Question 1

Explain what happens if the value of inventory recovers after it has been written down.How often will such an adjustment actually be made to inventory?

Accepted Answer

The answer of Explain what happens if the value of...

Question 2

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Beginning inventory is understated by $1,000.

Accepted Answer

The beginning inventory for fiscal 2017 will be understated by $1,000 because the inventory was excluded in error during the ending inventory count of fiscal 2016.

Question 3

For the year ended December 31,2016,Complex Company reported gross margin of $29,700,which was 30% of the sales for the period.The cost of goods available for sale was 120% of the cost of goods sold.The beginning inventory was twice as much as the ending inventory.What was the amount of purchases for 2016?
A)$13,860
B)$29,700
C)$41,580
D)$55,440

Accepted Answer

D)GP = Sales - COGS
Beg inv + Purchases - End inv = COGS
29,700 / 0.30 = 99,000 × 0.70 = 69,300 × 1.20 = 83,160
(83,160 - 69,300)= 13,860 × 2 = 27,720
83,160 - 27,720 = 55,440

Question 4

Explain the meaning of net realizable value and when raw materials,work in progress and finished goods inventories need to be written down.

Accepted Answer

The answer of Explain the meaning of net realizable value...

Question 5

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Purchases are overstated.
B)Purchases are understated.
C)Gross margin is understated.
D)Cost of sales is overstated.

Accepted Answer

If the purchase invoice is not recorded in fiscal 2016, then purchases are understated. This will result in an understatement of the cost of sales and an overstatement of the gross margin for the year.

Question 6

A particular production process requires two types of raw materials to produce the end product.Each unit of finished product requires three units of raw material A and 2 units of raw material B and processing costs of $35.The following provides information on inventories at year-end:
  
Required:
a.Evaluate these inventories to determine the amount of write-down,if any.
b.Would your answer change if the replacement cost of raw material A were $11 per unit?

Accepted Answer

The answer of A particular production process requires two types...

Question 7

Explain how items of inventory should be grouped for purposes of testing for impairment.

Accepted Answer

The answer of Explain how items of inventory should be...

Question 8

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2017 financial reporting?
A)Cost of sales is understated by $500.
B)Gross margin is understated.
C)Operating expenses are overstated by $500.
D)Operating profit is overstated by $500.

Accepted Answer

The answer of Assume that a $500 purchase invoice received...

Question 9

Assume that a $400 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2017 financial reporting?
A)Cost of sales is overstated by $400.
B)Gross margin is overstated.
C)Cost of goods available for sale is understated.
D)There is no effect on fiscal 2017.

Accepted Answer

The answer of Assume that a $400 purchase invoice received...

Question 10

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Gross margin is overstated.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is overstated by $1,000.
D)Cost of goods available for sale is overstated by $1,000.

Accepted Answer

Since the inventory was excluded from the ending inventory count, the cost of goods sold (COGS) will be understated by the value of the inventory not counted. If COGS is understated, it implies that the cost of sales will be overstated by the same amount, which in this case is $1,000. This error will result in an overstatement of gross margin since the cost of sales was overstated. The ending inventory will also be understated by the same amount, but this will impact the balance sheet and not the income statement. The cost of goods available for sale will not be affected since the purchase invoice was appropriately recorded.

Question 11

Which statement is not correct about inventory errors?
A)Misstatements in inventory can affect the beginning inventory amounts.
B)Misstatements in inventory can affect the ending inventory amounts.
C)Misstatements in inventory affect current ratios.
D)Misstatements in inventory have no effect on net income.

Accepted Answer

Misstatements in inventory directly affect the cost of goods sold, which in turn affects net income. If inventory is overstated or understated, it will lead to incorrect calculation of gross profit and thus net income.

Question 12

Use the following information:

If the market price at year end is $210,000,what is the write down required?
A)$0
B)$40,000
C)$210,000
D)$250,000

Accepted Answer

B)210,000 = market value or NRV of inventory.
150,000 + 100,000 = 250,000 = cost of inventory
210,000 - 250,000 = 40,000 = write down needed

Question 13

Which statement is correct about inventory errors?
A)Misstatements in inventory usually affect two reporting periods.
B)Misstatements in inventory usually affect only the current accounting period.
C)Misstatements in inventory usually affect only beginning inventory amounts.
D)Misstatements in inventory usually affect only ending inventory amounts.

Accepted Answer

Misstatements in inventory typically affect two reporting periods because the ending inventory of one period becomes the beginning inventory of the next. Therefore, any error in the ending inventory of the current period will not only affect the cost of goods sold and net income of the current period but also the beginning inventory and, consequently, the financial results of the following period.

