Ch09 kieso ifrs test bank PDF

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CHAPTER 9INVENTORIES: ADDITIONAL VALUATION ISSUESTRUE-FALSE—ConceptualAnswer No. DescriptionT 1. When to use lower-of-cost-or-net realizable value. F 2. Lower-of-cost-or-net realizable value and conservatism. T 3. Lower-of-cost-or-net realizable value and consistency. F 4. IFRS and inventory write-d...

Description

CHAPTER 9 INVENTORIES: ADDITIONAL VALUATION ISSUES TRUE-FALSE—Conceptual Answer T F T F F T F T T T T T T F F T F T F T F T F F T F T F T T

No.

Description

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

When to use lower-of-cost-or-net realizable value. Lower-of-cost-or-net realizable value and conservatism. Lower-of-cost-or-net realizable value and consistency. IFRS and inventory write-down. LCNRV under IFRS. Reporting biological assets. Reporting unrealized gains/losses on biological assets. Valuing commodities held by broker-traders. Reversal of inventory write-downs. Agricultural activity assets. Inventory valued by broker-trade. Accounting for agricultural produce. Valuation using relative sales value. Definition of a basket purchase. Recording purchase commitments. Loss on purchase commitments. Recording noncancelable purchase contract. Recognizing loss on noncancelable purchase contract. Recovery of loss on purchase commitment. Gross profit method. Gross profit percentage. Disadvantage of gross profit method. Conventional retail method. Definition of markup. Accounting for abnormal shortages. Computing inventory turnover ratio. Average days to sell inventory. IFRS and LIFO method. GAAP requirements for inventory. IFRS requirements for inventory.

MULTIPLE CHOICE—Conceptual Answer a c d a c a d

No.

Description

31. 32. S 33. 34. 35. 36. 37.

Definition of "LCNRV." Application of lower-of-cost-or-market valuation. Recording inventory loss under direct method. Lower-of-cost-or-net realizable value description. Reason inventories are stated at LCNRV. Acceptable approaches in applying LCNRV. Methods used to record inventory loss.

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Test Bank for Intermediate Accounting: IFRS Edition

MULTIPLE CHOICE—Conceptual (cont.) Answer b d c b b a c a b d a a b d c a d d b d c a d b a a d a b d a b b a c a d

No. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. P 50. 51. 52. 53. S 54. 55. 56. 57. 58. 59. 60. 61. 62. S 63. S 64. 65. 66. 67. 68. 69. P 70. P 71. 72. 73. 74.

Description Net realizable value under LCNRV. Definition of "net realizable value." Reporting decline in inventory value. Lower-of-cost-or-net realizable value. Inventory write-downs and recoveries. IFRS and net-realizable value. Types of agricultural activity assets. Definition of agricultural produce. Commodity broker-traders inventory. Appropriate use of net realizable value. Material purchase commitments. Loss recognition on purchase commitments. Reporting purchase commitments loss. Accounting for purchase commitments. Record unrealized losses on purchase commitments. Use of gross profit method. Gross profit method assumptions. Appropriate use of the gross profit method. Appropriate use of the gross profit method. Advantage of retail inventory method. Conventional retail inventory method. Assumptions of the retail inventory method. Appropriate use of the retail inventory method. Markdowns and the conventional retail method. Markups and the conventional retail method. Information needed in retail inventory method. Reasons for using retail inventory method. Condition necessary to use retail method. Conventional retail method. Net markups and the conventional retail method. Freight-in and the conventional retail method. Common inventory disclosures. Inventory cost flow assumptions. Computing average days to sell inventory. Inventory turnover ratio. IFRS and LIFO. U.S. GAPP and inventory written down.

MULTIPLE CHOICE—Computational Answer a b b a b c

No.

Description

75. 76. 77. 78. 79. 80.

Value inventory at LCM. Lower-of-cost-or-market. Lower-of-cost-or-market. Value inventory at LCM. Value inventory at LCM. Value inventory at LCM.

