Question 1

On a particular date, which of the following should be included in a company's inventory?

Accepted Answer

A)  Goods in the company's warehouse which have been received from another company for sale on consignment 
B)  Goods sold through a sales contract the terms of which have been completed, but the goods are being held for the customer to call for at his convenience 
C)  Goods purchased and in transit f.o.b. destination 
D)  Goods held for sale in the possession of an agent of the company

Question 2

M Company should include the following items in its merchandise inventory:

Accepted Answer

A)  Goods purchased FOB destination still en route. 
B)  Goods purchased FOB shipping point still en route. 
C)  Goods sold by M Company FOB shipping point still en route. 
D)  Goods held on consignment from the B Company to M Company.

Question 3

A department store's accounts showed the following at the end of the period: $\begin{array} { | l | l | l | } 
\hline & \text { At Cost } & \text { At Retail } \
\hline \text { Beginning inventory } & \$ 120 & \$ 160 \
\hline \text { Purchases } & 240 & 340 \
\hline \text { Sales } & 430 & ( 500 ) \
\hline \text { Markdowns } & 60 & \
\hline \text { Markdown cancellations } & 10 & \
\hline \text { Additional mark-ups } & 120 & \
\hline \text { Additional mark-up cancellations } & 20 & \
\hline
\end{array}$
Using the above data, apply the retail inventory method to compute the approximate average cost (LCM) for the ending inventory. $___________________.

Accepted Answer

The answer of A department store's accounts showed the following...

Question 4

The following information relates to a firm with several similar products:$\begin{array} { | l | l | l | } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginning inventory } & \$ 29,000 & \$ 45,000 \
\hline \text { Purchases } & 140,000 & 190,000 \
\hline \text { Purchases discounts taken } & 3,000 & \
\hline \text { Purchases returns } & 5,000 & 8,000 \
\hline \text { Freight-in } & 20,000 & \
\hline \text { Net mark-ups } & & 40,000 \
\hline \text { Net markdowns } & & 12,000 \
\hline \text { Sales } & & 190,000 \
\hline \text { Employee discounts } & 3,000 \
\hline
\end{array}$
Using the retail inventory method and the average cost flow assumption (not LCM), what is 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

Question 5

In inventorying goods at December 31, a company incorrectly included some items received on consignment. The error causes an:

Accepted Answer

A)  understatement of inventory, purchases, and accounts payable. 
B)  overstatement of net income and assets by the same amount. 
C)  understatement of income and assets by the same amount. 
D)  overstatement of inventory, purchases, and accounts payable.

Question 6

On June 1, 2013, Yenex Corporation signed a binding, non-cancellable contract with AB Corporation to purchase, during the following 12 months, 500 units of Product Z at $30 each. By December 31, 2013, Yenex Corporation had purchased and paid for 400 of the units (debit inventory and credit cash, $12,000). At the end of 2013, Product Z could be purchased at a firm cash price of $27 per unit. (Assume amounts are material.)
(a) Give any entry required at December 31, 2013 (end of the accounting period).
(b) On March 30, 2013, Yenex Corporation purchased the remaining units under the contract. At that date, the units could have been purchased for a firm cash price of $28. Give the required entry (entries) under IFRS.

Accepted Answer

The answer of On June 1, 2013, Yenex Corporation signed...

Question 7

The primary difference between the inventory system of a manufacturing company and a retail company is that a retail company uses a periodic system and a manufacturing firm uses a perpetual system.

Accepted Answer

A) True 
 B)False

Question 8

The relative sales value method is:

Accepted Answer

A)  similar to the gross margin method. 
B)  used to account for spoilage. 
C)  a retail inventory method. 
D)  a cost allocation method.

Question 9

A company has several inventory items with a total cost of $100. Their net realizable values total $80. Thus, a $20 write down is required.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

Accepted Answer

A)  Higher retail prices. 
B)  Lower net mark-ups. 
C)  More employee discounts given. 
D)  Higher freight-in charges.

Question 11

In the FIFO retail method, what does the ending inventory for any period represent?

Accepted Answer

A)  The ending inventory at approximately the current cost. 
B)  The ending inventory at the beginning of the year cost dollars. 
C)  The ending inventory at the average cost dollars. 
D)  The sum of inventory layers from previous periods. 
E)  The sum of inventory layers each costed at current dollars found by applying the current years' selling prices.

Question 12

From a theoretical viewpoint, which of the following costs would be considered inventoriable?
$\begin{array} {|l | l | l | } 
\hline \text { Freight-in } & \text { Warehousing } \
\hline 1& \text { Yes } & \text { Yes } \
\hline 2 &\text { No } & \text { Yes } \
\hline 3& \text { Yes } & \text { No } \
\hline 4& \text { No } & \text { No } \
\hline
\end{array}$

Accepted Answer

A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4

Question 13

Which of the following should be included in the inventory cost of an item purchased?

