CHAPTER 8 VALUATION ALUATION OF INVENTORIES: I NVENTORIES: A COST-BASIS COST-BASIS APPROACH APPROA CH CHAPTER LEARNING OBJECTIVES 1.
Identi Identify fy major major classi classific ficati ations ons of invent inventory ory..
2.
Distin Distingui guish sh betw between een perpe perpetua tuall and peri periodi odic c invent inventory ory sys system tems. s.
3.
Dete Determ rmin ine e the the good goods s incl includ uded ed in inve invent ntor ory y and the the effe effect cts s of inve invent ntor ory y erro errors rs on the the financial statements.
4.
Unders Understan tand d the the item items s to to incl include ude as invent inventory ory cost. cost.
.
Descri Describe be and and compa compare re the the meth methods ods used used to pric price e invent inventori ories. es.
!". !".
Desc Descri ribe be the the #I$ #I$% % cost cost flo flow w assu assump mpti tion on..
8-'
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
TRUE FALSE(Con#e)t$a* 1.
& manu manufa fact ctur urin ing g conc concer ern n would ould repo report rt the the cost cost of unit units s only only part partia iall lly y proc proces esse sed d as inventory in the statement of financial position.
2.
'oth 'oth merc mercha hand ndis isin ing g and and manu manufa fact ctur urin ing g comp compan anie ies s norm normal ally ly have have mult multip iple le inve invent ntory ory accounts.
3.
I$() I$() re*uires re*uires manufa manufactu cturer rers s to disclos disclose e their inven inventor tory y compone components nts on the state statemen mentt of financial position or in related notes.
4.
+ood +oods s in transi transit, t, shipp shipped ed $%' shippi shipping ng poin point, t, are includ included ed in the the buye buyer-s r-s state stateme ment nt of financial position at the time of delivery to the common carrier.
.
ang, Inc. Inc. sells sells collec collectible tible jewelr jewelry y on consignm consignment ent from from various various manuf manufacture acturers rs and should include this consigned inventory on its statement of financial position.
".
/ompan /ompanies ies must must alloc allocate ate the the cost of of all the good goods s availab available le for sale sale 0or use use betwe between en the income statement and the statement of financial position.
.
hen hen using using a perp perpet etua uall inve invent ntor ory y syst system em,, frei freigh ghtt char charge ges s on goods goods purc purcha hase sed d are debited to $reightIn.
5.
If a suppli supplier er ships ships goods goods f.o.b. f.o.b. desti destinat nation ion,, title title passes passes to the the buyer buyer when the the supplie supplierr delivers the goods to the common carrier. carrier.
6.
If both both purchase purchases s and ending inventory inventory are are overstat overstated ed by the same same amount, amount, net income income is not affected.
17.
$reigh $reightt charges charges on good goods s purchas purchased ed are consi considere dered d a period period cost and and theref therefore ore are are not part of the cost of the inventory.
11.
8urcha 8urchase se Discou Discounts nts #ost #ost is a financi financial al e9pens e9pense e and is reporte reported d in the :other :other income income and and e9pense; section of the income statement.
12. 12.
Inte Intere rest st cost costs s incu incurre rred d to manu manufa fact ctur ure e large large *uanti *uantiti ties es of inve invent ntory ory that are produ produce ced d routinely should be capitali
13.
& trade trade discou discount nt that is granted granted as as an incenti incentive ve for a firsttim firsttime e customer customer or as a reward reward for large order should be accounted for by the purchaser as revenue.
14.
$reigh $reightt costs costs incurre incurred d by the seller seller to ship ship merchan merchandis dise e to the purchas purchaser er are accoun accounted ted for by the seller as part of inventory on the statement of financial position.
1.
&bnorm &bnormal al freight freight costs costs are are not includ included ed on the statem statement ent of finan financia ciall position position as part part of the cost of inventory.
1".
Under Under I$(), I$(), agricult agricultura urall inventor inventories ies,, such as wheat, wheat, orange oranges, s, etc., etc., are record recorded ed at their their fair value less estimated selling costs at the point of harvest.
8-'
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
TRUE FALSE(Con#e)t$a* 1.
& manu manufa fact ctur urin ing g conc concer ern n would ould repo report rt the the cost cost of unit units s only only part partia iall lly y proc proces esse sed d as inventory in the statement of financial position.
2.
'oth 'oth merc mercha hand ndis isin ing g and and manu manufa fact ctur urin ing g comp compan anie ies s norm normal ally ly have have mult multip iple le inve invent ntory ory accounts.
3.
I$() I$() re*uires re*uires manufa manufactu cturer rers s to disclos disclose e their inven inventor tory y compone components nts on the state statemen mentt of financial position or in related notes.
4.
+ood +oods s in transi transit, t, shipp shipped ed $%' shippi shipping ng poin point, t, are includ included ed in the the buye buyer-s r-s state stateme ment nt of financial position at the time of delivery to the common carrier.
.
ang, Inc. Inc. sells sells collec collectible tible jewelr jewelry y on consignm consignment ent from from various various manuf manufacture acturers rs and should include this consigned inventory on its statement of financial position.
".
/ompan /ompanies ies must must alloc allocate ate the the cost of of all the good goods s availab available le for sale sale 0or use use betwe between en the income statement and the statement of financial position.
.
hen hen using using a perp perpet etua uall inve invent ntor ory y syst system em,, frei freigh ghtt char charge ges s on goods goods purc purcha hase sed d are debited to $reightIn.
5.
If a suppli supplier er ships ships goods goods f.o.b. f.o.b. desti destinat nation ion,, title title passes passes to the the buyer buyer when the the supplie supplierr delivers the goods to the common carrier. carrier.
6.
If both both purchase purchases s and ending inventory inventory are are overstat overstated ed by the same same amount, amount, net income income is not affected.
17.
$reigh $reightt charges charges on good goods s purchas purchased ed are consi considere dered d a period period cost and and theref therefore ore are are not part of the cost of the inventory.
11.
8urcha 8urchase se Discou Discounts nts #ost #ost is a financi financial al e9pens e9pense e and is reporte reported d in the :other :other income income and and e9pense; section of the income statement.
12. 12.
Inte Intere rest st cost costs s incu incurre rred d to manu manufa fact ctur ure e large large *uanti *uantiti ties es of inve invent ntory ory that are produ produce ced d routinely should be capitali
13.
& trade trade discou discount nt that is granted granted as as an incenti incentive ve for a firsttim firsttime e customer customer or as a reward reward for large order should be accounted for by the purchaser as revenue.
14.
$reigh $reightt costs costs incurre incurred d by the seller seller to ship ship merchan merchandis dise e to the purchas purchaser er are accoun accounted ted for by the seller as part of inventory on the statement of financial position.
1.
&bnorm &bnormal al freight freight costs costs are are not includ included ed on the statem statement ent of finan financia ciall position position as part part of the cost of inventory.
1".
Under Under I$(), I$(), agricult agricultura urall inventor inventories ies,, such as wheat, wheat, orange oranges, s, etc., etc., are record recorded ed at their their fair value less estimated selling costs at the point of harvest.
=aluation of Inventories> & /ost'asis &pproach
8-.
1.
he Interna Internatio tional nal &ccou &ccounti nting ng )tandard )tandards s 'oard 'oard 0I&)' 0I&)' re*uir re*uires es the specific specific identif identifica icatio tion n method of inventory costing where individual items of inventory can be identified and costed.
15.
he Interna Internatio tional nal &ccou &ccounti nting ng )tandard )tandards s 'oard 'oard re*uires re*uires the specifi specific c identi identific ficati ation on method method when unit price is low, low, inventory turnover is high, and inventory *uantities are large.
16.
he cost cost flow flow assump assumptio tion n adopted adopted must must be consist consistent ent with with the phys physica icall movement movement of the the goods.
!27. !27.
he #I$% #I$% perpe perpetua tuall method method result results s in the same same ending ending inven inventor tory y and cost cost of goods goods sold sold amounts as under the #I$% per iodic method.
Tr$e Fa*se Ans+ers(Con#e)t$a* Ite 1. 2. 3. 4.
Ans, $
Ite . ". . 5.
Ans, $ $ $
I te 6. 17. 11. 12.
Ans, $ $
Ite 13. 14. 1. 1".