Inventories: Additional Valuation Issues

Multiple Choice—Computational (cont.) Answer c b c b a c c d c c c c a d a d b b c b d a a c c c b a a d d a a b c b a c c d d c a c b b b a

No. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128.

Description Determine market value under LCM. Value inventory under LCM. Value inventory under LCM. Value inventory under LCM. Value inventory under LCM. Value inventory under LCM. Recording recovery of inventory loss. Valuation of biological assets. Calculate unrealized gain on biological assets. Calculate unrealized gain on biological assets. Calculate unrealized gain on biological assets. Calculate unrealized gain on biological assets. Valuation of biological assets. Calculate unrealized gain on biological assets. Valuation of biological assets. Calculate unrealized gain on biological assets. Relative sales value method. Relative sales value method. Relative sales method of inventory valuation. Calculate cost using relative sales value method. Calculate cost using relative sales value method. Calculate cost using relative sales value method. Entry for purchase commitment loss. Recording purchase under purchase commitment. Entry for purchase commitment loss. Recognizing loss on purchase commitments. Recognizing loss on purchase commitments. Estimating ending inventory using gross profit method. Estimating ending inventory using gross profit method. Calculate cost of goods sold given a markup on cost. Calculate merchandise purchases given a markup on cost. Calculate total sales from cost information. Markup on cost equivalent to a markup on selling price. Estimate ending inventory using gross profit method. Calculate ending inventory using gross profit method Calculate ending inventory using gross profit method. Estimate cost of inventory destroyed by fire. Determine gross profit as percentage of cost. Calculate gross profit amount. Calculate ending inventory using gross profit method. Calculate ending inventory using gross profit method. Calculate ending inventory using gross profit method. Calculate ending inventory using conventional retail. Calculate ending inventory using conventional retail. Calculate ending inventory using conventional retail. Calculate cost of retail ratio to approximate LCM. Calculate ending inventory at retail. Calculate cost to retail ratio approximating LCM.

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Test Bank for Intermediate Accounting: IFRS Edition

MULTIPLE CHOICE—Computational (cont.) Answer b a a d d a c c b d P S

No. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138.

Description Calculate cost of inventory lost using retail method. Calculate ending inventory at retail. Calculate ending inventory at retail. Determine cost to retail ratio to approximate LCM. Calculate ending inventory at retail. Calculate ending inventory using conventional retail. Average days to sell inventory. Average days to sell inventory. Calculate inventory turnover ratio. Calculate inventory turnover ratio.

These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide.

MULTIPLE CHOICE—CPA Adapted Answer d a a d

No. 139. 140. 141. 142.

Description Recognizing a loss due to LCNRV. Estimate cost of inventory lost by theft. Determine cost of ending inventory using retail method. Determine cost of ending inventory using retail method.

EXERCISES Item E9-143 E9-144 E9-145 E9-146 E9-147 E9-148 E9-149 E9-150 E9-151 E9-152 E9-153

Description Lower-of-cost-or-net realizable value. Lower-of-cost-or-net realizable value. Lower-of-cost-or-net realizable value. LCNRV. LCNRV-journal entries. Valuation at net realizable value. Relative sales value method. Gross profit method. Gross profit method. Gross profit method. Retail inventory method.

Inventories: Additional Valuation Issues

PROBLEMS Item *P9-154 P9-155 P9-156 *P9-157

Description Valuation at net realizable value. Gross profit method. Retail inventory method. Retail inventory method.

CHAPTER LEARNING OBJECTIVES 1. Describe and apply the lower-of-cost-or- net realizable value rule. 2. Explain when companies value inventories at net realizable value. 3. Explain when companies use the relative sales value method to value inventories. 4. Discuss accounting issues related to purchase commitments. 5. Determine ending inventory by applying the gross profit method. 6. Determine ending inventory by applying the retail inventory method. 7. Explain how to report and analyze inventory.

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Test Bank for Intermediate Accounting: IFRS Edition

*SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

MC MC MC MC MC MC

139. 143. 144. 145. 146. 147.

MC E E E E E

MC MC MC MC

96. 148. 154.

