Chapter 4 PAS 2 Inventories docx PDF

Preview

Summary

CALAMBA CAMPUS, BRGY. PACIANO RIZALCALAMBA CITY, LAGUNA, PHILIPPINESChapter 4 – PAS 2 INVENTORIES EDMUND E. HILARIO, CPA, MBA SYNTHESIS IN FIN ACCTG THEORY 1 St SEMESTER 2019 – 2020 =================================================================================MULTIPLE CHOICE PROBLEMS (PAS 2) Inve...

Description

UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA CALAMBA CAMPUS, BRGY. PACIANO RIZAL CALAMBA CITY, LAGUNA, PHILIPPINES Chapter 4 – PAS 2 INVENTORIES EDMUND E. HILARIO, CPA, MBA SYNTHESIS IN FIN ACCTG THEORY 1St SEMESTER 2019 – 2020 ================================================================================= MULTIPLE CHOICE PROBLEMS (PAS 2) 1. Inventories are assets (choose the incorrect one) a. Held for sale in the ordinary course of business. b. In the process of production for sale. c. In the form of materials or supplies to be consumed in the production process or in the rendering of services. d. Held for use in the production or supply of goods or services. 2.

3.

4.

5.

Inventories encompass all of the following, except a. Merchandise purchased by a retailer b. Land and other property not held for sale c. Finished goods produced d. Materials and supplies awaiting use in the production process Inventories shall be measured at a. Cost b. Net realizable value c. Lower of cost or fair value less cost to sell d. Lower of cost or net realizable value The cost of inventory shall comprise all of the following costs, except a. Cost of purchase b. Cost of conversion c. Other cost incurred in bringing the inventory to its present location and condition d. Abnormal amount of wasted material The a. b. c. d.

6.

7.

cost of purchase of inventory does not include Purchase price Import duties and taxes Freight, handling and other costs directly attributable to the acquisition of goods Trade discounts, rebates and other similar items

The costs of conversion of inventory include all of the following, except a. Costs directly related to the units of production, such as direct labor b. Systematic allocation of fixed production overhead c. Systematic allocation of variable production overhead d. Systematic allocation of administrative overhead Which of the following costs of conversion cannot be included in cost of inventory? a. Cost of direct labor b. Factory rent and utilities c. Salaries of sales staff (sales department shares the building with factory) d. Factory overhead based on normal capacity

8.

Fixed production overheads include all of the following, except a. Indirect materials and indirect labor b. Depreciation of factory building c. Maintenance of factory equipment d. Cost of factory management and administrative

9.

The allocation of fixed factory overhead to the cost of conversion is based on a. Normal capacity of the production facilities b. Actual use of the production facilities c. Either the normal capacity or actual use of the production facilities d. Relative sales value method

10. Costs that are incurred in bringing the inventories to their present location and condition are capitalized as cost of inventories and these include

a. b. c. d.

Cost of designing products for specific customers Abnormal amount of wasted material, labor and production cost Storage cost not necessary in the production process before a further production stage Selling cost

11. The a. b. c. d.

cost of inventory shall be measured using FIFO Average method LIFO Either FIFO or average method

12. Net a. b. c.

realizable value is Current replacement cost Estimated selling price Estimated selling price less estimated cost to complete Estimated selling price less estimated cost to complete and estimated cost to sell

d.

