Flashcards in INVY Deck (77):
The following information pertains to Fox Co.
Sales (all on credit) $2,000,000
Gross profit on sales $900,000
Net income $150,000
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
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?
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?
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
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
c. Income previously recognized
d. Process billings to date and Income previously recognized.
Income previously recognized
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?
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
Total costs incurred to date to total estimated costs.
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?
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
The moving average inventory cost flow method is applicable to which of the following inventory systems?
a. Periodic and Perpetual
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.
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
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
a. Insurance premium and Advanced commissions
c. Insurance premium
d. Advanced commissions
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
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.
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?
b. FIFO and LIFO
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
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?
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?
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
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?
The following information applied to Lenn, Inc. for year 2:
Merchandise purchased for resale $500,000
Purchase returns $5,000
Lenn's year 2 inventoriable cost was
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?
a. Revenue Revenue
b. Revenue Contra asset
c. Contra asset Revenue
d. Contra asset Contra asset
Contra asset Contra asset
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
Under IFRS, specific identification accounting for inventory is required for
Inventory that is not interchangeable.
Theoretically, cash discounts permitted on purchased raw materials should be
Deducted from inventory whether taken or not.
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?
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
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?
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?
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?
The dollar—value LIFO inventory cost flow method involves computations based on
a. A specific price index for each year.
c. Inventory pool of similar items
Hadley Construction Company has consistently used the percentage-of-completion method of recognizing income. During year I, Hadley started work on construction contract which was completed in year 2. The accounting records provided the following data:
Year 1 Year 2
Progress billings $1,100,000 $1,900,000
Costs incurred 900,000 1,800,000
Collections 700,000 2,300,000
Estimated cost to complete 1,800,000
How much income should Hadley have recognized in year I?
During year I, Mitchell Corp. started construction job with total contract price of $600,000. The job was completed on December IS, year 2. Additional data are as follows:
Year 1 Year 2
Actual costs incurred $225,000 $255,000
Estimated remaining costs 225,000
Billed to customer 240,000 360,000
Received from customer 200,000 400,000
Under the completed-contract method, what amount should Mitchell recognize as gross profit for year 2?
The following information pertains to an inventory item:
Estimated selling price 13.60
Estimated disposal cost .20
Normal gross margin 2.20
Replacement cost 10.90
Under the lower-of-cost-or-market rule, this inventory item should be valued at
Under the lower of cost or market method, the replacement cost of an inventory item would be used as the designated market value
When it is below the net realizable value and above the net realizable value less the normal profit margin.
The double extension method and the link-chain method are variations of which of the following inventory cost flow methods?
Lin Co. sells its merchandise at gross profit of 30%. The following figures are among those pertaining to Lin's operations for the 6 months ended June 30, year 2:
Beginning inventory 50,000
On June 30, year 2, all of Lin's inventory was destroyed by fire. The estimated cost of this destroyed inventory was
Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data:
Purchases during the year $12.0 million
Shipping costs from overseas I.5 million
Shipping costs to export customers 1.0 million
Inventory at year-end 3.0 million
What amount of shipping costs should be included in Seafood Trading's year-end inventory valuation?
Which of the following inventory methods is not allowed under IFRS?
c. Specific identification.
The following information was taken from Baxter Department Store's financial statements:
Inventory at January I $ 100,000
Inventory at December 31 300,000
Net sales 2,000,000
Net purchases 700,000
What was Baxter's inventory turnover for the year ending December 31?
The following data relate to construction job started by Syl Co. during year I:
Total contract price $100,000
Actual costs during year I 20,000
Estimated remaining costs 40,000
Billed to customer during year I 30,000
Received from customer during year I 10,000
Under the completed-contract method, how much should Syl recognize as gross profit for year I?
What effect does the Garson Co. recorded goods in transit purchased FOS shipping point at year-end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year-end?
Assets Retained earnings
a. No effect Overstated
b. No effect Understated
c. Understated No effect
d. Understated Understated
The following items were included in Venicio Corporation's inventory account at December 31, year I:
Merchandise out on consignment, at sales price, including 40% markup on selling price $14,000
Goods purchased, in transit, shipped FOB shipping point 12,000
Goods held on consignment by Venicio 9,000
Venicio's inventory account at December 31, year I, should be reduced by
The percentage-of-completion method of accounting for long-term construction-type contracts is preferable when
Estimates of costs to complete and extent of progress toward completion are reasonably dependable.
Nomar Co. shipped inventory on consignment to Seabright Co. that cost $20,000. Seabright paid $500 for advertising that was reimbursable from Nomar. At the end
of the year, 70% of the inventory was sold for $30,000. The agreement states that a commission of 20% will be provided to Seabright for all sales. What amount of
net inventory on consignment remains on the balance sheet for the first year for Nomar?
