Test Bank ch-8 Intermediate Accounting Donald E. Kieso; Jerry J. Weygandt; Terry D. Warfield PDF

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CHAPTER 8VALUATION OF INVENTORIES:A COST-BASIS APPROACHTRUE-FALSE—ConceptualAnswer No. DescriptionT 1. Work-in-process inventory. F 2. Merchandising and manufacturing inventory accounts. T 3. Disclosure of manufacturer’s inventory components. T 4. Goods in transit FOB shipping point. F 5. Reporting ...

Description

CHAPTER 8 VALUATION OF INVENTORIES: A COST-BASIS APPROACH TRUE-FALSE—Conceptual Answer T F T T F T F F T F T F F F T T T F F T F T F F T F F T F 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.

Work-in-process inventory. Merchandising and manufacturing inventory accounts. Disclosure of manufacturer’s inventory components. Goods in transit FOB shipping point. Reporting inventory on consignment. Allocating cost of goods available for sale. Perpetual inventory system. Determining when title passes. Overstatement of purchases and ending inventory. Period vs. product costs. Reporting Purchase Discounts Lost. Capitalizing interest costs. Accounting for a trade discount. Accounting for freight costs. Abnormal freight costs. Valuing agricultural inventories. Specific identification method. Specific identification method. Cost flow assumption. FIFO periodic vs. perpetual system. LIFO perpetual vs. LIFO periodic. Purchase commitments. Using LIFO for reporting purposes. LIFO liquidation. LIFO liquidations. Dollar-value LIFO method. LIFO-FIFO comparison. LIFO conformity rule. Selection of inventory method. Appropriateness of LIFO.

MULTIPLE CHOICE—Conceptual Answer c b b b c

No.

Description

31. 32. 33. 34. 35.

Identify manufacturer inventory similar to merchandise inventory. Classification of raw materials. Accounts included in inventory. Reporting inventory in financial statements. Reporting merchandise inventory.

Test Bank for Intermediate Accounting: IFRS Edition

8-2 c b b a c a d b b c d b a d d a c b b d b a a d b b a b c c c c d d a b d b d a a c a b b a b a b a b

36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. S 52. P 53. P 54. S 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. S 72. 73. 74. 75. 76. 77. 78. P 79. 80. 81. 82. 83. 84. 85. 86.

Allocating cost of goods available for sale. Reporting inventory shortage. Impact of inventory consignment error. Reason inventories are included in net income computation. Characteristic of perpetual inventory system. Reporting consignment inventory in balance sheet. Reporting goods in transit purchased f.o.b. destination. Effect of inventory error on net income. Effect of goods in transit on the current ratio. Description of consigned inventory. Entries under perpetual inventory system. Classification of goods in transit. Classification of goods in transit. Identify inventory ownership. Identify a product financing arrangement. Identify ownership under product financing arrangement. Valuation of inventories. Classification of beginning inventory. Effect of beginning inventory overstated. Effect of understating purchases. Effect of recording merchandise on consignment. Effect of ending inventory overvaluation. Effect of inventory errors on income. Effect of understating purchases and ending inventory. Effect of beginning inventory overstatement. Misstatement of inventory. Costs included in inventory. Accounting for interest costs. Accounting for trade discounts to customers. Treatment of selling costs. Reporting of freight costs. Identification of a product cost. Identification of a period cost. Method used to record cash discounts. Identification of inventory costs. Identification of product costs. Identifying inventoriable costs. Interest capitalization in manufacturing inventory. Determine cost of purchased inventory, using net method. Determine cost of purchased inventory, using gross method. Recording inventory purchases at gross or net amounts. Recording inventory purchases at gross or net amounts. Nature of trade discounts. Method approximating current cost. Weighted-average inventory method. Nature of FIFO valuation of inventory. Flow of costs in a manufacturing situation. FIFO and decreasing prices. FIFO and increasing prices. FIFO and increasing prices. FIFO and LIFO inventory assumptions.

Valuation of Inventories: A Cost-Basis Approach

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

No. 87. 88. 89. 90. 91. 92. 93. 94. *95. *96. *97. *98. *99. *S100. *S101. *102. *103.

Description LIFO and increasing prices. Periodic and perpetual inventory methods. Appropriateness of specific identification method. FIFO and rising prices. LIFO and falling prices. Specific identification method use. IASB and specific identification method. IASB and LIFO. LIFO reserve definition. LIFO reserve account classification. Identify LIFO liquidation. Obtaining price index under dollar-value LIFO. Description of LIFO layer. Dollar-value LIFO method. Identifying advantages of LIFO. LIFO for tax purposes and external reporting. LIFO advantages.