Ans, $ $
Ite 1. 15. 16. !27.
Ans, $ $ $
Ite
Ans,
ULTIPLE ULTIPLE CHOICE (Con#e)t$a* 21.
hich of the following following invent inventories ories carried carried by a manufact manufacturer urer is is similar similar to to the merchandise merchandise inventory of a retailer? a. (aw (aw mate materi rial als. s. b. or@ or@i in npr proc oces ess. s. c. $ini inished shed goo goods ds.. d. )upplies ies.
22.
here should should raw materials materials be classi classified fied on the the statemen statementt of financial financial position? position? a. 8rep 8repai aid d e9pe e9pens nses es.. b. Inv Invento entory ry.. c. A*uipment. d. Bot on the the state statemen mentt of financ financial ial posit position ion..
23. 23.
hic hich h of of the the foll follow owin ing g acc accou ount nts s is is not reported in inventory? a. (aw (aw mate materi rial als. s. b. A*uipment. c. $ini inished shed goo goods ds.. d. )upplies ies.
24.
/omput /omputers ers $or $or Cou Cou is a retail retailer er special speciali
8-/
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
2.
/ulver /ompany purchases the majority of its inventory from three primary suppliers for resale to customers around the world. /ulver /ompany-s statement of financial position will include a. $inished goods inventory. b. or@inprocess inventory. c. erchandise inventory. d. &ll of the choices are correct.
2".
/ompanies must allocate the cost of all the goods available for sale 0or use between a. he cost goods on hands at the beginning of the period as reported on the statement of financial position and the cost of goods ac*uired or produced during the period. b. he cost of goods on hand at the end of the period as reported on the statement of financial position and the cost of goods ac*uired or produced during the period. c. he income statement and the statement of financial position. d. &ll of the choices are correct.
2.
ineral a@ers 0 /ompany @eeps its inventory records using a perpetual system. &t December 31, 271, the unadjusted balance in the inventory account is E"4,777. hrough a physical count on December 31, 271, determines that its actual merchandise inventory at yearend is E"2,77. hich of the following is true regarding the statement of financial position and the income statement of at December 31, 271? a. Inventory is increased and cost of goods sold is decreased by E1,77. b. Inventory is decreased and cost of goods sold is increased by E1,77. c. Inventory is increased and cost of goods sold is increased by E1,77. d. Inventory is decreased and cost of goods sold is decreased by E1,77.
25.
ang, Inc. sells collectible jewelry on consignment from various manufacturers. &dditionally, ang sells its own line of specialty jewelry manufactured inhouse. %n December 31, 271, during ang, Inc Fs annual inventory count, an ine9perienced new staff member included in ang-s ending inventory E37,777 worth of inventory held on consignment from etcalf &ssociates. hich of the following is correct regarding the impact of this error on ang-s income statement and statement of financial position at December 31, 271? a. Anding inventory is understated by E37,777. b. (etained earnings is overstated by E37,777. c. /ost of goods sold is overstated by E37,777. d. he financial statements are correctly stated.
26.
hy are inventories included in the computation of net income? a. o determine cost of goods sold. b. o determine sales revenue. c. o determine merchandise returns. d. Inventories are not included in the computation of net income.
37.
hich of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to a 8urchases account. b. Inventory records are not @ept for every item. c. /ost of goods sold is recorded with each sale. d. /ost of goods sold is determined as the amount of purchases less the change in inventory.
=aluation of Inventories> & /ost'asis &pproach
8-0
31.
Gow is a significant amount of consignment inventory reported in the statement of financial position? a. he inventory is reported separately on the consignorFs statement of financial position. b. he inventory is combined with other inventory on the consignorFs statement of financial position. c. he inventory is reported separately on the consigneeFs statement of financial position. d. he inventory is combined with other inventory on the consigneeFs statement of financial position.
32.
here should goods in transit that were recently purchased f.o.b. destination be included on the statement of financial position? a. &ccounts payable. b. Inventory. c. A*uipment. d. Bot on the statement of financial position.
33.
If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a. %verstate net income. b. Understate net income. c. Bo effect on net income. d. Bot sufficient information to determine effect on net income.
34.
If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a. %verstate the current ratio. b. Understate the current ratio. c. Bo effect on the current ratio. d. Bot sufficient information to determine effect on the current ratio.
3.
hat is consigned inventory? a. +oods that are shipped, but title transfers to the receiver. b. +oods that are sold, but payment is not re*uired until the goods are sold. c. +oods that are shipped, but title remains with the shipper. d. +oods that have been segregated for shipment to a customer.
3".
hen using a perpetual inventory system, a. no 8urchases account is used. b. a /ost of +oods )old account is used. c. two entries are re*uired to record a sale. d. &ll of these are correct.
3.
+oods in transit which are shipped f.o.b. shipping point should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. Bone of these are correct.
35.
+oods in transit which are shipped f.o.b. destination should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. Bone of these are correct.
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36.
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
hich of the following items should be included in a companyFs inventory at the statement of financial position date? a. +oods in transit which were purchased f.o.b. destination. b. +oods received from another company for sale on consignment. c. +oods sold to a customer which are being held for the customer to call for at his or her convenience. d. Bone of these are correct.
Use the following information for *uestions 47 and 41. During 271 /arne /orporation transferred inventory to Bolan /orporation and agreed to repurchase the merchandise early in 271". Bolan then used the inventory as collateral to borrow from Borwal@ 'an@, remitting the proceeds to /arne. In 271" when /arne repurchased the inventory, Bolan used the proceeds to repay its ban@ loan. 47.
his transaction is @nown as a0n a. consignment. b. installment sale. c. assignment for the benefit of creditors. d. product financing arrangement.
41.
%n whose boo@s should the cost of the inventory appear at the December 31, 271 statement of financial position date? a. /arne /orporation b. Bolan /orporation c. Borwal@ 'an@ d. Bolan /orporation, with /arne ma@ing appropriate note disclosure of the transaction
)
42.
=aluation of inventories re*uires the determination of all of the following e1#e)t a. the costs to be included in inventory. b. the physical goods to be included in inventory. c. the cost of goods held on consignment from other companies. d. the cost flow assumption to be adopted.
8
43.
he accountant for the 8ryor )ales /ompany is preparing the income statement for 271 and the statement of financial position at December 31, 271. 8ryor uses the periodic inventory system. he Hanuary 1, 271 merchandise inventory balance will appear a. only as an asset on the statement of financial position. b. only in the cost of goods sold section of the income statement. c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the statement of financial position. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the statement of financial position.
8
44.
If the beginning inventory for 271 is overstated, the effects of this error on cost of goods sold for 271, net income for 271, and assets at December 31, 271", respectively, are a. overstatement, understatement, overstatement. b. overstatement, understatement, no effect. c. understatement, overstatement, overstatement. d. understatement, overstatement, no effect.
=aluation of Inventories> & /ost'asis &pproach )
8-3
4.
he failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in a. an overstatement of assets and net income. b. an understatement of assets and net income. c. an understatement of cost of goods sold and liabilities and an overstatement of assets. d. an understatement of liabilities and an overstatement of e*uity.
4".
Dolan /o. received merchandise on consignment. &s of arch 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. he effect of this on its financial statements for arch 31 would be a. no effect. b. net income was correct and current assets and current liabilities were overstated. c. net income, current assets, and current liabilities were overstated. d. net income and current liabilities were overstated.
4.
+reen /o. received merchandise on consignment. &s of Hanuary 31, +reen included the goods in inventory, but did not record the transaction. he effect of this on its financial statements for Hanuary 31 would be a. net income, current assets, and retained earnings were overstated. b. net income was correct and current assets were understated. c. net income and current assets were overstated and current liabilities were understated. d. net income, current assets, and retained earnings were understated.
45.
$eine /o. accepted delivery of merchandise which it purchased on account. &s of December 31, $eine had recorded the transaction, but did not include the merchandise in its inventory. he effect of this on its financial statements for December 31 would be a. net income, current assets, and retained earnings were understated. b. net income was correct and current assets were understated. c. net income was understated and current liabilities were overstated. d. net income was overstated and current assets were understated.
46.