A corporation entered into a purchase commitment to buy inventory. At the end of the accounting period, the current market value of the inventory was less than the fixed purchase price, by a material amount. Which of the following accounting treatments is most appropriate?
a. Describe the nature of the contract in note to the financial statements, recognize loss in the income statement, and recognize liability for the accrued loss.
b. Describe the nature of the contract and the estimated amount of the loss in note to the financial statements, but do not recognize loss in the income statement.
d. Describe the nature of the contract in a note to the financial statements, recognize loss in the income statement, and recognize reduction in inventory equal to
the amount of the loss by use of a valuation account.
d. Neither describe the purchase obligation, nor recognize loss on the income statement or balance sheet.
Describe the nature of the contract in note to the financial statements, recognize loss in the income statement, and recognize liability for the accrued loss.
On April I, year I, Pine Construction Company entered into a fixed-price contract to construct an apartment building for $6,000,000 Pine appropriately accounts for this contract under the percentage-of-completion method. Information relating to the contract is as follows:
Year I Year 2
Percentage of completion 20% 60%
Estimated costs at completion $4,500,000 $4,800,000
Income recognized (cumulative) $300,000 $720,000
What is the amount of contract costs incurred during the year ended December 31, year 2?
Which of the following statements is true with respect to inventory accounting under IFRS?
a. FIFO is not an acceptable method for inventory valuation.
b. Biological assets (agricultural inventory') inventor,' accounting is exempt from lower of cost or net realizable value valuation.
c. LIFO is an acceptable method for inventor,' valuation.
d. Specific identification can be used for all types of inventory.
Biological assets (agricultural inventory') inventor,' accounting is exempt from lower of cost or net realizable value valuation.
Felton Co. had the following first-year amounts related to its construction contract:
Actual costs incurred and paid $2,000,000
Estimated costs to complete 6,000,000
Progress billings 1,800,000
Cash collected 1,500,000
What amount should Felton recognize as current liability at year-end, using the percentage-of-completion method?
Acme Co.'s accounts payable balance at December 31 was $850,000 before necessary year-end adjustments, if any, related to the following information:
At December 31, Acme has a $50,000 debit balance in its accounts payable resulting from payment to supplier for goods to be manufactured to Acme's specifications.
Goods shipped FOB destination on December 20 were received and recorded by Acme on January 2; the invoice cost was $45,000.
In its December 31 balance sheet, what amount should Acme report as accounts payable?
Diego Corporation values its inventory at the lower of cost or net realizable value as required by IFRS. Diego has the following information regarding its inventory.
Historical cost $100,000
Estimated selling price 98,000
Estimated costs to complete and sell 3,000
Replacement cost 90,000
What is the amount for inventory that Diego should report on the balance sheet under the lower of cost or net realizable value method?
Which of the following statements is false regarding inventory costing methods?
a. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.
b. LIFO tends to smooth out the net income patterns since it matches current cost of goods sold with current revenue, when inventories remain at constant
c. If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during period of rising prices.
d. When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customery levels), there may be matching of old
costs with current revenue.
LIFO tends to smooth out the net income patterns since it matches current cost of goods sold with current revenue, when inventories remain at constant
Ashe Co. recorded the following data pertaining to raw material X during January year 2:
Date Received Cost Sold On hand
1/1/Y2 Inventory $8.00 3,200
1/1/Y2 Sale 1,600 1,600
1/22/Y2 Purchase 4,800 $9.60 6,400
The moving-average unit cost of X inventory at January 31, Year 2, is
Which inventory costing method would company that wishes to maximize profits in period of rising prices use?
Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?
The following costs pertain to Den Co.'s purchase of inventory:
700 units of product A $3,750
Cost of materials and labor incurred to bring product A to saleable condition 900
Insurance cost during transit of purchased goods 100
What amount should Den record as the cost of inventory as result of this purchase?
Dixon Menswear Shop regularly buys shirts from Colt Company and is allowed trade discounts of 20% and 10% from the list price. Dixon purchased shirts from Colt on May 27, year 2, and received an invoice with a list price amount of $5,000, and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record the purchase at
The following data appeared in the accounting records of retail store for the year ended December 31, year 2:
January I 35,000
December 31 50,000
Sales commissions 5,000
How much was the gross margin?
The following information is available for Cooke Company for year 2:
Net sales $1,800,000
Purchase discounts 25,000
Ending inventory 120,000
The gross margin is 40% of net sales. What is the cost of goods available for sale?
