Question 1

Which of the following sets of inventory are expected to be used a manufacturing entity's normal operating cycle?

Accepted Answer

E

Question 2

Which is not a type of inventory for a manufacturing entity?

Accepted Answer

Merchandise inventory refers to the goods a company buys to resell at a profit. In a manufacturing entity, the focus is on producing goods rather than reselling purchased goods, making merchandise inventory not applicable.

Question 3

Which of the following is not characteristic of perpetual inventory systems?

Accepted Answer

D

Question 4

Lathe & Miter is a fine woodworking supplier in Dresden. This year, L&M sold €5 million in the finest air-dried maple to instrument makers across Europe. The expected inventory balance at the end of the year via L&M's perpetual inventory system is €10.2 million. The inventory count at year end revealed shrinkage of €200,000 due to wood that split or became otherwise unusable during the drying process. L&M purchased a total of €12 million in maple this year. What is L&M's beginning inventory level of air-dried maple?

Accepted Answer

To find the beginning inventory, we use the formula: Beginning Inventory = Ending Inventory + Cost of Goods Sold (COGS) - Purchases + Shrinkage. Here, Ending Inventory is €10.2 million, COGS is €5 million (the amount sold), Purchases are €12 million, and Shrinkage is €200,000. So, Beginning Inventory = €10.2 million + €5 million - €12 million + €200,000 = €3.4 million. However, none of the provided options exactly match this calculation, indicating a possible mistake in my calculation or a misunderstanding of the question's details. Based on the closest available option and re-evaluating the calculation for potential errors, the correct beginning inventory level would be closely approximated or reasoned through the given options.

Question 5

Dovetail Cabinetry is a custom cabinet and furniture shop in Finland. Dovetail uses a periodic inventory system. This year, Dovetail purchased €15 million in furniture which it officially received on February 13 and €20 million in cabinetry which it officially received on March 3. It's beginning inventory was €56 million and it has sold €21 million in cabinets and furniture through March 31. How much inventory does Dovetail have recorded on its books as of March 31?

Accepted Answer

The answer of Dovetail Cabinetry is a custom cabinet and...

Question 6

Paul Parson's Pickled Peppers compete with Peter Piper's Pickled Peppers. Peter Piper has such a superior product that Paul Parson feels that his pickled peppers might be impaired. Paul calculated that selling costs per peck of pickled peppers are $2. Paul also did market analysis and determined that in order to compete with Peter Piper, he can sell his peppers for $20 per peck at maximum. The cost per peck of Paul's pickled peppers is $19. What is the net realizable value of a peck of Paul Parson's Pickled Peppers? Are they impaired?

Accepted Answer

The answer of Paul Parson's Pickled Peppers compete with Peter...

Question 7

Schwendiman's is a home improvement store located throughout Australia and Tasmania. The inventory manager wants you to estimate ending inventory of 2x4 lumber for the quarter using the retail method. He tells you that the cost of inventory is 75 percent of retail prices. Schwendiman's official beginning inventory of 2x4 lumber for the quarter was $250 million. During the quarter, Schwendiman's purchased a total of $100 million in 2x4 lumber. Sales of 2x4 lumber during the period totaled $300 million. What is the best estimate of ending inventory for 2x4s for the current quarter?

Accepted Answer

The answer of Schwendiman's is a home improvement store located...

Question 8

On December 31, 20X7, Varsity Motors (VM) had an inventory of five different types of oil well parts. Due to economic downturn and declining demand for oil, the market prices for oil well parts have declined. The year-end unit costs (determined by applying the weighted-average cost formula), estimated unit selling prices, estimated costs to sell, and net realizable values for each of the items are presented below. The determination of the amount of inventories to be reported in the statement of financial position is presented below. VM tests its inventory for impairment on an item-by-item basis.
 $$\begin{array} { | l | c | c | c | l | l | } 
\hline \text { Item } & \begin{array} { l } 
\text { Original } \
\text { Cost }
\end{array} & \begin{array} { l } 
\text { Selling } \
\text { Price }
\end{array} & \begin{array} { l } 
\text { Estimated } \
\text { Cost to sell }
\end{array} & \text { NRV } & \text { LCNRV } \
\hline \mathrm { A } & \$ 6,000 & \$ 5,100 & \$ 500 & & \
\hline \mathrm { B } & 4,500 & 4,300 & 100 & & \
\hline \mathrm { C } & 3,900 & 4,000 & 50 & & \
\hline \mathrm { D } & 1,800 & 1,600 & 75 & & \
\hline \text { E } & 1,400 & 1,450 & 150 & & \
\hline \text { Total } & \$ 17,600 & & & & \
\hline
\end{array}$$
-If instead of testing its inventory for impairment on an item-by-item basis, VM decided that this inventory meets the specific criteria for impairment testing as a group, What journal entry is made on December 31, 20X7 to record the adjustment?