13. Inventories are usually written down to net realizable value a. Item by item c. By classification b. By total d. By segment 14. The amount of any write-down of inventory to net realizable value and all losses of inventory shall be a. Recognized as operating expense in the period the write-down or loss occurs. b. Recognized as other expense in the period the writedown or loss occurs. c. Recognized as component of cost of sales in the period the write-down or loss occurs. d. Deferred until the related inventory is sold. 15. The cost of inventories may not be recoverable under all of the following conditions, except a. The inventories are damaged. b. The estimated costs of completion or the estimated costs to sell have increased. c. The inventories have become wholly or partially obsolete. d. The selling prices have increased. 16. This costing method is appropriate for inventories that are segregated for a specific project and inventories that are not ordinarily interchangeable. a. Specific identification c. Standard cost b. Relative sales price d. Net realizable value 17. The costs of inventory of a service provider include all of the following, except a. Labor and other costs of personnel directly engaged in providing the service. b. Compensation of supervisor personnel directly engaged in providing the service. c. Attributable overhead incurred in providing the service d. Profit margin factored into the price charged against the customer by the service provider. 18. The inventory of a service provider may simply be described as a. Work in progress c. Unbilled services b. Billed services d. Services inventory 19. When agricultural crops have been harvested or mineral ores have been extracted and a sale is assured under a forward contract or government guarantee, such inventories are measured at a. Net realizable value c. Cost b. Standard cost d. Relative sales price

================================================================================================== Page 1 of 6

UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA CALAMBA CAMPUS, BRGY. PACIANO RIZAL CALAMBA CITY, LAGUNA, PHILIPPINES Chapter 4 – PAS 2 INVENTORIES EDMUND E. HILARIO, CPA, MBA SYNTHESIS IN FIN ACCTG THEORY 1St SEMESTER 2019 – 2020 ================================================================================= large through its chain of retail outlets. The retailer purchases merchandise from the manufacturer under a consignment contract. When should revenue from the sale of merchandise to the retailer be recognized by the manufacturer? a. When goods are delivered to the retailer. b. When goods are sold by the retailer. c. It will depend on the terms of delivery of the merchandise, for example, CIF or FOB. d. It will depend on the terms of payment.

20. Commodities of broker-traders are measured at a. Fair value b. Fair value less cost to sell c. Cost d. Net realizable value MULTIPLIE CHOICE PROBLEMS (IFRS) 1. Which of the following should not be taken into account when determining the cost of inventories? a. Storage costs of part-finished goods b. Trade discounts c. Recoverable purchase taxes d. Import duties on shipping of inventory inward 2.

How should prompt payment discount be dealt with when valuing inventories at the lower of cost and net realizable value? a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost

3.

How should sales staff commission be dealt with when valuing inventories at the lower of cost and net realizable value? a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost

4.

How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value? a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost

5.

The following statements relate to inventory. Which statement is true? I. Cost of factory management shall be included in the cost of inventory. II. Maintenance expense for an item of equipment used in the manufacturing process shall be included in the cost of inventory. a. I only c. II only b. Both I and II d. Neither I nor II

6.

“Bill and hold” sales, in which delivery is delayed at the buyer’s request but the buyer assumes title and accepts invoicing, shall be recognized when a. The buyer makes an order. b. The seller starts manufacturing the goods. c. The title has been transferred but the goods are kept on the seller’s premises. d. It is probable that the delivery will be made, payment terms have been established and the buyer has acknowledged the delivery instructions.

7.

8.

An entity is a large manufacturer of machines. A major customer has placed an order for a special machine for which it has given a deposit to the entity. The parties have agreed on a price for the machine. As per the terms of the sale agreement, it is FOB or free on board contract and the title passes to the buyer when goods are loaded into the ship at the port. When the revenue should be recognized by the entity a. When the customer orders the machine. b. When the deposit is received. c. When the machine is loaded at the port. d. When the machine has been received by the customer. A large manufacturer of cosmetics sells merchandise to a retailer, which in turn sells the goods to the public at

9.

A new entity manufacturing and selling consumable products has come out with an offer to refund the cost of purchase within one month after the sale if the customer is not satisfied with the product. When should the entity recognize the revenue? a. When goods are sold to the customers. b. After one month of sale. c. Only if goods are not returned by the customers after the period of one month. d. At the time of sale along with an offset to revenue of the liability of the same amount for the possibility of the return.

