Deck 19: Inventories

Question 1

Arizona sells toys.At the beginning of April 100 trains 168H were on hand for which the firm had paid $10 each.Purchases and sales for the month were: $\begin{array}{rll}\text { Date }&\text {Purchases}&\text { Unit Cost }&\text {Sales }\\&\text { units }&\text { units }\\\text { Apri1 3 } & 120 & \$ 11 \\10 & 150 & \$ 12 \\29 &&&180\end{array}$ If Arizona uses a periodic system with a LIFO cost flow assumption April's cost of sales for the 168H trains is:

A)$2130
B)$2160
C)$2020
D)$1880

Answer 1

$2130

Question 2

This is an extract from an income statement: $\begin{array}{lr}&\$\\\text { Beginning inventory } & 10000 \\\text { Gross sales } & 32000 \\\text { Freight-in } & 2000 \\\text { Sales reburns } & 2000 \\\text { Ending inventory } & 12200 \\\text { Purchases } & 18200\end{array}$ The cost of sales is:

A)$14 000
B)$12 200
C)$18 000
D)$17 000

Answer 2

$18 000

Question 3

Moon uses a periodic inventory system with the weighted average method of cost assignment.The following data are available: $\begin{array}{ccc}\text { Date }& \text { Units Unit }& \text { Cost \$}\\\text { Jan } 6 \text { Beginning inventory } & 1000 & 10 \\15 \text { Purchase } & 2000 & 11 \\26 \text { Purchase } & 1000 & 12\\& 4000 \\31 \text { Sale } & 1000&20\\\text { Closing inventory }&3000\end{array}$ What is the value of cost of sales for January?

A)$10 000
B)$11 000
C)$12 000
D)$20 000

Answer 3

$11 000

Question 4

Montreal Furniture uses a periodic inventory system.During an accounting year many purchases and sales of goods occur.For Montreal,the balance in the general ledger Inventory account:

A)Does not change until a stock-take is carried out
B)Represents the goods on hand at any given point in time
C)Reports the goods purchased since the beginning of the accounting period
D)Will usually be zero except at a balance sheet date

Question 5

Moon uses a periodic inventory system with the last-in first-out method of cost assignment.The following data are available: $\begin{array}{ccc}\text { Date }& \text { Units Unit }& \text { Cost \$}\\\text { Jan } 6 \text { Beginning inventory } & 1000 & 10 \\15 \text { Purchase } & 2000 & 11 \\26 \text { Purchase } & 1000 & 12\\& 4000 \\31 \text { Sale } & 1000&20\\\text { Closing inventory }&3000\end{array}$ What is the value of closing inventory at 31 January?

A)$33 000
B)$30 000
C)$32 000
D)$60 000

Question 6

Florida Inc uses a periodic inventory system with the weighted average method of cost assignment.The following data are available: $\begin{array}{lllll}&&&& \text { Total }\\&\text { Date }&\text { Units }&\text { Unit Cost }&\text { Cost }\\\text { Beginning Inventory } & \text { Jan 1 } & 2000 & \$ 6 & \$ 12000 \\\text { Purchase } & \text { Mar 13 } & 4000 & \$ 7 & \$ 28000 \\\text { Purchase } & \text { June 20 } & 6000 & \$ 8 & \$ 48000 \\\text { Ending Inv entory } & \text { Dec } 31 & 1000 & &\end{array}$ The cost of the ending inventory to the nearest dollar is:

A)$8333
B)$8000
C)$7300
D)$6000

Question 7

The statement concerning the perpetual inventory method that is incorrect is:

A)A stocktake is required to estimate cost of sales
B)A continuous record is kept of all movements in inventory
C)With the increased use of computers it has become the most common system
D)Cost of sales is calculated for each transaction

Question 8

These are the purchases and sales of Commodity C during the month of August.A perpetual inventory system is used. Balance on hand 1 August: 10 units $@ \$ 10$ each.
Purchases:
$\begin{array}{lr}\text { Aug 3 } & 10 \text { units } @ \$ 12 \\\text { Aug 12 } & 6 \text { units } \$ 13 \\\text { Aug 25 } & 12 \text { units } @ \$ 10\end{array}$
Sales:
Aug $7 \quad 14$ units
Aug $27 \quad 10$ units The value of the stock of Commodity C at 31 August using the FIFO method of costing inventory is:

A)$140
B)$146
C)$168
D)$182

Question 9

Kappa uses the FIFO assumption with the periodic inventory method. $\begin{array}{lccc}&\text { Units }&\text {Unit }&\text {Total }\\&&\text{Cost}&\text{Cost}\\\text { Beginning Inventory } & 10 & \$ 10 & \$ 100 \\\text { Purchase } & 10 & \$ 12 & \$ 120 \\\text { Purchase } & 8 & \$ 9 & \$ 72\end{array}$ Sales during year were 14 units.What was the value assigned to the closing stock of this item at the end of the period?