MC E P

MC MC MC MC

121. 122. 140. 150.

MC MC MC MC

151. 152. 155.

E E P

133. 134. 141. 142. 153.

MC MC MC MC E

156. 157.

P P

Learning Objective 1 1. 2. 3. 4. 5. 31.

TF TF TF TF TF MC

32. 33. 34. 35. 36. 37.

MC MC MC MC MC MC

38. 39. 40. 41. 42. 75.

6. 7. 8. 9.

TF TF TF TF

10. 11. 12. 43.

TF TF TF MC

44. 45. 46. 47.

13. 14.

TF TF

97. 98.

MC MC

99. 100.

15. 16. 17.

TF TF TF

18. 19. 48.

TF TF MC

20. 21. 22. 53.

TF TF TF MC

S

54. 55. 56. 108.

MC MC MC MC

23. 24. 25. 57. 58.

TF TF TF MC MC

59. 60. 61. 62. S 63.

MC MC MC MC MC

S

64. 65. 66. 67. 68.

MC 123. MC 128. MC 124. MC 129. MC 125. MC 130. MC 126. MC 131. MC 127. MC 132. Learning Objective 7

MC MC MC MC MC

26. 27. 28.

TF TF TF

29. 30. 69.

TF TF MC

P

70. 71. 72.

MC MC MC

MC MC MC

Note:

s

49. 50. 51.

P

109. 110. 111. 112.

P

TF = True-False MC = Multiple Choice E = Exercise P = Problem

MC 76. MC 82. MC 77. MC 83. MC 78. MC 84. MC 79. MC 85. MC 80. MC 86. MC 81. MC 87. Learning Objective 2 MC 88. MC 92. MC 89. MC 93. MC 90. MC 94. MC 91. MC 95. Learning Objective 3 MC 101. MC 149. MC 102. MC Learning Objective 4 MC 52. MC 105. MC 103. MC 106. MC 104. MC 107. Learning Objective 5 MC 113. MC 117. MC 114. MC 118. MC 115. MC 119. MC 116. MC 120. Learning Objective 6

73. 74. 135.

MC MC MC

136. 137. 138.

E

MC MC MC

Inventories: Additional Valuation Issues

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TRUE-FALSE—Conceptual

2.

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

4.

International Financial Reporting Standards (IFRS) require that a company record an inventory write-down as part of cost of goods sold.

5.

Under International Financial Reporting Standards (IFRS), when companies value inventory using the lower-of-cost-or-net realizable value (LCNRV), in most situations, companies price inventory on a total–inventory basis.

7.

The unrealized gains and losses related to recording biological assets at their correct valuation are reported as part of other comprehensive income on the statement of comprehensive income.

14.

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

15.

Most purchase commitments must be recorded as a liability.

.

9-8 17.

Test Bank for Intermediate Accounting: IFRS Edition When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

. 19.

Under International Financial Reporting Standards (IFRS), a company who recorded a loss on a purchase commitment in 2011 cannot record a recovery of that loss in 2012 if price improve.

21.

In most situations, the gross profit percentage is stated as a percentage of cost.

. 23.

When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-net realizable value valuation.

24.

In the retail inventory method, the term markup means a markup on the original cost of an inventory item.

26.

The inventory turnover ratio is computed by dividing the cost of goods sold by the ending inventory on hand.

28.

Under IFRS, LIFO is permitted for financial reporting purposes if the company’s host country permits it for tax purposes.

True False Answers—Conceptual Item 1. 2. 3. 4. 5.

Ans. T F T F F

Item 6. 7. 8. 9. 10.

Ans. T F T T T

Item 11. 12. 13. 14. 15.

Ans. T T T F F

Item 16. 17. 18. 19. 20.

Ans. T F T F T

Item 21. 22. 23. 24. 25.

Ans. F T F F T

Item 26. 27. 28. 29. 30.

Ans. F T F T T

Inventories: Additional Valuation Issues

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MULTIPLE CHOICE—Conceptual 31.