10. A computer chip manufacturing entity sells its product to its distributors for onward sales to the ultimate customers. Due to frequent fluctuations in the market prices for these goods, the entity has a “price protection” clause in the distributor agreement that entitles it to raise additional billings in case of upward price movement. Another clause in the distributor agreement is that the entity can at any time reduce its inventory by buying back goods at the cost at which it sold the goods to the distributors. Distributors pay for the goods within 60 days from the sale of the goods to them. When should the entity recognize revenue on sale of goods to the distributors? a. When the goods are sold to the distributors. b. When the distributors pay the entity the cost of the goods. c. When goods are sold to the distributors provided estimated additional revenue is also booked under the “protection clause” based on past experience. d. When the distributors sell goods to the ultimate customers and there is no uncertainty with respect to the “price protection” clause or the buyback of goods. MULTIPLE CHOICE PROBLEMS (IAA) 1. Which of the following would not be reported as inventory? a. Land acquired for resale by a real estate firm b. Shares and bonds held for resale by a brokerage firm c. Partially completed goods held by a manufacturing entity d. Machinery acquired by a manufacturing entity for use in the production process 2.

Which of the following describes the flow of product costs through the inventory accounts of a manufacturer? a. Raw materials, goods in process, factory overhead, finished goods. b. Raw materials, goods in process, finished goods. c. Raw materials, direct labor, factory overhead, finished goods. d. Raw materials, direct labor, factory overhead

3.

Which of the following would not be included in the cost of work in process inventory? a. Cost of electricity to operate factory equipment. b. Maintenance cost of factory equipment. c. Depreciation on office equipment in the sales manager’s office d. Depreciation on factory equipment.

================================================================================================== Page 2 of 6

UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA CALAMBA CAMPUS, BRGY. PACIANO RIZAL CALAMBA CITY, LAGUNA, PHILIPPINES Chapter 4 – PAS 2 INVENTORIES EDMUND E. HILARIO, CPA, MBA SYNTHESIS IN FIN ACCTG THEORY 1St SEMESTER 2019 – 2020 ================================================================================= 4.

An example of an inventory accounting policy that should be disclosed is the a. Effect of inventory profit caused by inflation. b. Classification of inventory into raw materials, work in process and finished goods. c. Identification of major suppliers. d. Method used for inventory costing.

5.

Merchandise shipped FOB shipping point on the last day of the year should ordinarily be included in a. The buyer’s inventory balance. b. The seller’s inventory balance. c. Neither the buyer’s nor seller’s inventory balance. d. Both the buyer’s and the seller’s inventory balance.

6.

If goods shipped FOB destination are in transit at the end of the year, they should be included in the inventory balance of the a. Seller c. Common carrier b. Buyer d. Bank

7.

Goods on consignment shall be included in the inventory of a. The consignor but not the consignee. b. The consignee but not the consignor. c. Bothe the consignor and the consignee. d. Neither the consignor nor the consignee.

8.

What is the maximum amount at which inventory can be valued when the goods have experienced a permanent decline in value? a. Historical cost b. Sales price c. Net realizable value d. Net realizable value reduced by a normal profit margin

9.

An entity records inventory at the gross invoice price. Theoretically, how should the following affect the cost of inventory? Warehousing Interest on inventory loan cost a. Increase Increase b. No effect Increase c. No effect No effect d. Increase No effect

10. Cost of goods sold is equal to a. The cost of inventory on hand at the end of a period plus net purchases minus the cost of inventory on hand at the beginning of a period. b. The cost of inventory on hand at the beginning of a period minus net purchases plus the cost of inventory on hand at the end of a period. c. The cost of inventory on hand at the beginning of a period plus net sales minus the cost of inventory on hand at the end of a period. d. The cost of inventory on hand at the beginning of a period plus net purchases minus the cost of inventory on hand at the end of a period. 11. Which of the following inventory method reports most closely the current cost of inventory? a. FIFO c. Specific identification b. Weighted average d. LIFO 12. Which inventory cost flow assumption would consistently result in the highest income in a period of sustained inflation? a. FIFO c. LIFO b. Weighted average d. Specific identification

13. In a period of falling prices, the use of which inventory cost flow method would typically result in the highest cost of goods sold? a. FIFO c. LIFO b. Weighted average d. Specific identification 14. Which inventory pricing method best approximates specific identification in most manufacturing situation? a. Activity-based costing c. FIFO b.