%n Hune 1, 271, ynne /orporation accepted delivery of merchandise which it purchased on account. &s of Hune 37, ynne had not recorded the transaction or included the merchandise in its inventory. he effect of this on its statement of financial position for Hune 37, 271 would be a. assets and e*uity were overstated but liabilities were not affected. b. e*uity was the only item affected by the omission. c. assets, liabilities, and e*uity were understated. d. Bone of these answers are correct.
7.
hat is the effect of a E7,777 overstatement of last yearFs inventory on current year-s ending retained earning balance? a. Understated by E7,777. b. Bo effect. c. %verstated by E7,777. d. Beed more information to determine.
8-8
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
1.
hen inventory is misstated, its presentation lac@s? a. (elevance. b. $aithful representation. c. /omparability. d. &ll of the choices are correct.
2.
hich of the following costs should not be included on the statement of financial position as part of the cost of inventory? a. &bnormal freight. b. Import duties. c. /onversion costs. d. &ll of the choices are included on the statement of financial position as part of the cost of inventory.
3.
Harvis, Inc. manufactures cruise ships for sale. Aach ship costs appro9imately E2,777,777 to build and ta@es 3 years to fully construct. During the time it ta@es to construct one cruise ship, Harvis incurs E2,477,777 in interest cost related to the construction. he interest cost is incurred evenly throughout the construction period. During the first year of construction, Harvis builds a shell that can be customi
4.
%ats /ompany offers a trade discount to its customers as a reward for large orders. &ccording to the International &ccounting )tandards 'oard 0I&)' how should the customers of %ats /ompany account for these trade discounts? a. &s an e9pense. b. &s a revenue. c. &s a reduction in the cost of inventory. d. he I&)' allows any of these treatments so long as the company applies it consistently.
.
argo, Inc. purchased goods from $airlane Industries. If argo-s accounts show a 8urchase Discount account related to this purchase, which of the following is true? a. argo considers purchase discounts lost as a financial e9pense. b. argo uses the gross method and a periodic inventory system. c. argo-s management can measure inefficiency by holding management responsible for discounts not ta@en. d. &ll of these are correct regarding argo, Inc.
=aluation of Inventories> & /ost'asis &pproach
)
8-4
".
/omputers $or Cou is a retailer speciali
.
hich of the following is a product cost as it relates to inventory? a. )elling costs. b. Interest costs. c. (aw materials. d. &bnormal spoilage.
5.
hich of the following is a period cost? a. #abor costs. b. $reight in. c. 8roduction costs. d. )elling costs.
6.
hich method may be used to record cash discounts a company receives for paying suppliers promptly? a. Bet method. b. +ross method. c. &verage method. d. 'oth the net method and the gross method.
"7.
hich of the following is included in inventory costs? a. 8roduct costs. b. 8eriod costs. c. 8roduct and period costs. d. Beither product or period costs.
"1.
hich of the following is correct? a. )elling costs are product costs. b. anufacturing overhead costs are product costs. c. Interest costs for routine inventories are product costs. d. &ll of these are correct.
"2.
/osts which are inventoriable include all of the following e1#e)t a. costs that are directly connected with the bringing of goods to the place of business of the buyer. b. costs that are directly connected with the converting of goods to a salable condition. c. buying costs of a purchasing department. d. selling costs of a sales department.
8 - 56
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
"3.
hich of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitali
"4.
he use of a Discounts #ost account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus the purchase discount lost. c. invoice price less the purchase discount ta@en. d. invoice price less the purchase discount allowable whether ta@en or not.
".
he use of a 8urchase Discounts account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus any purchase discount lost. c. invoice price less the purchase discount ta@en. d. invoice price less the purchase discount allowable whether ta@en or not.
Use the following information for *uestions "" and ". During 271, which was the first year of operations, %swald /ompany had merchandise purchases of E65,777 before cash discounts. &ll purchases were made on terms of 2J17, nJ37. hreefourths of the items purchased were paid for within 17 days of purchase. &ll of the goods available had been sold at year end. "".
hich of the following recording procedures would result in the highest cost of goods sold for 271? 1. (ecording purchases at gross amounts 2. (ecording purchases at net amounts, with the amount of discounts not ta@en shown under Kother income and e9penseK in the income statement a. 1 b. 2 c. Aither 1 or 2 will result in the same cost of goods sold. d. /annot be determined from the information provided.
".
hich of the following recording procedures would result in the highest net income for 271? 1. (ecording purchases at gross amounts 2. (ecording purchases at net amounts, with the amount of discounts not ta@en shown under Kother income and e9penseK in the income statement a. 1 b. 2 c. Aither 1 or 2 will result in the same net income. d. /annot be determined from the information provided.
=aluation of Inventories> & /ost'asis &pproach
8
8 - 55
"5.
hen using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold? a. rade discounts applicable to purchases during the period b. /ash 0purchase discounts ta@en during the period c. 8urchase returns and allowances of merchandise during the period d. /ost of transportationin for merchandise purchased during the period
"6.
hich inventory costing method most closely appro9imates current cost for ending inventory? a. &verage b. $I$% c. #I$% d. )pecific identification
7.
he pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation a. moving average. b. weightedaverage. c. specific identification. d. $I$%.
1.
&n inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is a. $I$%. b. #I$%. c. specific identification. d. weightedaverage.
2.
hich method of inventory pricing best appro9imates specific identification of the actual flow of costs and units in most manufacturing situations? a. &verage cost b. $irstin, firstout c. ovingaverage d. eightedaverage
3.
&ssuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the $I$% method e9ceeds cost of goods sold when inventory is valued using the average cost method? a. 8rices decreased. b. 8rices remained unchanged. c. 8rices increased. d. 8rice trend cannot be determined from information given.
4.
In a period of rising prices, the inventory method which tends to give the highest reported net income is a. movingaverage. b. firstin, firstout. c. specific identification. d. weightedaverage.
8 - 5'
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
.
In a period of rising prices, the inventory method which tends to give the highest reported inventory is a. $I$%. b. moving average. c. specific identification. d. weightedaverage.
".
anner /orporationFs inventory cost on its statement of financial position was lower using firstin, firstout than it would have been using average cost. &ssuming no beginning inventory, in what direction did the cost of purchases move during the period? a. Up b. Down c. )teady d. /annot be determined
.
In a period of declining prices, the inventory method which tends to give the highest reported cost of goods sold is a. specific identification. b. average cost. c. $I$%. d. Bone of these are correct.
5.
he ac*uisition cost of a certain raw material changes fre*uently. he boo@ value of the inventory of this material at year end will be the same if perpetual records are @ept as it would be under a periodic inventory method only if the boo@ value is computed under the a. weightedaverage method. b. moving average method. c. $I$% method. d. Bone of these are correct.
6.
hich of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? a. he potential for manipulation of net income is reduced. b. here is no arbitrary allocation of costs. c. he cost flow matches the physical flow. d. &ble to use on all types of inventory.
57.
In a period of falling prices which inventory method generally provides the lowest reported inventory? a. &verage cost. b. $I$%. c. oving average. d. )pecific identification.
51.
In a period of falling prices, which inventory method generally provides the lowest amount of net income? a. &verage cost. b. oving average. c. $I$%. d. )pecific identification.
=aluation of Inventories> & /ost'asis &pproach
8 - 5.
52.
he International &ccounting )tandards 'oard re*uires the specific identification method in certain circumstances. hich of the following is li@ely to be a circumstance where the specific identification criteria can be met? a. Unit price is low. b. Inventory turnover is low. c. Inventory *uantities are large. d. &ll of the choices are circumstances where the criteria are li@ely to be met.
53.
Gomes 4 Cou builds singlefamily homes throughout the United )tates and Aurope. he International &ccounting )tandards 'oard 0I&)' (e*uires Gomes 4 Cou to use which of the following cost flow assumptions for its inventory? a. $I$% 0firstin, firstout. b. )pecific identification. c. eightedaverage. d. he I&)' allows any of these cost flow assumptions as long as the company uses it consistently.
!54.
%ats and Goney /ompany produces healthy snac@s for sale throughout the United )tates and Aurope. he International &ccounting )tandards 'oard 0I&)' prohibits %ats and Goney from using which of the following cost flow assumptions for its inventory? a. #I$% 0lastin, firstout. b. )pecific identification. c. eightedaverage. d. he I&)' allows any of these cost flow assumptions as long as the company uses it consistently.