When the double extension approach to the dollar-value LIFO inventor,' method is used, the inventory layer added in the current year is multiplied by an index number. Which of the following correctly states how components are used in the calculation of this index number?
a. In the numerator, the average of the ending inventory at base year cost and at current year cost.
b. In the numerator, the ending inventor,' at base-year cost, and, in the denominator, the ending inventory at current year cost.
c. In the numerator, the ending inventor,' at current year cost, and, in the denominator, the ending inventory at base-year cost.
d. In the denominator, the average of the ending inventory at base-year cost and at current year cost.
In the numerator, the ending inventor,' at current year cost, and, in the denominator, the ending inventory at base-year cost.
During year 2, Dunn Company purchased $1,920,000 of inventory. The cost of goods sold for year 2 was $1,800,000 and the ending inventory at December 31, year 2, was $360,000. What was the inventory turnover for year 2?
The completed-contract method of accounting for long-term construction-type contracts is preferable when
Lack of dependable estimates or inherent hazards cause forecasts to be doubtful.
When should an indicated loss on long-term contract be recognized under the completed-contract method and the percentage-of-completion method, respectively?
Completed-contract Percentage -of-completion
a. Immediately Immediately
b. Immediately Over the life of the project
c. Completion of contract Over the life of the project
d. Completion of contract Immediately
What is the appropriate treatment for goods held on consignment?
The goods should be included in ending inventory of the consignor.
A flash flood swept through Hat, Inc.'s warehouse on May I. After the flood, Hat's accounting records showed the following:
Inventory, January I $ 35,000
Purchases, January I through May I 200,000
Sales, January I through May 250,000
Inventory not damaged by flood 30,000
Gross profit percentage on sales 40%
What amount of inventory was lost in the flood?
During year 2, Kam Co. began offering its goods to selected retailers on consignment basis. The following information was derived from Kam's year 2 accounting
Beginning inventory $122,000
Transportation to consignees 5,000
Ending inventory—held by Kam 145,000
—held by consignees 20,000
In its year 2 income statement, what amount should Kam report as cost of goods sold?
From theoretical viewpoint, which of the following costs would be considered inventoriable?
d. Freight-in and Warehousing
Freight-in and Warehousing
In periodic inventory system which uses the FIFO cost flow method, the cost of goods available for sale is net purchases
Plus the beginning inventory.
In periodic inventory system that uses the weighted-average cost flow method, the beginning inventory is the
Total goods available for sale minus the net purchases.
Which of the following statements regarding inventory accounting systems is true?
a. An advantage of the perpetual inventory system is that the recordkeeping required to maintain the system is relatively simple.
b. A disadvantage of the periodic inventory system is that the cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
c. A disadvantage of the perpetual inventory system is that the inventory dollar amounts used for interim reporting purposes are estimated amounts.
d. An advantage of the periodic inventory system is that it provides continuous record of the inventory balance.
A disadvantage of the periodic inventory system is that the cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
The following data were available from Mith Co.'s on December 31, year 2:
Finished goods inventory, 1/1/Y2 $120,000
Finished goods inventory, 12/31/Y2 110,000
Cost of goods manufactured 520,000
Loss on sale of plant equipment 50,000
The cost of goods sold for year 2 was
The following information is available for the Silver Company for the 3 months ended March 31, year 2.
Merchandise inventory, January I, year 2 $ 900,000
The gross margin recorded was 25% of sales. What should be the merchandise inventory at March 31, year 2?
Trans Co. uses periodic inventory system. The following are inventory transactions for the month of January:
1/1 Beginning inventory 10,000 units at $3
1/5 Purchase 5,000 units at $4
1/15 Purchase 5,000 units at $5
1/20 Salas at $10 per unit 10,000 units
Trans uses the average pricing method to determine the value of its inventory. What amount should Trans report as cost of goods sold on its income statement for the month of January?
Loft Co. reviewed its inventory values for paper pricing at year-end. The following summarizes inventory items examined for the lower of cost or market:
Inventory item #1 Inventory item #2
Original cost $210,000 $400,000
Replacement 150,000 370,000
Net Realizable 240,000 410,000
value less profit
margin 208,000 405,000
What amount should Loft include in inventory at year-end, if it uses the total of the inventory to apply the lower of cost or market?
The following information was obtained from Smith Co.:
Beginning inventory 30,000
Ending inventory 18,000
Smith's gross margin is 20%. What amount represents Smith purchases?
On September 30, year 2, fire at Brock Company's only warehouse caused severe damage to its entire inventory. Based on recent history, Brock has gross profit of 30% of net sales. The following information is available from Brock's records for the 9 months ended September 30, year 2:
Inventory at 1/1/Y1 $ 550,000
Net sales 4,000,000
A physical inventory disclosed usable damaged goods which Brock estimates can be sold to jobber for $50,000. Using the gross profit method, the estimated cost of goods sold for the g months ended September 30, year 2, should be