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Flashcards in INVY Deck (77)
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1

The following information pertains to Fox Co.
Sales (all on credit) $2,000,000
Gross profit on sales $900,000
Net income $150,000
Purchases $1,000,000
Inventory at end of year $200,000
Accounts receivable at beginning of year $600,000
Accounts receivable at end of year $400,00
Stockholders' equity at end of year:
Common stock outstanding (unchanged during shares at par of $1 per share $300,000
Retained earnings $500,000
Total stockholders' equity $800,000
Dividends paid during the year totaled $0.25 per share. The market price per share of Fox's stock was $5 at the end of the year. Fox's inventory turnover for year 2 was

4.4 times

2

In year I, Cobb adopted the dollar-value LIFO inventor,' method. At that time, Cobb's ending inventor,' had a base-year cost and an end-of-year cost of $300,000. In year 2, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, year 2 balance sheet?

$410,000

3

Black Corp.'s accounts payable at December 31, year I, totaled $900,000 before any necessary year-end adjustments relating to the following transactions:
On December 27, year I, Black wrote and recorded checks to creditors totaling $400,000 causing an overdraft of $100,000 in Black's bank account at December 31, year I. The checks were mailed cut on January 10, year 2.
On December 28, year I, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, year 2.
Goods shipped FOS destination on December 20, year I, from a vendor to Black were received January 2, year 2. The invoice cost was $65,000.
At December 31, year I, what amount should Black report as total accounts payable?

$1,450,000

4

Dalton Company adopted the dollar-value LIFO inventory method on January I, year 2. In applying the LIFO method Dalton uses internal price indexes and the multiple-pools approach. The following data were available for Inventory Pool No. I for the 2 years following the adoption of LIFO:
At current Current inventory Internal price
year cost at base year cost index
1/1/Y2 $100,000 $100,000 1.00
12/31/Y2 $126,000 $120,000 1.05
12/31/Y3 $140,800 $128,000 1.10
Under the dollar-value LIFO method the inventory at December 31, year 3, should be

$129,800

5

A company used the percentage-of-completion method to account for 4-year construction contract. Which of the following would be used in the calculation of the
income recognized in the second year?
a. Process billings to date
b. Neither
c. Income previously recognized
d. Process billings to date and Income previously recognized.

Income previously recognized

6

Garnett Co. shipped inventory on consignment to Hart Co. that originally cost $50,000. Hart paid $1,200 for advertising that was reimbursable from Garnett. At the
end of the year, 40'% of the inventory was sold for $32,000. The agreement stated that a commission of 10% will be provided to Hart for all sales. What amount should Garnett report as net income for the year?

$7,600

7

The calculation of the income recognized in the third year of five-year construction contract accounted for using the percentage-of-completion method includes the
ratio of

Total costs incurred to date to total estimated costs.

8

At the end of the year, Ian Co. determined its inventory to be $253,000 on a FIFO (first in, first out) basis. The current replacement cost of this inventory was $230,000. Ian estimates that it could sell the inventory for $275,000 at a disposal cost of $14,000. If Ian's normal profit margin for its inventory was $10,000, what would be its net carrying value?

$251,000

9

Thread Co. is selecting its inventory system in preparation for its first year of operations. Thread intends to use either the periodic weighted-average method or the perpetual moving average method, and to apply the lower of cost or market rule either to individual items or to the total inventory. Inventory prices are expected to generally increase throughout year 2, although a few individual prices will decrease. What inventory system should Thread select if it wants to maximize the inventory carrying amount at December 31, year 2?
Inventory method Cost or market application
a. Perpetual Total inventory
b. Perpetual Individual item
c. Periodic Total inventory
d. Periodic Periodic

Perpetual Total inventory

10

The moving average inventory cost flow method is applicable to which of the following inventory systems?
a. Periodic and Perpetual
b. Periodic
c. Neither
d. Perpetual

Perpetual

11

The original cost of an inventory item is above the replacement cost. The replacement cost is above the net realizable value. Under the lower of cost or market
method, the inventory item should be priced at its

Net realizable value.