$*t")*e C7o"#e Ans+ers (Con#e)t$a* Ite
21. 22. 23. 24. 2. 2". 2. 25. 26. 37.
Ans,
c b b b c c b b a c
Ite
31. 32. 33. 34. 3. 3". 3. 35. 36. 47.
Ans,
a d b b c d b a d d
Ite
41. 42. 43. 44. 4. 4". 4. 45. 46. 7.
Ans,
a c b b d b a a d b
Ite
1. 2. 3. 4. . ". . 5. 6. "7.
Ans,
b a b c c c c d d a
Ite
"1. "2. "3. "4. ". "". ". "5. "6. 7.
Ans,
b d b d a a c a b b
Ite
1. 2. 3. 4. . ". . 5. 6. 57.
Ans,
Ite
Ans
a b a b a b c c c b
51. 52. 53. !54.
c b b a
)olutions to those ultiple /hoice *uestions for which the answer is :none of these answers is correct.; 36. +oods in transit which were purchased f.o.b. shipping point. 46. &ssets and liabilities were understated but e*uity was not affected.
8 - 5/
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
ULTIPLE CHOICE (Co)$tat"ona* 5.
organ anufacturing /ompany has the following account balances at year end> )upplies (aw materials or@inprocess $inished goods 8repaid insurance
E 4,777 2,777 6,777 2,777 ",777
hat amount should organ report as inventories in its statement of financial position? a. E2,777. b. E",777. c. E15,777. d. E1"2,777. 5".
#awson anufacturing /ompany has the following account balances at year end> )upplies (aw materials or@inprocess $inished goods 8repaid insurance
E 4,777 2,777 6,777 62,777 ",777
hat amount should #awson report as inventories in its statement of financial position? a. E62,777. b. E6",777. c. E15,777. d. E152,777. 5.
Al@ins /orporation uses the perpetual inventory method. %n arch 1, it purchased E17,777 of inventory, terms 2J17, nJ37. %n arch 3, Al@ins returned goods that cost E1,777. %n arch 6, Al@ins paid the supplier. %n arch 6, Al@ins should credit a. purchase discounts for E277. b. inventory for E277. c. purchase discounts for E157. d. inventory for E157.
55.
alone /orporation uses the perpetual inventory method. %n arch 1, it purchased E37,777 of inventory, terms 2J17, nJ37. %n arch 3, alone returned goods that cost E3,777. %n arch 6, alone paid the supplier. %n arch 6, alone should credit a. purchase discounts for E"77. b. inventory for E"77. c. purchase discounts for E47. d. inventory for E47.
=aluation of Inventories> & /ost'asis &pproach
8 - 50
56.
'ell Inc. too@ a physical inventory at the end of the year and determined that E"7,777 of goods were on hand. In addition, 'ell, Inc. determined that E7,777 of goods that were in transit that were shipped f.o.b. shipping were actually received two days after the inventory count and that the company had E,777 of goods out on consignment. hat amount should 'ell report as inventory at the end of the year? a. E"7,777. b. E77,777. c. E2,777. d. E,777.
67.
'ell Inc. too@ a physical inventory at the end of the year and determined that E4,777 of goods were on hand. In addition, the following items were not included in the physical count. 'ell, Inc. determined that E"7,777 of goods were in transit that were shipped f.o.b. destination 0goods were actually received by the company three days after the inventory count. %n the last day of the year, the company sold E2,777 worth of inventory f.o.b. destination. hat amount should 'ell report as inventory at the end of the year? a. E4,777. b. E3,777. c. E77,777. d. E"7,777.
61.
(isers Inc. reported total assets of E1,277,777 and net income of E13,777 for the current year. (isers determined that inventory was overstated by E17,777 at the beginning of the year 0this was not corrected. hat is the corrected amount for total assets and net income for the year? a. E1,277,777 and E13,777. b. E1,277,777 and E14,777. c. E1,167,777 and E12,777. d. E1,217,777 and E14,777.
62.
(isers Inc. reported total assets of E1,"77,777 and net income of E5,777 for the current year. (isers determined that inventory was understated by E23,777 at the beginning of the year and E17,777 at the end of the year. hat is the corrected amount for total assets and net income for the year? a. E1,"17,777 and E6,777. b. E1,67,777 and E65,777. c. E1,"17,777 and E2,777. d. E1,"77,777 and E5,777.
Use the following information for *uestions 63 through 6. Gudson, Inc. is a calendaryear corporation. Its financial statements for the years 271 and 2714 contained errors as follows> 271 2714 Anding inventory E3,777 overstated E5,777 overstated Depreciation e9pense E2,777 understated E",777 overstated
8 - 52
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
63.
&ssume that the proper correcting entries were made at December 31, 2714. 'y how much will 271 income before ta9es be overstated or understated? a. E1,777 understated b. E1,777 overstated c. E2,777 overstated d. E,777 overstated
64.
&ssume that no correcting entries were made at December 31, 2714. Ignoring income taxes, by how much will retained earnings at December 31, 271 be overstated or understated? a. E1,777 understated b. E,777 overstated c. E,777 understated d. E6,777 understated
6.
&ssume that no correcting entries were made at December 31, 2714, or December 31, 271 and that no additional errors occurred in 271". Ignoring income taxes, by how much will wor@ing capital at December 31, 271" be overstated or understated? a. E7 b. E2,777 overstated c. E2,777 understated d. E,777 understated
6".
he following information is available for Baab /ompany for 271> $reightin 8urchase returns )elling e9penses Anding inventory
E 37,777 ,777 17,777 2"7,777
he cost of goods sold is e*ual to 477L of selling e9penses. hat is the cost of goods available for sale? a. E"77,777. b. E567,777. c. E51,777. d. E5"7,777. Use the following information for *uestions 6 and 65. insor /o. records purchases at net amounts. %n ay insor purchased merchandise on account, E1",777, terms 2J17, nJ37. insor returned E1,277 of the ay purchase and received credit on account. &t ay 31 the balance had not been paid. 6.
he amount to be recorded as a purchase return is a. E1,757. b. E1,224. c. E1,277. d. E1,1".
=aluation of Inventories> & /ost'asis &pproach 65.
'y a. b. c. d.
8 - 53
how much should the account payable be adjusted on ay 31? E7. E344. E327. E26".
Use the following information for *uestions 66 and 177. he following information was available from the inventory records of (ich /ompany for Hanuary> 'alance at Hanuary 1 8urchases> Hanuary " Hanuary 2" )ales> Hanuary Hanuary 31 'alance at Hanuary 31
Units 3,777
Unit /ost E6.
2,777 2,77
17.37 17.1
otal /ost E26,317 27,"77 25,61
02,77 04,777 1,277
66.
&ssuming that (ich does not maintain perpetual inventory records, what should be the inventory at Hanuary 31, using the weightedaverage inventory method, rounded to the nearest dollar? a. E12,"7". b. E12,254. c. E12,312. d. E12,432.
177.
&ssuming that (ich maintains perpetual inventory records, what should be the inventory at Hanuary 31, using the movingaverage inventory method, rounded to the nearest dollar? a. E12,"7". b. E12,254. c. E12,312. d. E12,432.
Use the following information for *uestions 171 and 172. Biles /o. has the following data related to an item of inventory> Inventory, arch 1 177 units M E4.27 8urchase, arch 37 units M E4.47 8urchase, arch 1" 7 units M E4.7 Inventory, arch 31 137 units 171.
he value assigned to cost of goods sold if Biles uses $I$% is a. E6. b. E2. c. E1,23. d. E1,"6".
8 - 58
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
!172. he value assigned to ending inventory if Biles uses #I$% is a. E6. b. E2. c. E4". d. E5. 173.
Amley /ompany has been using the average cost method of inventory valuation for 17 years, since it began operations. Its 271 ending inventory was E47,777, but it would have been E"7,777 if $I$% had been used. hus, if $I$% had been used, AmleyFs income before income ta9es would have been a. E27,777 greater over the 17year period. b. E27,777 less over the 17year period. c. E27,777 greater in 271. d. E27,777 less in 271.
Use the following information for *uestions 174 and 17. ransactions for the month of Hune were> 8urchases Hune 1 0balance 577 M E3.27 3 2,277 M 3.17 1,277 M 3.37 1 1,577 M 3.47 22 77 M 3.7
Hune 2 " 6 17 15 2
)ales "77 M E.7 1,"77 M .7 1,777 M .7 477 M ".77 1,477 M ".77 277 M ".77
174.
