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WorksheetsINVENTORIES
Total questions: 19
Worksheet time: 10mins
Net realizable value of inventories may fall below cost for a number of reasons including:
i. Product obsolescence
ii. Physical deterioration of inventories
iii. An increase in the expected replacement costs of the inventory
iv. An increase in the estimated costs of completion and costs to sell
I, II and IV only
I, III and IV only
II, III and IV only
I and II only
Which of the following represents the best justification for valuing the inventories at the lower of cost and net realizable value?
It is easier to keep track of market value than it is to keep track of cost as market value is available from available from any suppliers
Cost loses its relevance for the determination of cost of goods sold if the cost of inventory has been incurred in an earlier accounting period.
The practice of writing inventories below cost to net realizable value is consistent with the view that assets should not be carried in excess of amount expected to be realized from their sale or use
The balance sheet valuation of inventory is the most important consideration in the preparation of financial statements.
The amount of any write-down of inventory to net realizable value and losses of inventory shall be
Recognized as operating expense in the period the write-down or loss occurs.
Recognized as other operating expense in the period the write-down or loss occurs.
Recognized as component of cost of sales in the period the write down or loss occurs.
Deferred until the related inventory is sold.
Inventories are usually written down to net realizable value
by classification
by total
by segment
item by item
When using a perpetual inventory system
no Purchase account is used
wo entries are required to record a sale
a Cost of goods sold account is used
all of these
When using a periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold?
Trade discounts applicable to purchases during the period.
Cash discounts taken during the period
Purchase returns and allowances of merchandise during the period.
Cost of transportation in for merchandise purchases during the period.
A company using periodic inventory system neglected to record a purchase of merchandise on account at year- end. This merchandise was omitted from year-end physical count. How will these errors affect inventory at year-end and cost of goods sold for the year.
no effect; understate
no effect; overstate
understate; understate
understate; no effect
The cost of inventories that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be measured using
FIFO
Average method
LIFO
specific identification
When using the moving average method of inventory valuation, a new unit cost must be computed after each
purchase
purchase and issuance from inventory
issuance from inventory
month-end
During period of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system would
not be permitted
result in the same ending inventory as a periodic inventory system
result in a higher ending inventory than a periodic inventory system
result in a lower ending inventory than a periodic inventory system
In a period of falling prices, the use of which of the following inventory cost flow methods would result in the highest cost of goods sold?
FIFO
Average method
LIFO
Moving average
The FIFO inventory cost flow method may be applied to which of the following inventory systems?
Periodic inventory system
either periodic or perpetual
Perpetual inventory system
neither periodic or perpetual
To determine an inventory valuation that using the retail method under the average method, the computation of the cost to retail percentage should
Include markups but not markdowns
include markdowns but not markups
Include markups and markdowns
exclude markups and markdowns
Which statement is accurate about calculating the cost ratio to be used with the average retail inventory method?
The beginning inventory is excluded and markdowns are not deducted.
The beginning inventory is included and markdowns are not deducted.
The beginning inventory is included and markdowns are deducted.
The beginning inventory is excluded and markdowns are deducted.
The retail method has been used by a retail department store during its first year of operations. As of the end of the year, compare the markdowns with markdown cancellations:
Markdown will be greater than or equal to markdown cancellation
Markdown will be equal to markdown cancellation
Markdown will be less than or equal to markdown cancellation
Markdown cannot be equal to markdown cancellation
The retail inventory method would include which of the following in the calculation of the goods available for sale at both cost and retail
Purchase returns
Sales returns
Purchase discounts
Markdowns and markup
Which of the following is not a basic assumption of the gross profit method?
The beginning inventory plus the purchases equal the total goods available for sale
Goods not sold must be on hand
If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand
The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
Which of the following is not a basic assumption of the gross profit method?
The beginning inventory plus the purchases equal the total goods available for sale
Goods not sold must be on hand
If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand.
The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
The use of gross profit method assumes
The amount of gross profit is the same as in prior years.
Sales and cost of goods sold have not changed from previous years.
Inventory values have not increased from previous years.
The relationship between selling price and cost of goods sold is similar to prior years.