Question 14

At the end of 2016,a company reported cost of goods sold of $4,800,which represented 80% of the goods available for sale.The beginning inventory amount was twice as much as the ending inventory amount.What was the amount of purchases for 2016?
A)$1,200
B)$2,400
C)$3,600
D)$5,400

Accepted Answer

C)4,800 / 0.8 = 6,000 - 4,800 = 1,200 × 2 = 2,400 - 6,000 = 3,600

Question 15

A specialized retailer has a selection of five products.The following is information relating to these products.
  
The company estimates selling costs to be 4% of selling price,primarily for sales commissions.
Required:
Determine the amount of inventory write-down per product required,if any.

Accepted Answer

The answer of A specialized retailer has a selection of...

Question 16

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Cost of goods sold is understated by $1,000.
B)Gross margin is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Net income is overstated by $1,000.

Accepted Answer

Since the inventory was excluded in error during the ending inventory count, it means that the ending inventory is understated by $1,000. This, in turn, affects the calculation of cost of goods sold and gross margin for fiscal 2016. However, it does not impact net income as net income is calculated after deducting expenses such as cost of goods sold.

Question 17

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Cost of sales is understated by $100.
B)Gross margin is understated.
C)Sales are understated by $100.
D)Operating profit is understated by $100.

Accepted Answer

If the purchase invoice is not recorded, the cost of the items purchased will not be included in the cost of sales calculation, resulting in an understatement of cost of sales by $100. This will also result in an understatement of operating profit, as expenses are not properly accounted for. Gross margin and sales should not be affected if ending inventory is appropriately included in the count.

Question 18

Using the following cost information regarding finished goods,what would be the ending value of the finished goods inventory if the market value of the goods is $200,000?

A)$0
B)$150,000
C)$200,000
D)$250,000

Accepted Answer

C)200,000 = LOCM value

Question 19

What issues arise on the subsequent measurement of inventory?
A)Determining which expenditures to capitalize into the "inventory" account.
B)Determining which expenditures to expense into the "cost of goods sold" account.
C)Determining how much of the costs recognized in inventory should be expensed in the year.
D)Determining the appropriate valuation of inventories that remain on hand.

Accepted Answer

The subsequent measurement of inventory involves determining the appropriate valuation of inventories that remain on hand. This includes deciding on the method of valuation (e.g. FIFO, LIFO, average cost), adjusting for any changes in market value or obsolescence, and accurately counting the inventory physically. Option A and B are related to the initial recognition of inventory rather than subsequent measurement. Option C may also be a consideration, but it is more closely related to the determination of cost of goods sold rather than the subsequent measurement of inventory.

Question 20

Which statement is correct about inventory errors?
A)Misstatements in inventory can affect the beginning inventory amounts.
B)Misstatements in inventory are likely to affect only the current accounting period.
C)Misstatements in inventory are likely to only affect one reporting period.
D)Misstatements self-correct over three reporting periods.

Accepted Answer

Misstatements in inventory can affect the beginning inventory amounts as well as the current accounting period and potentially future periods if not corrected. This is because inventory balances are carried forward from one period to the next, and misstatements can compound over time. Option B, C, and D are incorrect because misstatements can have an impact beyond just the current reporting period.

Quiz 6: Inventories

Explain what happens if the value of inventory recovers after it has been written down.How often will such an adjustment actually be made to inventory?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?

Explain the meaning of net realizable value and when raw materials,work in progress and finished goods inventories need to be written down.

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2016 financial reporting?

Explain how items of inventory should be grouped for purposes of testing for impairment.

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2017 financial reporting?

Assume that a $400 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2017 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2016 financial reporting?

Which statement is not correct about inventory errors?

Use the following information: If the market price at year end is $210,000,what is the write down required?

Which statement is correct about inventory errors?

At the end of 2016,a company reported cost of goods sold of $4,800,which represented 80% of the goods available for sale.The beginning inventory amount was twice as much as the ending inventory amount.What was the amount of purchases for 2016?

A specialized retailer has a selection of five products.The following is information relating to these products. The company estimates selling costs to be 4% of selling price,primarily for sales commissions. Required: Determine the amount of inventory write-down per product required,if any.

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2016 financial reporting?

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2016 financial reporting?

Using the following cost information regarding finished goods,what would be the ending value of the finished goods inventory if the market value of the goods is $200,000?

What issues arise on the subsequent measurement of inventory?

Which statement is correct about inventory errors?