&ssuming that perpetual inventory records are @ept in dollars, the ending inventory on a $I$% basis is a. E4,117. b. E4,1"7. c. E4,267. d. E4,47.
17.
&ssuming that perpetual inventory records are @ept in units only, the ending inventory on an averagecost basis, rounded to the nearest dollar, is a. E4,76". b. E4,235. c. E4,267. d. E4,322.
17".
ilford /ompany had 77 units of :an@; in its inventory at a cost of E4 each. It purchased, for E2,577, 377 more units of :an@;. ilford then sold 477 units at a selling price of E17 each, resulting in a gross profit of E1,"77. he cost flow assumption used by ilford a. is $I$%. b. is specific identification. c. is weighted average. d. cannot be determined from the information given.
=aluation of Inventories> & /ost'asis &pproach
8 - 54
17.
Bichols /ompany had 77 units of :Din@; in its inventory at a cost of E each. It purchased, for E2,477, 377 more units of :Din@;. Bichols then sold "77 units at a selling price of E17 each, resulting in a gross profit of E2,77. he cost flow assumption used by Ningman a. is $I$%. b. is #I$%. c. is weighted average. d. cannot be determined from the information given.
175.
Hune /orp. sells one product and uses a perpetual inventory system. he beginning inventory consisted of 17 units that cost E27 per unit. During the current month, the company purchased "7 units at E27 each. )ales during the month totaled 4 units for E43 each. hat is the number of units in the ending inventory? a. 17 units. b. 1 units. c. 2 units. d. 7 units.
176.
Hune /orp. sells one product and uses a perpetual inventory system. he beginning inventory consisted of 17 units that cost E27 per unit. During the current month, the company purchased "7 units at E27 each. )ales during the month totaled 4 units for E43 each. hat is the cost of goods sold using the $I$% method? a. E277. b. E677. c. E1,277. d. E1,63.
117.
/hec@ers uses the periodic inventory system. $or the current month, the beginning inventory consisted of 1,277 units that cost E12 each. During the month, the company made two purchases> 77 units at E13 each and 2,777 units at E13.7 each. /hec@ers also sold 2,17 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month? a. E2,543. b. E25,67. c. E2",6. d. E2,67.
111.
/hess op uses the periodic inventory system. $or the inventory consisted of 277 units that cost E" each. During two purchases> 377 units at E"5 each and 17 units at E7 units during the month. Using the average cost method, inventory? a. E17,77. b. E33,7. c. E33,477. d. E17,131.
current month, the beginning the month, the company made each. /hess op also sold 77 what is the amount of ending
8 - '6
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
112.
/hec@ers uses the periodic inventory system. $or the current month, the beginning inventory consisted of 1,277 units that cost E12 each. During the month, the company made two purchases> 77 units at E13 each and 2,777 units at E13.7 each. /hec@ers also sold 2,17 units during the month. Using the $I$% method, what is the ending inventory? a. E27,73. b. E15,"77. c. E27,62. d. E15,67.
113.
/hess op uses the periodic inventory system. $or the current month, the beginning inventory consisted of 277 units that cost E" each. During the month, the company made two purchases> 377 units at E"5 each and 17 units at E7 each. /hess op also sold 77 units during the month. Using the $I$% method, what is the amount of cost of goods sold for the month? a. E33,7. b. E32,77. c. E34,17. d. E33,477.
!114. /hec@ers uses the periodic inventory system. $or the current month, the beginning inventory consisted of 1,277 units that cost E12 each. During the month, the company made two purchases> 77 units at E13 each and 2,777 units at E13.7 each. /hec@ers also sold 2,17 units during the month. Using the #I$% method, what is the ending inventory? a. E27,73. b. E15,"77. c. E27,62. d. E15,67. Use the following information for *uestions 11 and 11". ransactions for the month of Hune were> 8urchases Hune 1 0balance 577 M E3.27 3 2,277 M 3.17 1,277 M 3.37 1 1,577 M 3.47 22 77 M 3.7
Hune 2 " 6 17 15 2
)ales "77 M E.7 1,"77 M .7 1,777 M .7 477 M ".77 1,477 M ".77 277 M ".77
!11. &ssuming that perpetual inventory records are @ept in units only, the ending inventory on a #I$% basis is a. E4,117. b. E4,1"7. c. E4,267. d. E4,47.
=aluation of Inventories> & /ost'asis &pproach
8 - '5
!11". &ssuming that perpetual inventory records are @ept in dollars, the ending inventory on a #I$% basis is a. E4,117. b. E4,1"7. c. E4,267. d. E4,47. !11. /hess op uses the periodic inventory system. $or the current month, the beginning inventory consisted of 277 units that cost E" each. During the month, the company made two purchases> 377 units at E"5 each and 17 units at E7 each. /hess op also sold 77 units during the month. Using the #I$% method, what is the amount of cost of goods sold for the month? a. E33,7. b. E32,77. c. E34,17. d. E33,477.
$*t")*e C7o"#e Ans+ers( Co)$tat"ona* Ite
Ans,
Ite
Ans,
Ite
Ans
Ite
Ans
Ite
Ans,
Ite
Ans,
Ite
Ans,
5. 5".
c c
67. 61.
c b
6. 6".
a d
177. 171.
d d
17. 17".
b c
117. 111.
a d
!11. !11".
a c
5.
d
62.
c
6.
d
!172.
b
17.
a
112.
c
!11.
c
55.
d
63.
d
65.
d
173.
c
175.
c
d
56.
d
64.
a
66.
b
174.
d
176.
b
113. !114
ULTIPLE CHOICE (CPA A!a)te! 115.
Gow should the following costs affect a retailerFs inventory valuation? a. b. c. d.
116.
$reightin Increase Increase Bo effect Bo effect
Interest on Inventory #oan Bo effect Increase Increase Bo effect
he following information applied to Gowe, Inc. for 271> erchandise purchased for resale E377,777 $reightin 5,777 $reightout ,777 8urchase returns 2,777 GoweFs 271 inventoriable cost was a. E377,777. b. E373,777. c. E37",777. d. E311,777.
d
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
8 - ''
127.
he following information was derived from the 271 accounting records of 8ere< /o.> 8ere< Fs +oods 8ere< Fs /entral arehouse Geld by /onsignees 'eginning inventory E137,777 E 14,777 8urchases ,777 7,777 $reightin 17,777 ransportation to consignees ,777 $reightout 37,777 5,777 Anding inventory 14,777 27,777 8ere
121.
Dole /orp.Fs accounts payable at December 31, 271, totaled E577,777 before any necessary yearend adjustments relating to the following transactions> •
•
•
%n December 2, 271, Dole wrote and recorded chec@s to creditors totaling E37,777 causing an overdraft of E177,777 in DoleFs ban@ account at December 31, 271. he chec@s were mailed out on Hanuary 17, 271". %n December 25, 271, Dole purchased and received goods for E17,777, terms 2J17, nJ37. Dole records purchases and accounts payable at net amounts. he invoice was recorded and paid Hanuary 3, 271". +oods shipped f.o.b. destination on December 27, 271 from a vendor to Dole were received Hanuary 2, 271". he invoice cost was E",777.
&t December 31, 271, what amount should Dole report as total accounts pa yable? a. E1,3"2,777. b. E1,26,777. c. E1,77,777. d. E67,777. 122.
he balance in oon /o.Fs accounts payable account at December 31, 271 was E77,777 before any necessary yearend adjustments relating to the following> •
•
•
+oods were in transit to oon from a vendor on December 31, 271. he invoice cost was E47,777. he goods were shipped f.o.b. shipping point on December 26, 271 and were received on Hanuary 4, 271". +oods shipped f.o.b. destination on December 21, 271 from a vendor to oon were received on Hanuary ", 271". he invoice cost was E2,777. %n December 2, 271, oon wrote and recorded chec@s to creditors totaling E37,777 that were mailed on Hanuary 17, 271".
In oonFs December 31, 271 statement of financial position, the accounts payable should be a. E37,777. b. E47,777. c. E",777. d. E7,777.
=aluation of Inventories> & /ost'asis &pproach 123.