LCNRV of inventory a. is always either the net realizable value or its cost. b. should always be equal to net realizable value. c. may sometimes be less than net realizable value. d. should always be equal to net realizable value less costs to complete.

32.

Lower-of-cost-or-net realizable value a. gives the lowest valuation if applied to the total inventory. b. gives the lowest valuation if applied to major groups of inventory. c. gives the lowest valuation if applied to individual items of inventory. d. must be applied to major groups for taxes.

S

33.

When the cost-of-goods-sold method is used to record inventory at net realizable value a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale. b. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline. c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements. d. the net realizable value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.

34.

Lower-of-cost-or-net realizable value as it applies to inventory is best described as the a. reporting of a loss when there is a decrease in the future utility below the original cost. b. method of determining cost of goods sold. c. assumption to determine inventory flow. d. change in inventory value to net realizable value.

35.

Why are inventories stated at lower-of-cost-or-net realizable value? a. To report a loss when there is a decrease in the future utility. b. To be conservative. c. To report a loss when there is a decrease in the future utility below the original cost. d. To permit future profits to be recognized.

36.

Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value method to inventory? a. Inventory location. b. Groups of inventory items. c. Individual item. d. Total of the inventory.

37.

Which method(s) may be used to record a loss due to a price decline in the value of inventory? a. Loss method. b. Sales method. c. Cost-of-goods-sold method. d. Both a and c.

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Test Bank for Intermediate Accounting: IFRS Edition

38.

When inventory declines in value below original (historical) cost what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Sales price reduced by estimated costs to sell

39.

Net realizable value is a. fair value plus estimated costs to complete and make a sale. b. selling price. c. selling price plus estimated costs to complete and make a sale. d. selling price less estimated costs to complete and make a sale.

40.

Shake Company’s inventory experienced a decline in value necessitating a write-down to lower of cost or net realizable value (LCNRV) of $230,000. This amount is material to Shake’s income statement and the company follows IFRS. Where should Shake Company report this decline in value according to IFRS? I. As a loss on the income statement. II. As a separate component of other comprehensive income on the statement of comprehensive income. III. As part of cost of goods sold on the income statement. a. Shake must use I. b. Shake must use I, II or III. c. Shake must use I, or III. d. Shake must use III.

41.

Which of the following statements is incorrect regarding the lower-of-cost-or-net realizable value (LCNRV)? a. Net realizable value (NRV) is the selling price less estimated costs to complete and estimated costs to make a sale. b. In most situations, companies price inventory on a total-inventory basis. c. One of two methods may be used to record the income effect of valuing inventory at net realizable value. d. Companies use an allowance account, the “Allowance to Reduce Inventory to Net Realizable Value.”

42.

Under International Financial Reporting Standards (IFRS), which of the following is true regarding inventory write-downs and/or recovery of a write-down? a. Recovery of inventory write-downs is prohibited under IFRS. b. IFRS requires separate reporting of reversals of inventory write-downs. c. IFRS requires companies to record write-downs in a separate loss account. d. All of the choices are correct regarding IFRS and write-downs and/or recoveries.

43.

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory? a. Commodities held by broker-traders. b. Computer components held for sale to manufacturers. c. Inventories priced on an item by-item basis, but not those priced on a total-inventory basis. d. All of the choices are held at NRV under IFRS.

Inventories: Additional Valuation Issues

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44.

Under International Financial Reporting Standards (IFRS), agricultural activity results in which of the following types of assets? I. Agricultural produce II. Biological assets a. I only. b. II only. c. I and II. d. Neither I nor II.

45.

Agricultural produce is a. Harvested from biological assets. b. Valued at the time of harvest at its cost to produce. c. Valued at each reporting period at its fair value less costs to sell. d. All of the choices are correct regarding agricultural produce.

46.

Commodity broker-traders a. Produce or raise commodities such as corn, wheat, or precious metals. b. Hold their inventory primarily to sell the commodities in the near term and generate a profit from price fluctuations. c. Value their inventories at the lower-of-cost-or-net realizable value (LCNRV). d. All of the choices are correct regarding broker-traders.
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