Concept CH 7

Question 1

Cost of Inv Purchases Include

Answer 1

Price paid (net of discounts)
Import duties & unrecovered taxes
handling, freight-in, insurance

Question 2

Lower of Cost of Market (LCM) LIFO/Retail

Answer 2

Market should not exceed ceiling - NRV

Market should not be less than floor - NRV - GP

Question 3

Net Realizable Value (NRV) FIFO/AVG-COST

Answer 3

Sales Price - Cost to Complete/Selling Cost

Question 4

Inventory Errors

Answer 4

Affects

• Current Assets
• Working Capital
• COGS
• Net Income
• Equity

Question 5

Purchase Commitment Loss

Answer 5

Loss recognized on non-cancelable unhedged purch if market price < commit price

Question 6

Ending Inventory Overstated Effects 2 periods CY and next year

Answer 6

CY
COGS understated
NI Overstated
RE Overstated
NY
COGS Overstated
NI Understated
Beg Overstated

Question 7

Cost of Sales equal

Answer 7

beginning inventory, plus purchases, plus additional costs , minus ending inventory

Question 8

FOB Destination

Answer 8

Means title and risk of loss pas to buyer when seller makes tender of delivery at the destination

Question 9

Consigned goods

Answer 9

are included in the consignors inventory

Question 10

Sales equal

Answer 10

Ending AR + Collections - Beginning AR

Question 11

LIFO assumes

Answer 11

Newest inventory sold first

Question 12

LCM retail method includes

Answer 12

markups but not markdowns

Question 13

GAS

Answer 13

BI + PUR = GAS = EI + COGS

Question 14

Dollar-value LIFO

Answer 14

Determines changes in inventory in terms of dollars constant purchasing power.

Question 15

Inventory Method yielding same inventory measurement and COGS under perpetual or period

Answer 15

FIFO

Question 16

In period of rising prices which method provides best matching of expenses against revenues

Answer 16

LIFO

Question 17

Weighted Avg is used for

Answer 17

Periodic system

Question 18

Moving Avg is used

Answer 18

Perpetual

Question 19

In a period falling prices

Answer 19

FIFO will yield the highest COGS

Question 20

Under IFRS inventory is measured at

Answer 20

Lower of cost or NRV

Question 21

Reversal of adjustment in subsequent period

Answer 21

Allowed under IFRS, not allowed under GAAP

Question 22

Step 1 in Dollar-Value LIFO Measurement

Answer 22

Accumulated YE Inventory balances at base-year and current year cost. CY Cost are divided by BY cost to arrive at price index

Question 23

Step 2 In Dollar-Value LIFO Measurement

Answer 23

Each layer stated at base year cost is multiplied by price index

Question 24

Cost-retail method

Answer 24

includes both markup and markdowns

Question 25

A cost method that adjust inventory layers for price level changes

Answer 25

Dollar value LIFO retail

Question 26

Cost-retail ratio based on goods available for sale that includes markups and markdowns

Answer 26

Average Cost

Question 27

Cost-retail ratio includes inventories and markups but not markdowns

Answer 27

Lower of average cost or market

Question 28

Cost-retail ratio includes markups but excludes inventories and markdowns

Answer 28

FIFO lower of cost or market

Question 29

Cost-retail ratio based on adjusted purchases and calculated for each annual layer

Answer 29

LIFO retail

Question 30

The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale?

Answer 30

Purchase Returns

Question 31

Sales revenue is only recognized for

Answer 31

the amount of consideration to which the company expects to be entitled. Thus, no sales are recorded to items expected to be returned

Question 32

LCM Measurement NRV and NRV - Gross Profit

Answer 32

The maximum is net realizable value, and the minimum is net realizable value - gross profit

Question 33

Overstated inventory

Answer 33

Understated COGS overstated income year 1 | Overstated COGS and understated income year 2

Question 34

Understated Inventory

Answer 34

Overstated COGS understated income year 1 | Understated COGS overstated income year 2

Question 35

LCM - Market

Answer 35

should not exceed ceiling or be less than floor

Question 36

FIFO Cost

Answer 36

Most straight forward computed for ADJ purchases not GAS. Markups added and markdowns subtracted from purchases at retail to determine ratio

Question 37

To find change from FIFO to LIFO

Answer 37

(Inv Y1 FIFO - Inv Y2 FIFO) - (Inv Y1 LIFO - Inv Y2 LIFO) = Net change