8 - '.
Nerr /o.Fs accounts payable balance at December 31, 271 was E1,77,777 before considering the following transactions> •
•
+oods were in transit from a vendor to Nerr on December 31, 271. he invoice price was E7,777, and the goods were shipped f.o.b. shipping point on December 26, 271. he goods were received on Hanuary 4, 271". +oods shipped to Nerr, f.o.b. shipping point on December 27, 271, from a vendor were lost in transit. he invoice price was E7,777. %n Hanuary , 271", Nerr filed a E7,777 claim against the common carrier.
In its December 31, 271 statement of financial position, Nerr should report accounts payable of a. E1,"27,777. b. E1,7,777. c. E1,7,777. d. E1,77,777. 124.
alsh (etailers purchased merchandise with a list price of E7,777, subject to trade discounts of 27L and 17L, with no cash discounts allowable. alsh should record the cost of this merchandise as a. E3,777. b. E3",777. c. E36,777. d. E7,777.
12.
%n Hune 1, 271, 8enny /orp. sold merchandise with a list price of E27,777 to #inn on account. 8enny allowed trade discounts of 37L and 27L. /redit terms were 2J1, nJ47 and the sale was made f.o.b. shipping point. 8enny prepaid E477 of delivery costs for #inn as an accommodation. %n Hune 12, 271, 8enny received from #inn a remittance in full payment amounting to a. E17,6". b. E11,3"5. c. E11,3". d. E11,16".
12".
+roh /o. recorded the following data pertaining to raw material O during Hanuary 271> Units Date (eceived /ost Issued %n Gand 1J1J1 Inventory E5.77 3,277 1J11J1 Issue 1,"77 1,"77 1J22J1 8urchase 4,777 E6.47 ,"77 he movingaverage unit cost of O inventory at Hanuary 31, 271 is a. E5.7. b. E5.5. c. E6.77. d. E6.47.
8 - '/
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
12.
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods? $I$% &verage a. Ces Bo b. Ces Ces c. Bo Ces d. Bo Bo
125.
Gite /o. was formed on Hanuary 2, 271, to sell a single product. %ver a twoyear period, GiteFs ac*uisition costs have increased steadily. 8hysical *uantities held in inventory were e*ual to three monthsF sales at December 31, 271, and
126.
Nec@ /o. had 47 units of product & on hand at Hanuary 1, 271, costing E42 each. 8urchases of product & during Hanuary were as follows> Date Units Unit /ost Han. 17 "77 E44 15 7 4" 25 377 45 & physical count on Hanuary 31, 271 shows "77 units of product & on hand. he cost of the inventory at Hanuary 31, 271 under the $I$% method is a. E2,77. b. E2",77. c. E25,277. d. E24,"77.
$*t")*e C7o"#e Ans+ers( CPA A!a)te! Ite
Ans,
Ite
Ans,
Ite
Ans,
Ite
Ans,
Ite
Ans,
Ite
Ans,
115. 116.
a c
127. 121.
c b
122. 123.
d a
124. 12.
b c
12". 12.
c a
125. 126.
c c
=aluation of Inventories> & /ost'asis &pproach
8 - '0
ERIVATIONS ( Co)$tat"ona* No,
Ans+er
er"9at"on
5.
c
E2,777 P E6,777 P E2,777 Q E15,777.
5".
c
E2,777 P E6,777 P E62,777 Q E15,777.
5.
d
R0E17,777 S E1,777 T .72 Q E157.
55.
d
R0E37,777 S E3,777 T .72 Q E47.
56.
d
E"7,777 P E7,777 P E,777 Q E,777.
67.
c
E4,777 P E2,777 Q E77,777.
61.
b
E1,277,777 and 0E13,777 P E17,777 Q E14,777.
62.
c
0E1,"77,777 P E17,777 and 0E5,777 S E23,777 P E17,777 Q E2,777.
63.
d
E3,777 P E2,777 Q E,777.
64.
a
E",777 S 0E3,777 P E2,777 Q E1,777.
6.
a
he effect of the errors in ending inventories reverse themselves in the following year.
6".
d
E2"7,777 P 04 T E17,777 Q E5"7,777.
6.
d
E1,277 S 0E1,277 T .72 Q E1,1".
65.
d
0E1",777 S E1,277 T .72 Q E26".
66.
b
0E26,317 P E27,"77 P E25,61 V 03,777 P 2,777 P 2,77 Q E17.23Junit E17.23 T 1,277 Q E12,254.
177.
d
&vg. on 1J" E46,617 V ,777 Q E6.652Junit 1J2" E3,52 V ,277 Q E17.3"Junit E17.3" T 1,277 Q E12,432.
171.
d
177 P 37 P 7 S 137 Q 367 units 0177 T E4.27 P 0267 T E4.47 Q E1,"6".
!172.
b
0177 T E4.27 P 037 T E4.47 Q E2.
173.
c
0E"7,777 S E47,777 Q E27,777.
174.
d
077 T E3. P 0577 T E3.4 Q E4,47.
8 - '2
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
No,
Ans+er
17.
b
E21,217 V ",77 units Q E3.2" E3.2" T 1,377 Q E4,235.
17".
c
0477 T E17 S E1,"77 Q E2,477 /%+) R077 T E4 P E2,577 S E2,477 Q E2,477 A.I. 0E4,577 V 577 T 477 units Q E2,477 A.I. under weighted avg.
17.
a
0"77 T E17 S E2,77 Q E3,377 /%+) R077 T E P E2,477 S E3,377 Q E1,"77 A.I. 277 T E5 Q E1,"77 A.I. under $I$%.
175.
c
17 P "7 S 4 Q 2 units.
176.
b
4 T E27Junit Q E677.
117.
a
R01,277 T E12 P 077 T E13 P 02,777 T E13.7 ÷ 01,277 P 77 P 2,777 Q E12.6 E12.6 T 2,17 Q E2,543.
111.
d
R0277 T E" P 0377 T E"5 P 017 T E7 ÷ 0277 P 377 P 17 Q E".4 E".4 T 0"7 S 77 Q E17,131.
112.
c
01,277 P 77 P 2,777 S 2,17 Q 1,7 1,7 T E13.7 Q E27,62.
113.
d
0277 T E" P R077 S 277 T E"5 Q E33,477.
!114.
d
01,277 P 77 P 2,777 S 2,17 Q 1,7 01,277 T E12 P R01,7 S 1,277 T E13 Q E15,67.
! 11.
a
&vailable 0purchases Q ",77 units )ales Q ,277 units AI Q ",77 S ,277 Q 1,377 units 0577 T E3.27 P 077 T E3.17 Q E4,117.
!11".
c
0277 T E3.2 P 0477 T E3.1 P 0477 T E3.4 P 0377 T E3. Q E4,267.
Date "J1 "J2 "J3
er"9at"on
8urchase 0577 M 3.2 2,"7 02,277 M 3.1
01,277 M 3.3
0"77 M 3.2
1,627
01,"77 M 3.1
4,6"7
",527
"J" "J
)old
3,6"7
"J6
01,777 M 3.3
"J17
0277 M 3.3 0277 M 3.1
3,377
1,257
'alance 0577 M 3.2 0277 M 3.2 0277 M 3.2 02,277 M 3.1 0277 M 3.2 0"77 M 3.1 0277 M 3.2 0"77 M 3.1 01,277 M 3.3 0277 M 3.2 0"77 M 3.1 0277 M 3.3 0277 M 3.2 0477 M 3.1
2,"7 "47 ,4"7 2,77
",4"7
3,1"7 1,557
=aluation of Inventories> & /ost'asis &pproach
No, "J1
Ans+er 01,577 M 3.4
er"9at"on ",127
"J15
"J22 "J2
!11.
01,477 M 3.4 4,"7
077 M 3.
1,7 0277 M 3.
c
77
0277 M 3.2 0477 M 3.1 01,577 M 3.4 0277 M 3.2 0477 M 3.1 0477 M 3.4 077 M 3. 0277 M 3.2 0477 M 3.1 0477 M 3.4 0377 M 3.
017 T E7 P 0377 T E"5 P 07 T E" Q E34,17.
ERIVATIONS ( CPA A!a)te! No,
Ans+er
er"9at"on
115.
a
/onceptual.