12

The UNO Company was formed on January 2, year I, to sell a single product. Over a 2-year period, UNO's acquisition costs have increased steadily. Physical
quantities held in inventory were equal to 3 months' sales at December 31, year I, and zero at December 31, year 2. Assuming the periodic inventory system, the inventory cost method which reports the highest amount for each of the following is
Inventory December 31 , year I Cost of sales year 2
a. LIFO FIFO
b. LIFO LIFO
c. FIFO FIFO
d. FIFO LIFO

FIFO FIFO

13

Southgate Co. paid the in-transit insurance premium for consignment goods shipped to Hendon Co., the consignee. In addition, Southgate advanced part of the
commissions that will be due when Hendon sells the goods. Should Southgate include the in-transit insurance premium and the advanced commissions in inventory
costs ?
a. Insurance premium and Advanced commissions
b. Neither
c. Insurance premium
d. Advanced commissions

Insurance premium

14

On December 31, year I, Kern Company adopted the dollar-value LIFO inventory method. All of Kern's inventories constitute a single pool. December 31, year I, using the dollar-value LIFO inventory method was $600,000. Inventory data for year 2 are as follows:
12/31/Y2 inventory at year-end prices $780,000
Relevant price index at year-end (base year, year I) 120
Under the dollar—value LIFO inventory method, Kern's inventory at December 31, year 2, would be

$660,000

15

In accounting for long-term construction contract using the percentage-of-completion method, the amount of income recognized in any year would be added to

Construction in progress.

16

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as periodic inventory system under which
of the following inventory cost flow methods?
a. FIFO
b. FIFO and LIFO
c. Neither
d. LIFO

FIFO

17

On December 2B, year 2, Lime Manufacturing Co. purchased goods costing $70,000. The terms were FOS destination. Some of the costs incurred in connection with
the sale and delivery of the goods were as follows:
Packaging for shipment $1,000
Shipping 1,500
Special handling charges 2,000
These goods were received on December 31, year 2. In Lime's December 31, year 2 balance sheet, what amount of cost for these goods should be included in inventory?

$70,000

18

Fireworks, Inc., had an explosion in its plant that destroyed most of its inventory. Its records show that beginning inventory was $40,000. Fireworks made purchases of $480,000 and sales of $620,000 during the year. Its normal gross profit percentage is 25%. It can sell some of its damaged inventory for $5,000. The insurance company will reimburse Fireworks for 70% of its loss. What amount should Fireworks report as loss from the explosion?

$15,000

19

On July I, year I, Link Development Company purchased a tract of land for $900,000. Additional costs of $150,000 were incurred in subdividing the land during July
through December year I. Of the tract acreage, 70% was subdivided into residential lots as shown below and 30% was conveyed to the city for roads and a park.
Lot class Number of lots Sales once per lot
A 100 $12,000
B 100 8,000
C 200 5,000
Under the relative sales value method, the cost allocated to each Class A lot should be

$4,200

20

Selected information from the accounting records of Dalton Manufacturing Company is as follows:
Net sales for year 2 $1,800,000
Cost of goods sold for year 2 $1,200,000
Inventories at December 31, year I $336,000
Inventories at December 31, year 2 $288,000
Assuming there are 300 working days per year, what is the number of days' sales in average inventories for year 2?

78

21

The following information applied to Lenn, Inc. for year 2:
Merchandise purchased for resale $500,000
Freight-in $20,000
Freight-cut $5,000
Purchase returns $5,000
Lenn's year 2 inventoriable cost was

$515,000

22

When progress billings are sent on long-term contract, what type of account should be credited under the completed-contract method and percentage-of-completion method?
Completed-contract Percentage-of-completion
a. Revenue Revenue
b. Revenue Contra asset
c. Contra asset Revenue
d. Contra asset Contra asset

Contra asset Contra asset

23

The original cost of an inventory item is above the replacement cost and below the net realizable value. The net realizable value less the normal profit margin is above the replacement cost and the original cost. Using the lower of cost or market method the inventory item should be priced at its

Original cost.

24

Under IFRS, specific identification accounting for inventory is required for

Inventory that is not interchangeable.

25

Theoretically, cash discounts permitted on purchased raw materials should be

Deducted from inventory whether taken or not.

26

On January I, year 2, the River Company's beginning inventor,' was $400,000. During year 2, River purchased $1,900,000 of additional inventory. On December 31, year, River's ending inventory was $500,000. What is the inventory turnover for year 2?

4.0

27

In periodic inventory system which uses the LIFO inventory cost flow method, the cost of goods sold is the total cost of goods available for sale

Minus the ending inventory

28

Megan Corporation values its inventory at the lower of cost or net realizable value as required by IFRS. Megan has the following information regarding its inventory,
Historical cost $10,000
Estimated selling price 9,000
Estimated costs to complete and sell 500
Replacement cost 8,000
What is the amount for inventory that Megan should report on the balance sheet under the lower of cost or net realizable value method?

$8,500

29

The following costs were among those incurred by Woodcraft Corporation during year 2:
Merchandise purchased for resale $500,000
Salesmen's commissions 40,000
Interest on notes payable to vendors 5,000
How much should be charged to the cost of the merchandise purchases?

$500,000

30

In period of rising prices, the use of which of the following inventory cost flow methods would result in the highest cost of goods sold?

LIFO