A)$84
B)$98
C)$108
D)$144

Question 10

In performing a stocktake care must be taken with goods in transit.Which of these statements is true?

A)Stock on consignment is regarded as sold by the consignor
B)Stock on consignment is included in the stock of the consignor
C)Goods in transit should be included in both the purchasers and the seller's inventory
D)Stock on consignment is included in the stock of the consignee

Question 11

The statement that is not true concerning inventory is:

A)Consistency is an important consideration when alternative accounting methods exist
B)Once an inventory costing method is selected management should not deliberately switch to another to manipulate profits
C)Accounting data produced in different accounting periods is not comparable if arbitrary changes in accounting methods are permitted
D)Consistency rules out ever switching to an alternative accounting method

Question 12

The essence of the perpetual method of accounting for inventory is:

A)All movements in each item of stock are tracked via detailed inventory records
B)A stocktake is performed
C)Cost of sales is calculated at the end of the accounting period
D)It is useful for high value,low volume items

Question 13

The accounting standards governing determination of the cost of inventories are:

A)IAS 2/AASB 102
B)IAS 8/AASB 108
C)IAS 13/AASB 108
D)IAS 34/AASB 134

Question 14

If inventory prices are rising the method of inventory valuation that gives the highest profit and the highest ending inventory is:

A)Weighted average
B)Periodic method
C)FIFO
D)LIFO

Question 15

A physical count of inventory on hand is known as:

A)Realisable value
B)Average cost
C)Perpetual inventory method
D)Stocktake

Question 16

The statement relating to the moving average method of costing inventories,used with the perpetual inventory system,that is true is:

A)A new average cost is calculated after each sale and each purchase
B)A new average cost is calculated after each sale
C)A new average cost is calculated after each purchase
D)A new average cost is calculated at the end of each month

Question 17

The statement relating to the determination of the cost of inventory in a computerised system that is not true is:

A)Determining the cost of inventory is greatly simplified compared to a manual system
B)The system can automatically produce reorder information
C)Computerised inventory systems are now used by most firms
D)Computerised systems generally use the periodic inventory system

Question 18

The statement that is correct is:

A)LIFO assumes the last goods purchased are the first goods sold
B)LIFO assumes the first goods purchased are the first goods sold
C)LIFO assumes that cost of sales consists of the oldest purchases
D)LIFO assumes that stock at end consists of the most recent purchases

Question 19

Which item should not be included in the income statement's cost of inventory?

A)The invoice price of the goods
B)Costs associated with receiving and inspecting the goods
C)Costs incurred in preparing the goods for sale
D)GST

Question 20

Dupont Ltd uses a periodic inventory system with the specific identification method of cost assignment. $\begin{array}{lrrr}&\text { Date }&\text {Units }&\text {Unit Cost \$}\\\text { Beginning Inventory } & \text { July 1 } & 1000 & 10 \\\text { Purchase } & 10 & 2000 & 11 \\\text { Purchase } & 20 & 1000 & 13\end{array}$ On 25 July 500 units from beginning inventory and 1500 units from the 10 July purchase were sold.What was the value of ending inventory at 31 July?

A)$10 500
B)$23 500
C)$26 000
D)$34 500

Question 21

The ratio that indicates an entity's overall mark-up on goods sold is:

A)The inventory turnover ratio
B)The profit margin ratio
C)The gross profit ratio
D)The return on inventory ratio

Question 22

Won Inc has an historical gross profit percentage of 35%.Net purchases for six months were $1 400 and sales were $2 000.Inventory at the end of the previous period was $200.If Won Inc prepares an interim balance sheet the amount that can be estimated for closing inventory is:

A)$100
B)$300
C)$1 000
D)$400

Question 23

Riverbottom Liquidators was wiped out by a recent flood when all it's inventory was observed floating down the river.On the day after the flood,management filed an insurance claim on the inventory that was totally destroyed.From records maintained elsewhere it was established: $$\begin{array} { l c } \text { Sales revenue (to date this period) } & \$ 700000 \\\text { Beginning inventory } & \$ 90000 \\\text { Purchases (so far this period) } & \$ 600000 \\\text { Historical gross profit percentage } & 60 \%\end{array}$$ Assuming the historical gross profit was maintained during the current period what was the cost of inventory lost in the flood?

A)$690 000
B)$410 000
C)$280 000
D)$270 000

Question 24

The s_____________ identification method of valuing inventory requires that each unit sold and each unit on hand is identified with its purchase price.

Question 25

Which of these is not a possible source of error in calculating closing inventory?