116.
c
E377,777 P E5,777 S E2,777 Q E37",777.
127.
c
E137,777 P E14,777 P E,777 P E7,777 P E17,777 S E14,777 S E27,777 Q E"34,777.
121.
b
E577,777 P E37,777 P E14,777 Q E1,26,777.
122.
d
E77,777 P E47,777 P E37,777 Q E7,777.
123.
a
E1,77,777 P E7,777 P E7,777 Q E1,"27,777.
124.
b
E7,777 T .5 T .6 Q E3",777.
12.
c
E27,777 T . T .5 Q E11,277 0E11,277 T .65 P 477 Q E11,3".
12".
c
R01,"77 T E5.77 P 04,777 T E6.47 V ,"77 Q E6.77.
12.
a
/onceptual.
125.
c
/onceptual.
126.
c
0377 T E45 P 0377 T E4" Q E25,277.
5,777 3,247 4,667
4,267
8 - '3
8 - '8
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
EERCISES E1, 8-5.6W(ecording purchases at net amounts.
$lint /o. records purchase discounts lost and uses perpetual inventories. 8repare journal entries in general journal form for the following> 0a 8urchased merchandise costing E677 with terms 2J17, nJ37. 0b 8ayment was made thirty days after the purchase.
So*$t"on 8-5.6
0a Inventory 0.65 T E677............................................................... &ccounts 8ayable..........................................................
552
0b &ccounts 8ayable...................................................................... 8urchase Discounts #ost........................................................... /ash..............................................................................
552 15
552
677
E1, 8-5.5W(ecording purchases at net amounts.
Dill /o. records purchases at net amounts and uses periodic inventories. 8repare entries for the following> Hune 11 8urchased merchandise on account, E,777, terms 2J17, nJ37. 1 (eturned part of Hune 11 purchase, E577, and received credit on account. 37 8repared the adjusting entry re*uired for financial statements.
So*$t"on 8-5.5
Hune 11 8urchases 0.65 T E,777............................................... &ccounts 8ayable............................................... 1 &ccounts 8ayable 0.65 T E577...................................... 8urchase (eturns and &llowances..................... 37 8urchase Discounts #ost 0.72 T E4,277........................ &ccounts 8ayable...............................................
4,677 4,677 54 54 54 54
E1, 8-5.'W/omparison of $I$% and &verage /ost.
During periods of rising prices, the use of $I$% 0as compared with average cost will result in what effect on the financial statements?
So*$t"on 8-5.'
During periods of rising prices, the use of $I$% will result in higher inventory, lower cost of goods sold, and higher gross profit, net income, income ta9es, and retained earnings.
=aluation of Inventories> & /ost'asis &pproach
8 - '4
E1, 8-5..W$I$% and &verage /ost inventory methods.
During Hune, the following changes in inventory item 2 too@ place> Hune 1 14 24 5 17 26
'alance 8urchased 8urchased )old )old )old
1,477 units M E24 677 units M E3" 77 units M E37 477 units M E7 1,777 units M E47 77 units M E44
8erpetual inventories are maintained in units only. Instr$#t"ons hat is the cost of the ending inventory for item 2 under the following methods? 0)how calculations.
0a $I$%. 0b &verage /ost.
So*$t"on 8-5..
0a 77 M E37 Q 477 M E3" Q
E21,777 14,477 E3,477
0b 1,477 M E24 Q E33,"77 677 M E3" Q 32,477 77 M E37 Q 21,777 3,777 E5,777 &veragecostJunit> E5,777 Q E26JUnit 3,777 1,177 T E26 Q E31,677
E1, 8-5./W$I$% and &verage /ost periodic inventory methods.
he (oc@ )hop shows the following data related to an item of inventory> Inventory, Hanuary 1 177 units M E.77 8urchase, Hanuary 6 377 units M E.47 8urchase, Hanuary 16 177 units M E".77 Inventory, Hanuary 31 17 units
Instr$#t"ons 0a hat value should be assigned to the ending inventory using $I$%?
0b hat value should be assigned to cost of goods sold using &verage /ost?
8 - .6
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
So*$t"on 8-5./
0a 177 M E".77 Q 7 M E.47 Q
E"77 27 E57
0b 177 M E.77 Q E 77 377 M E.47 Q 1,"27 177 M E".77 Q "77 77 E2,27 &verage costJunit> E2,27 V 77 Q E.44 /ost of goods sold> 077 X 17 T E.44 Q E1,674 E1, 8-5.0W$I$% and &verage /ost itchell /ompany-s record of transactions for the month of Hune was as follows.
8urchases Hune 1 0balance on hand 4 5 13 21 26
"77 M E3.77 1,77 M 3.74 577 M 3.27 1,277 M 3.2 77 M 3.37 77 M 3.13 ,377
Hune 3 6 11 23 2
)ales 77 M E.77 1,377 M "77 M 1,277 M 677 M 4,77
.77 .7 .7 ".77
Instr$#t"ons 0a &ssuming that periodic inventory records are @ept, compute the inventory at Hune 37 using 01 $I$% and 02 average cost. 0b &ssuming that perpetual inventory records are @ept in both units and dollars, determine the inventory at Hune 37 using 01 $I$% and 02 average cost. So*$t"on 8-5.0
0a
1.
$I
%$77 M 3.13 Q E1," 377 M 3.37 Q 667 E2,
2.
&verage /ost otal cost otal units
Q
577 M 3.1
Q
!Units "77 1,77 577 1,277 77 77 ,377
M M M M M M
E1","6! Q E3.1 average cost per unit ,377 E2,27 8rice E3.77 E3.74 E3.27 E3.2 E3.37 E3.13
Q Q Q Q Q Q
otal /ost E1,577 4,"7 2,"7 3,677 2,317 1," E1","6
=aluation of Inventories> & /ost'asis &pproach
8 - .5
So*$t"on 8-5.0 ;Cont"n$e!<
0b
1.
$I
%$77 M 3.13 Q E1," 377 M 3.37 Q 667 E2,
2.
&verage /ost 8urchase Bo. of Unit units cost
)old Bo. of Unit units cost
Date Hune 1 3 4 1,77 E3.74 5 577 3.27 6 11 13 1,277 3.2 21 77 3.37 23 2 26 77 3.13
77 E3.777
1,377 "77
3.761 3.761
1,277 677
3.231 3.231
'alance Bo. of units "77 177 1,"77 2,477 1,177 77 1,77 2,477 1,277 377 577
Unit cost E3.7777 3.7777 3.73 3.761 3.761 3.761 3.273 3.231 3.231 3.231 3.1"
&mount E1,577 377 4,5"7 ,427 3,471 1,4" ,44" ," 3,55 6"6 2,34
Inventory Hune 37 is E2,34 E1, 8-5.2W$I$% and #I$%S8eriodic Hosh 'ec@ett shop began operations on Hanuary 2, 271. he following stoc@ record card for baseballs was ta@en from the records at the end of the year.
Date 1J1 3J1 "J27 6J12 11J24
erms Bet 37 1J, net 37 1J17, net 37 1J17, net 37 1J17, net 37 otals
Units (eceived 7 " 67 54 " 3"
Unit Invoice /ost 1" 13 12 17 6
+ross Invoice &mount E 577 54 1,757 547 "54 E4,246
& physical inventory on December 31, 271, reveals that 117 baseballs were in stoc@. he boo@@eeper informs you that all the discounts were ta@en. &ssume that Hosh 'ec@ett )hop uses the invoice price less discount for recording purchases. Instr$#t"ons 0a /ompute the December 31, 271, inventory using the $I$% method. !0b /ompute the 271 cost of goods sold using the #I$% method.
8 - .'
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
So*$t"on 8-5.2
0a
$I$% Anding Inventory 12J31J1 " M E5.61! Q E ".1" 34 M E6.67! Q 33"."7 E1,713." !E 6.77 S R.71 0E 6.77 !!E17.77 S R.71 0E17.77
!0b #I$% /ost of +oods )oldS271 " M E 5.61 Q E ".1" 54 M E 6.67 Q 531."7 67 M E11.55! 1,7"6.27 M E12.5!! "4.3 E2,"42.31 !E12.77 S R.71 0E12 !!E13.77 S R.71 0E13
E1, 8-5.3W8eriodic $I$% and 8erpetual #I
%$atloc@ /orporation sells item & as part of its product line. Information as to balances on hand, purchases, and sales of item & are given in the following table for the first si9 months of 271. Date Hanuary 11 Hanuary 24 $ebruary 5 arch 1" Hune 11
Yuantities
8urchased W 1,377 W W "77
)old W W 377 "7 W
'alance 477 1,77 1,477 547 1,447
Unit 8rice of 8urchase E2.7 E2."7 W W E2.