Accepted Answer

A)  Purchase discounts lost 
B)  Insurance premium on item during transit 
C)  Costs incurred to build a permanent display cabinet for this, and similar items 
D)  Costs to train employees on a new computerized inventory control system

Question 14

At year end, after preparing the financial statements, four errors were found. The first line in the tabulation below gives the uncorrected amounts. You are to develop the correct amount on the bottom line by entering the corrections for each error; indicate subtractions with parentheses. Assume a periodic inventory system.
Income Statement for
Balance sheet 12/31/2003, year ending 12/31/2003 $\begin{array}{|l|l|l|l|l|l|l|}
\hline &\text { Assets } & \text { Liabilities } & \begin{array}{l}
\text { Owners' } \
\text { Equity }
\end{array} & \text { Revenue } & \begin{array}{l}
\text { Cost of } \
\text { Goods Sold }
\end{array} & \begin{array}{l}
\text { Gross } \
\text { Margin }
\end{array} \\hline \text { Reported amounts (uncorrected) } & 16,000 & 4,000 & 12,000 & 18,000 & 10,000 & 8,000 \
\hline \text { 1. Beg. } 2003 \text { invoice understated by } \$ 160 & & & & & & \\hline \begin{array}{l}
\text { 2. } 2003 \text { credit purchase } \$ 200 \text {; not recorded or inventoried in } \
\text { 2003. }
\end{array} & & \
\hline \text { 3. Ending } 2003 \text { invoice overstated by } \$ 600 & & \
\hline\text { 4. } 2003 \text { credit sales of } \$ 1,000 \text { not recorded in } 2003 \text {; cost of }\\text { goods sold amount } \$ 600 \text {; not included in } 2003 \text { ending }\\text { inventory. }\
\hline
\end{array}$

Accepted Answer

The answer of At year end, after preparing the financial...

Question 15

When determining the unit cost of an inventory item, which of the following should not be included?

Accepted Answer

A)  Interest on loans obtained to purchase the item 
B)  Commissions paid when purchased 
C)  Freight costs on the item when purchased 
D)  Storage fees prior to sale

Question 16

A valuation allowance account will be used when a company can apply the Lower of Cost & NRV rules on an item-by-item basis.

Accepted Answer

A) True 
 B)False

Question 17

The gross margin method of estimating inventory is inappropriate when:

Accepted Answer

A)  A general price decline occurred during the year. 
B)  Beginning inventory is zero. 
C)  Some of the inventory is destroyed. 
D)  Inventory increased by a material amount during the year. 
E)  Reporting in external financial statements.

Question 18

At December 31, 2013, after preparing the financial statements, several errors were discovered. The first line in the tabulation below gives the uncorrected amounts. You are to develop the correct amount for each category on the bottom line. Enter for each item the appropriate amount(s) needed for correction; indicate deductions (i.e., subtractions) with parentheses. Assume a periodic inventory system.
Notes:
1. Some items may not involve errors.
2. You are only to correct the 2013 financial statements (do not give correcting entries).
3. Do not assume errors not specifically indicated.
4. Assume all amounts given are correct.
Income Statement for the Year ended 12/31/2003
Balance Sheet 12/31/2003

Accepted Answer

The answer of At December 31, 2013, after preparing the...

Question 19

Drafting Supplies Ltd. sells its merchandise at a mark-up of 40 percent on cost. Near the end of 2012, it recorded a credit sale amounting to $7,000. Although this merchandise was not shipped, it was excluded from the December 31, 2012, periodic inventory. The auditor later determined that the sale was incorrectly recorded in 2012; it should have been recorded in 2013. The company uses 1 percent of credit sales as the amount to record for bad debt expense. Ignoring income taxes, the effect of this error was to (answer only one): Overstate 2012 income by $__________________________ or
Understate 2012 income by $________________________.

Accepted Answer

The answer of Drafting Supplies Ltd. sells its merchandise at...

Question 20

Four different independent errors relating to inventory are described below. You are to indicate the dollar amount by which various financial statement components are misstated and whether the error causes each component to be too high or too low. For example, if the effect of the error is to cause the component to be too high by $300, you should enter + 300 in the appropriate column; if it makes the component too low by $750, enter $-750. If a component is unaffected, enter a 0. Similarly, if on financial statements of a later year the error would have counterbalanced on that later year's statements, enter a 0. A periodic inventory system is used unless specifically stated to the contrary.
(a) The 2001 ending inventory is understated by $400 and the related purchase on credit for that amount was not recorded until 2013.
(b) At the end of 2001, the company failed to recognize that $1,500 of inventory was in the hands of a consignee. At the end of 2013, a similar error was made and the cost of goods consigned out was $1,100.
(c) In running a total of inventory count sheets, a clerk included one line for $350 twice at the end of 2001; therefore, the inventory was overstated $350.
(d) On December 31, 2001, a customer agreed to buy goods for $2,500 and asked that delivery be delayed until January 3, 2013. The goods, on which the average mark-up was 40 percent of sale price, were still on hand on December 31. They were included in the 2001 inventory. The customer was properly billed for the goods, and the sale was recorded on December 31, 2001. $\begin{array} { | l | l | l | l |l|  } 
\hline&2001 \text { Statements }& 2002 \text { Statements }\
\hline \text { Error } & \text {Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Cost of Goods Sold } \
\hline \text { (a) } & & & \
\hline \text { (b) } & & & \
\hline \text { (c) } & & &  \
\hline \text { (d) } & & &  \
\hline
\end{array}$

Accepted Answer

The answer of Four different independent errors relating to inventory...

Exam 8: Cost-Based Inventories and Cost of Sales

On a particular date, which of the following should be included in a company's inventory?

M Company should include the following items in its merchandise inventory:

In inventorying goods at December 31, a company incorrectly included some items received on consignment. The error causes an:

The primary difference between the inventory system of a manufacturing company and a retail company is that a retail company uses a periodic system and a manufacturing firm uses a perpetual system.

The relative sales value method is:

A company has several inventory items with a total cost of $100. Their net realizable values total $80. Thus, a $20 write down is required.

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

In the FIFO retail method, what does the ending inventory for any period represent?

Which of the following should be included in the inventory cost of an item purchased?

When determining the unit cost of an inventory item, which of the following should not be included?

A valuation allowance account will be used when a company can apply the Lower of Cost & NRV rules on an item-by-item basis.

The gross margin method of estimating inventory is inappropriate when: