe.The International Accounting Standards Board (IASB) prohibits Oats and Honey from using which of the following cost flow assumptions for its inventory?

Why are inventories included in the computation of net income?

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

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

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

Milford Company had 400 units of "Tank" in its inventory at a cost of $4 each.It purchased 600 more units of "Tank" at a cost of $6 each.Milford then sold 700 units at a selling price of $10 each.The LIFO liquidation overstated normal gross profit by

Opera Corp.uses dollar-value LIFO method of computing its inventory cost.Data for the past four years is as follows: What is the 2011 inventory balance using dollar-value LIFO?

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, 2011?

Elkins Corporation uses the perpetual inventory method.On March 1, it purchased $10,000 of inventory, terms 2\10, n\30.On March 3, Elkins returned goods that cost $1,000.On March 9, Elkins paid the supplier.On March 9, Elkins should credit

If a supplier ships goods

In a period of declining prices, the inventory method which tends to give the highest reported cost of goods sold is

Which of the following costs should not be included on the statement of financial position as part of the cost of inventory?

Use the following information for questions. Transactions for the month of June were: -Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

Use the following information for questions. Niles Co.has the following data related to an item of inventory: -The value assigned to ending inventory if Niles uses LIFO is