Instr$#t"ons
0a /ompute the cost of goods sold for the first si9 months under the periodic $I$% inventory pricing method. !0b /ompute the ending inventory at Hune 37 under the perpetual #I$% inventory pricing method.
So*$t"on 8-5.3
0a
477 M E2.7 Q 4"7 M E2."7 Q 5"7
E1,777 1,16" E2,16"
!0b
477 M E2.7 Q 447 M E2."7 Q "77 M E2. Q 1,447
E1,777 1,144 1,"7 E3,64
=aluation of Inventories> & /ost'asis &pproach
8 - ..
=E1, 8-5.8W8erpetual #I$%.
& record of transactions for the month of ay was as follows> 8urchases ay 1 0balance 477 M E4.27 ay 3 4 1,377 M E4.17 " 5 577 M E4.37 12 14 77 M E4.47 15 22 1,277 M E4.7 2 26 77 M E4.
)ales 377 1,777 677 477 1,477
M E.77 M .77 M .7 M .7 M 5.77
&ssuming that perpetual inventory records are @ept in dollars, determine the ending inventory using #I$%.
=So*$t"on 8-5.8
177 M E4.27 Q 277 M E4.17 Q 177 M E4.47 Q 77 M E4. Q
E 427 527 447 2,2 E3,6
8 - ./
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
PROBLES Pr, 8-5.4WInventory cutoff.
=ogts /ompany sells =s. he perpetual inventory was stated as E25,77 on the boo@s at December 31, 271. &t the close of the year, a new approach for compiling inventory was used and apparently a satisfactory cutoff for preparation of financial statements was not made. )ome events that occurred are as follows. 1. =s shipped to a customer Hanuary 2, 271", costing E,777 were included in inventory at December 31, 271. he sale was recorded in 271". 2. =s costing E12,777 received December 37, 271, were recorded as received on Hanuary 2, 271". 3. =s received during 271 costing E4,"77 were recorded twice in the inventory account. 4. =s shipped to a customer December 25, 271, f.o.b. shipping point, which cost E17,777, were not received by the customer until Hanuary, 271". he =s were included in the ending inventory. . =s on hand that cost E",177 were never recorded on the boo@s. Instr$#t"ons /ompute the correct inventory at December 31, 271.
So*$t"on 8-5.4
Inventory per boo@s &dd> )hipment received 12J37J1 =s on hand
Deduct>
=s recorded twice =s shipped 12J25J1 /orrect inventory 12J31J1
E25,77 E12,777 ",177
4,"77 17,777
15,177 4","77
14,"77 E32,777
=aluation of Inventories> & /ost'asis &pproach
8 - .0
Pr, 8-5/6W&nalysis of errors.
0&ll sales and purchases are on credit. Indicate in each of the spaces provided the effect of the described errors on the various elements of a companyFs financial statements. Use the following codes> % Q amount is overstated U Q amount is understated BA Q no effect. &ssume a periodic inventory system. &ccounts (eceivable AO&8#A> A9cluded goods in rented warehouse from inventory count.
BA
&ccounts Inventory 8ayable )ales U
BA
BA
/ost of +oods )old %
ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 1. +oods in transit shipped Kf.o.b. destinationK by supplier were recorded as a purchase but were e9cluded from ending inventory. ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 2. +oods held on consignment were included in inventory count and recorded as a purchase. ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 3. +oods in transit shipped Kf.o.b. shipping pointK were not recorded as a sale and were included in ending inventory. ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 4. +oods were shipped and appro priately e9cluded from ending inventory but sale was not recorded. ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ
So*$t"on 8-5/6
1. 2. 3. 4.
BA BA U U
BA % % BA
% % BA BA
BA BA U U
% BA U BA
8 - .2
Test Bank for Intere!"ate A##o$nt"n%: IFRS E!"t"on& 'e
Pr, 8-5/5W&ccounting for purchase discounts.
%tto /orp. purchased merchandise during 271 on credit for E377,777 terms 2J17, nJ37. &ll of the gross liability e9cept E"7,777 was paid within the discount period. he remainder was paid within the 37day term. &t the end of the annual accounting period, December 31, 271, 67L of the merchandise had been sold and 17L remained in inventory. he company uses a periodic system. Instr$#t"ons 0a &ssuming that the net method is used for recording purchases, prepare the entries for the purchase and two subse*uent payments.
0b hat dollar amounts should be reported for the final inventory and cost of goods sold under the 01 net method 02 gross method? &ssume that there was no beginning inventory.
So*$t"on 8-5/5
0a 8urchases............................................................................................. 264,777 &ccounts 8ayable...................................................................... 0o record the purchase at net amount> .65 T E377,777 Q E264,777. &ccounts 8ayable................................................................................. 23,277 /ash.......................................................................................... 0o record payment within the discount period> E377,777 S E"7,777 Q E247,777 .65 T E247,777 Q E23,277. &ccounts 8ayable................................................................................. 8urchase Discounts #ost....................................................................... /ash.......................................................................................... 0o record the final payment. 0b 01 Bet method> 8urchases> $inal inventory> 17L T E264,777 Q /ost of goods sold> 67L T E264,777 Q
264,777
23,277
5,577 1,277 "7,777
E264,777 S 26,477 E2"4,"77
0he E1,277 discount lost is reported in the other e9pense section of the income statement. 02 +ross method> 8urchases> #ess purchase discounts> .72 T E247,777 Q +oods available $inal inventory> 17L T E26,277 Q /ost of goods sold> 67L T E26,277 Q
E377,777 4,577 26,277 S 26,27 E2","57
0&ssuming that the E4,577 discount is prorated between the cost of goods sold, 67L, and the final inventory, 17L.
%(
8urchases> #ess purchase discounts> .72 T E247,777 Q +oods available $inal inventory> 17L T E377,777 Q /ost of goods sold> E26,277 S E37,777 Q
E377,777 4,577 26,277 S 37,777 E2",277
0&ssuming that the E4,577 discount is used to reduce cost of goods sold. $inal inventory is carried at the gross amount.
=aluation of Inventories> & /ost'asis &pproach
8 - .3
Pr, 8-5/'WInventory methods.
Hones /ompany was formed on December 1, 2714. he following information is available from HonesFs inventory record for 8roduct O. Units Unit /ost Hanuary 1, 271 0beginning inventory 1,"77 E15.77 8urchases> Hanuary , 271 2,"77 E27.77 Hanuary 2, 271 2,477 E21.77 $ebruary 1", 271 1,777 E22.77 arch 1, 271 1,577 E23.77 & physical inventory on arch 31, 271, shows 2,77 units on hand. Instr$#t"ons 8repare schedules assuming the periodic method to compute the ending inventory at arch 31, 271, under each of the following inventory methods> 0a $I$%. 0b eightedaverage. !0c #I$%. )how supporting computations in good form.
So*$t"on 8-5/'
0a
Hones /ompany /%8U&I%B %$ IB=AB%(C $%( 8(%DU/ O UBDA( $I$% IB=AB%(C AG%D arch 31, 271
arch 1, 271 $ebruary 1", 271 arch 31, 271, inventory
0b
Units 1,577 77 2,77
Unit /ost E23.77 22.77
otal /ost E41,477 1,477 E",577
Hones /ompany /%8U&I%B %$ IB=AB%(C $%( 8(%DU/ O UBDA( AI+GAD&=A(&+A IB=AB%(C AG%D arch 31, 271 'eginning inventory Hanuary , 271 Hanuary 2, 271 $ebruary 1", 271 arch 1, 271
Units 1,"77 2,"77 2,477 1,777 1,577 6,477
eighted average cost 0E164,"77 V 6,477 arch 31, 271, inventory
Unit /ost E15.77 27.77 21.77 22.77 23.77
otal /ost E 25,577 2,777 7,477 22,777 41,477 E164,"77
E27.7 2,77
E27.7
E1,7
