Question 1

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 2

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 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 2013 will be understated by $1,000 because the inventory was excluded in error during the ending inventory count of fiscal 2012.

Question 3

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 4

Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 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

Since the purchase invoice of $100 is not recorded, it will not be included in the cost of goods sold (COGS) calculation, resulting in an understated COGS. As a result, cost of sales is understated by $100. This will indirectly impact the gross margin and operating profit as well, but the direct impact is on cost of sales. Sales are not affected by this transaction as the inventory is correctly included in the ending inventory count.

Question 5

Assume that a $400 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 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 2013.

Accepted Answer

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

Question 6

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 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 7

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

The ending value of finished goods inventory is equal to the market value of the goods, which is $200,000 in this case.

Question 8

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 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

The inventory exclusion results in ending inventory being understated, which affects the balance sheet and cost of goods sold calculation.

Question 9

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 10

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 financial reporting?
A)Purchases are overstated.
B)Purchases are understated.
C)Gross margin is understated.
D)Cost of sales is overstated.

Accepted Answer

Since the purchase invoice was not recorded, purchases will be understated in fiscal 2012. This will result in an understatement of the cost of sales and an overstatement of the gross margin. However, since the inventory is appropriately included in the ending inventory count, the impact on the balance sheet will be not affected.

Question 11

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 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 in error during the ending inventory count, it means that the ending inventory amount is understated by $1,000. Therefore, the cost of sales will be overstated by $1,000 (since the cost of goods sold is higher when inventory is understated) and gross margin is also affected. However, ending inventory is not affected by the error, and cost of goods available for sale is not changed either.

Question 12

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 13

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, which in turn can affect the current and future accounting periods. Inventory errors do not self-correct over three reporting periods and are not likely to affect only one reporting period.

Question 14

For the year ended December 31, 2012, 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 2012?
A)$13,860
B)$29,700
C)$41,580
D)$55,440

Accepted Answer

The answer of For the year ended December 31, 2012,...

Question 15

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 16

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, which can be affected by various factors such as changes in market value, obsolescence, and damage. Choices A, B, and C relate to the initial recognition and classification of inventory costs, rather than subsequent measurement.

Question 17

At the end of 2012, 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 2012?
A)$1,200
B)$2,400
C)$3,600
D)$5,400

Accepted Answer

The cost of goods sold (COGS) is 80% of goods available for sale, so goods available for sale = $4,800 / 0.8 = $6,000. Let ending inventory be x, then beginning inventory is 2x. Goods available for sale = beginning inventory + purchases = ending inventory + COGS. So, 2x + purchases = x + $4,800. Since 2x + purchases = $6,000, solving these gives x = $1,200 and purchases = $3,600.

Question 18

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 19

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 20

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

The given information appears to be a product code rather than financial information. Therefore, it is not possible to determine the write down requirement based on this information.

Quiz 6: Inventories

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

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 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 $100 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

Assume that a $400 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 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?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

Which statement is correct about inventory errors?

Assume that a $1,000 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

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.

Which statement is correct about inventory errors?

What issues arise on the subsequent measurement of inventory?

At the end of 2012, 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 2012?

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?

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?