Average cost

d. LIFO

15. In a period of rising prices, the inventory cost allocation method that tends to result in the lowest reported net income is a. LIFO c. FIFO b. Moving average d. Weighted average 16. Which inventory cost flow assumption provides the best measure of earnings, where “best” means most appropriate for predicting future earnings, when prices have been declining? a. FIFO c. Specific identification b. LIFO d. Average cost 17. Which of the following will occur when inventory costs are decreasing? a. LIFO will result in lower net income and lower ending inventory than FIFO. b. FIFO will result in lower net income and lower ending inventory than LIFO. c. LIFO will result in lower net income, but a higher ending inventory than FIFO. d. FIFO will result in lower net income, but a higher ending inventory than LIFO. 18. The a. b. c. d.

term LIFO reserve refers to A cost flow assumption for valuing inventory. A special fund set aside to cover LIFO liquidations. Inventory pools used in the peso-value LIFO method, The difference between the ending inventory amount under LIFO and the ending inventory amount under another inventory cost flow assumption.

19. The specific identification method of inventory costing a. Eliminates all opportunity for profit manipulation. b. Matches the flow of recorded costs with the physical flow of goods. c. Can be used only with a perpetual inventory system. d. Is a violation of generally accepted accounting principles? 20. The costing of inventory must be deferred until the end of the accounting period under which of the following method of inventory valuation? a. Moving average c. Weighted average b. LIFO perpetual d. FIFO perpetual 21. What is the method of accounting for inventories in which the cost of goods sold is recorded each time a sale is made? a. Professional inventory system b. Periodic inventory system c. Perpetual inventory system d. Planned inventory system 22. An entity returned merchandise purchased on account. Under a perpetual inventory system, the account credited in the journal entry to record the return is a. Purchases b. Purchases returns and allowances

================================================================================================== Page 3 of 6

UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA CALAMBA CAMPUS, BRGY. PACIANO RIZAL CALAMBA CITY, LAGUNA, PHILIPPINES Chapter 4 – PAS 2 INVENTORIES EDMUND E. HILARIO, CPA, MBA SYNTHESIS IN FIN ACCTG THEORY 1St SEMESTER 2019 – 2020 ================================================================================= c. d.

Inventory Accounts payable

23. Which of the following is not true of the perpetual inventory method? a. Purchases are recorded as debit to the inventory account b. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory. c. After a physical inventory count, inventory is credited for any missing inventory. d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances. 24. An entry debiting inventory and crediting cost of goods sold would be made when a. Merchandise is sold and the periodic inventory method is used. b. Merchandise is sold and the perpetual inventory method is used. c. Merchandise is returned and the perpetual inventory method is used. d. Merchandise is returned and the periodic inventory method is used. 25. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are a. Expense on the part of the consignor b. Expense on the part of the consignee c. Inventories by the consignor d. Inventories by the consignee 26. During periods of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system would a. Not be permitted. b. Result in a higher ending inventory than a periodic inventory system. c. Result in the same ending inventory as a periodic inventory system. d. Result in a lower ending inventory than a periodic inventory system. 27. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a. Trade discount c. Quantity discount b. Size discount d. Cash discount 28. Which of the following terms represents the deduction from the invoice price of purchased goods granted by suppliers for early payment? a. Sales discount b. Purchase discount c. Trade discount d. Purchase return and allowance 29. When determining the unit cost of an inventory item, which of the following should not be included? a. Interest on loan obtained to purchase the item b. Commission paid when purchased c. Labor cost of the item when manufactured d. Depreciation of plant equipment used in manufacturing the item 30. An exception to the general rule that costs should be charged to expense in the period incurred is a. Factory overhead costs incurred on a product manufactured but not sold during the current accounting period. b. Interest costs for financing of inventories that are routinely manufactured in large quantities on a repetitive basis. c. General and administrative fixed costs incurred in connection with the purchase of inventory.

d.

Sales commission and salary cost...