Accepted Answer

The answer of On December 31, 20X7, Varsity Motors (VM)...

Question 9

Inventories are recognized in the entity's statement of financial position as well as an expense charged against revenues.

Accepted Answer

Inventories are recognized as current assets in the entity's statement of financial position and are also recognized as an expense (cost of goods sold) when the goods are sold, which is charged against revenues.

Question 10

Under an IFRS, impairment testing is only necessary when events during the period suggest that inventories may be impaired.

Accepted Answer

Under IFRS, impairment testing for inventories should be conducted at each reporting date, not just when there are indications of impairment.

Question 11

One of the most difficult tasks for both wholesale and retail entities is properly accounting for consumable stores, raw materials, and finished goods inventories.

Accepted Answer

The answer of One of the most difficult tasks for...

Question 12

The inventory account balance is not adjusted as sales and purchases are made under a periodic system.

Accepted Answer

Under a periodic inventory system, the inventory account balance is not continuously updated for each sale or purchase transaction; adjustments are made at the end of the accounting period when a physical inventory count is conducted.

Question 13

Steelhard entity is a hardware retailer with locations throughout Wales, Scotland, and England. Steelhard knows inventory levels in real time. At the end of every quarter, employees count inventory. Steelhard uses a perpetual inventory system.

Accepted Answer

A perpetual inventory system tracks inventory levels in real time, which aligns with Steelhard knowing its inventory levels in real time and employees counting inventory at the end of every quarter for verification or reconciliation purposes.

Question 14

After a write-down of inventories due to sluggish demand, Portia's Premium Pastas (PPP) suddenly and unexpectedly experienced a resurge in demand for its premium pastas. PPP is barely able to produce enough inventory to meet demand. Under IFRS, a reversal of the previous write-down would likely be appropriate with an explanation of the circumstances surrounding the reversal.

Accepted Answer

Under IFRS, if the reasons for a write-down of inventories (such as a decrease in net realizable value due to sluggish demand) no longer exist or have reversed, the amount of the write-down can be reversed up to the amount of the original write-down. This is reflected in the financial statements with an explanation of the circumstances surrounding the reversal, which in this case would be the unexpected resurgence in demand for PPP's premium pastas.

Question 15

U.S. GAAP and IFRS both utilize the same methods for determining write-downs.

Accepted Answer

The answer of U.S. GAAP and IFRS both utilize the...

Question 16

Johnstone Timber is a logging entity that sources its timber primarily from the Ardennes Forest. To maintain efficiency in its logging operations, Johnstone has its loggers apply chain grease and use special steel dowels to sharpen their blades and after every tree they fell. Johnstone considers the grease and sharpening dowels to be peripheral items. Therefore, they do not count as inventory.

Accepted Answer

Inventory includes all goods and materials a company holds for the purpose of resale, production, or repair in the normal course of business. The chain grease and steel dowels, being essential for maintaining the equipment used in logging operations, should be considered as inventory under supplies or maintenance inventory, as they are consumed in the process of producing the main inventory items (timber).

Question 17

Johnstone Timber regularly sells lumber mills and land that it holds when they are depreciated or depleted. These lumber mills and tracts of land are considered inventory.

Accepted Answer

Lumber mills and tracts of land held by Johnstone Timber are considered fixed assets, not inventory, because they are long-term assets used in the operation of the business rather than goods to be sold in the ordinary course of business.

Question 18

Voyageur de Rivière (VR) manufactures white-water kayaks. Information about VR's kayak production includes the following:
a. VR produced 2,000 kayaks this year. 
b. During the normal course of production, VR experiences wastage of €80,000
c. This year, VR experienced abnormal wastage of €40,000 in addition to normal wastage. 
d. Wood, glue, resin and other materials total €800 per kayak. 
e. Overhead and direct labor (conversion costs) total €700 per kayak. 
f. Storage costs are €100 per kayak per year.
g. Costs associated with selling each kayak total €50. 
h. Appraised fair market value of each kayak at the end of the year is €1,550
Determine the cost of inventory .

Accepted Answer

The answer of Voyageur de Rivière (VR) manufactures white-water kayaks....

Question 19

Refer to question 1. Assume the same facts. Is the inventory impaired? By how much?

Accepted Answer

The answer of Refer to question 1. Assume the same...

Question 20

In the early spring, Harvest Entity planted 1,000 acres of sorghum. The sorghum will not be harvested until the fall. How should Harvest Entity account for the sorghum?

Accepted Answer

The answer of In the early spring, Harvest Entity planted...

Quiz 11: Inventories