A)An incorrect cut-off between accounting periods
B)Mistakes in counting during the stocktake
C)Mistakes in the price at which the goods are sold to customers
D)Mistakes in dealing with goods on consignment

Question 26

A way that products can be unequivocally identified is by the use of:

A)Bar codes
B)Descriptions
C)Invoice numbers
D)Photos

Question 27

Under the FIFO method sales returns are costed back into inventory at:

A)a negotiated price
B)an average cost price
C)the most recent cost price attached to a sale
D)at the original cost price that was attached to the original sale

Question 28

Lisa Fashions has just completed its annual physical inventory count.The ending inventory was obtained by adding up all the retail price tags for the goods on hand.Determine ending inventory at cost. $$\begin{array} { l c c } & \text { Cost } & \text { Retail } \\\text { Beginning Inventory } & \$ 9,000 & \$ 14,000 \\\text { Purchases } & 135000 & 226,000 \\\text { Goods Available for Sale } & \$ 144,000 & \$ 240,000 \\\text { Sales } & & 210,000\end{array}$$

A)$19 286
B)$17 920
C)$18 000
D)$12 000

Question 29

With the perpetual method of accounting for inventory the costing assumption,such as first-in first-out,is applied to:

A)Cost of sales at the end of the accounting year
B)Each sale via stock cards or computer records
C)Inventory at the end of the month
D)The current asset inventory in the balance sheet

Question 30

The two types of systems for recording inventory are the perpetual and the p________________ systems.

Question 31

The statement that is untrue is:

A)Inventory is normally valued at cost
B)In certain circumstances some inventory items will be valued at below cost
C)In certain circumstances some inventory items will be valued at above cost
D)Net realisable value is related to estimated market value

Question 32

The inventory on hand at year-end for Golen Enterprises is: $\begin{array}{lcccc}\text { Inventory } & \text { Number } & \text { Original } & \text { Current Net } & \text { Current } \\\text { Item } & \text { of Units } & \text { Unit Cost } & \text { Selling Price } & \text { Replacement }\\&&&\text { per Unit } & \text { Cost per Unit } \\&&\$&\$&\$\\\mathrm{A} & 10 & 40 & 60 & 50 \\\mathrm{~B} & 8 & 70 & 60 & 65\end{array}$ At what amount should Golen report ending inventory if the lower of cost or net realisable value rule is applied to individual items?

A)$960
B)$880
C)$1020
D)$1160

Question 33

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

A)It results in probable losses being recorded in the period when they are first noticed rather than when the sale occurs
B)The rule is based on the accounting principle of prudence conservatism)
C)The gross profit reported in the period when the rule is applied is higher than it otherwise would be
D)The rule is applied separately to each item of inventory or to groups of inventory

Question 34

A manufacturer would normally classify inventories into the three categories: raw materials,work in process and f_________ goods.

Question 35

All of these statements about the presentation of inventory in financial reports are correct except:

A)The assumption used to assign costs to inventory should be disclosed
B)The general basis of valuation should be shown,
C)Inventory shown on the balance sheet should always be in a saleable condition
D)Inventory should be classified into its current and non-current components.

Question 36

At 31 December 2012,the end of their accounting year,the Black Sheep Wool Cooperative understated ending inventory by $3,000.The profit for 2012 will be:

A)Overstated
B)Understated
C)Correctly stated
D)It depends on whether or not the inventory increased during 2012

Question 37

Under IAS 2/AASB 102 the costing method that is not permitted is:

A)Specific identification
B)FIFO
C)Weighted/moving average
D)LIFO

Question 38

Assuming rising prices which statement is correct?

A)FIFO reports a lower value for cost of sales than other methods
B)FIFO reports a lower profit than other methods
C)FIFO reports a lower value for closing inventory than other methods
D)With the FIFO assumption,assuming prices are rising,it is not possible to calculate whether cost of sales/inventory is lower or higher than it would be if other assumptions about inventory valuation were made

Question 39

Mikey uses a periodic inventory system and committed an error that understated inventory at the end of Year One.If no further errors occur,at the end of Year Two:

A)Profit is overstated; equity is overstated
B)Profit is overstated; equity is correct
C)Profit is understated; equity is understated
D)Profit is understated; equity is overstated

Question 40

The lower of cost or net realisable value procedure is used with:
I)Weighted average
Ii)FIFO
Iii)The perpetual method

A)i.
B)ii
C)i,ii
D)i,ii,iii

Question 41

Avanti Co purchased inventory for $700.While on display the goods were damaged and made nearly worthless.It is determined that the goods can be sold at auction for $65 with the auctioneer taking $10 of that amount for his fee.The net realisable value of the goods is $_______.

Question 42

The qualitative characteristic of c________________ requires that a business should,in general,apply the same method of inventory valuation from one period to the next.

Question 43

F________________ is a cost flow assumption that assumes the first goods purchased are the first goods sold.

Question 44

An understatement of ending inventory causes the cost of sales for the period to be overstated/understated)__________________.

Question 45

The n______ r_____________ value of an inventory item for a retailer is its expected selling price in the normal course of business net of GST)less any estimated costs required to dispose of the item.

Question 46

Two methods that can be used for estimating the value of unsold inventory,without taking a physical inventory count,are the retail inventory method and the g___________ p_________ method.

Question 47

The essence of the p______________ method of accounting for inventory is that all movements in each item of stock are tracked via detailed inventory records.