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

MULTIPLE CHOICE—Computational Answer c c d d d c b c d a a d d d b d d b a d b c a

No. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. *121. 122. 123. 124. 125. 126.

Description Classification as inventory. Classification as inventory. Perpetual inventory method. Perpetual inventory method. Calculate ending inventory. Calculate ending inventory. Calculate total assets and net income. Calculate total assets and net income. Effect of inventory and depreciation errors on income. Effect of inventory and depreciation errors on retained earnings. Effect of inventory errors on working capital. Calculate cost of goods available for sale. Accounting for a purchase return (net method). Adjust Accounts Payable using the net method. Calculate ending inventory using weighted-average. Calculate ending inventory using moving average. Calculate ending inventory using LIFO. Calculate cost of goods sold using FIFO. Effect of using LIFO or FIFO. Perpetual inventory—FIFO valuation. Perpetual inventory—average cost valuation. Cost flow assumptions. Cost flow assumptions.

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Test Bank for Intermediate Accounting: IFRS Edition

MULTIPLE CHOICE—Computational (cont.) Answer

No.

Description

c b a d c d d a c c c c b b c b c b c c a b b d a c d

127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153.

Calculate units in ending inventory. Calculate cost of goods sold. Calculate cost of goods sold using average cost. Calculate ending inventory using average cost. Calculate ending inventory using FIFO. Calculate cost of goods sold using FIFO. Calculate ending inventory using LIFO. Perpetual inventory—LIFO valuation. Perpetual inventory—LIFO valuation. Calculate cost of goods sold using LIFO. LIFO reserve. LIFO reserve. LIFO liquidation. LIFO liquidation Dollar-value LIFO. Dollar-value LIFO. Dollar-value LIFO. Dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate price index using double extension method. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO.

a c d b d a b c c a c c a b

154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166. 167.

Identification of inventory costs. Determine cost of purchased inventory. Determine cost of sales. Calculate Accounts Payable at year end. Calculate Accounts Payable at year end. Calculate Accounts Payable at year end. Determine cost of purchased inventory. Determine cost of purchased inventory. Calculate unit cost using moving-average method. Periodic and perpetual inventory methods. FIFO and LIFO with increasing prices. Calculate ending inventory using LIFO. Dollar-value LIFO and the double extension approach. Calculate ending inventory using dollar-value LIFO.

MULTIPLE CHOICE—CPA Adapted

Valuation of Inventories: A Cost-Basis Approach

EXERCISES Item

Description

E8-168 E8-169 E8-170 E8-171 E8-172 E8-173 E8-174 E8-175 *E8-176 *E8-177

Recording purchases at net amounts. Recording purchases at net amounts. Comparison of FIFO and Average cost. FIFO and Average cost inventory methods. FIFO and LIFO periodic inventory methods. FIFO and average cost. FIFO and LIFO-periodic. Periodic FIFO and perpetual LIFO. Perpetual LIFO. Dollar-value LIFO.

PROBLEMS Item

Description

P8-178 P8-179 P8-180 P8-181 *P8-182 *P8-183

Inventory cut-off. Analysis of errors. Accounting for purchase discounts. Inventory methods. Dollar-value LIFO. Dollar-value LIFO.

CHAPTER LEARNING OBJECTIVES 1.

Identify major classifications of inventory.

2.

Distinguish between perpetual and periodic inventory systems.

3.

Identify the effects of inventory errors on the financial statements.

4.

Understand the items to include as inventory cost.

5.

Describe and compare the methods used to price inventories.

*6.

Describe the LIFO cost flow assumption.

*7.

Explain the significance and use of a LIFO reserve.

*8.

Understand the effect of LIFO liquidations.

*9.

Explain the dollar-value LIFO method.

*10.

Identify the major advantages and disadvantages of LIFO.

*11.

Understand why companies select given inventory methods.

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Test Bank for Intermediate Accounting: IFRS Edition

SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item 1. 2. 4. 5. 6. 7. 8.

Type

Item

TF TF

3. 31.

TF TF TF TF TF

36. 37. 38. 39. 40.

Type TF MC MC MC MC MC MC

Item

Item

Type

32. 33.

Learning Objective 1 MC 34. MC 104. MC 35. MC 105.

MC MC

41. 42. 43. 44. 45.

Learning Objective 2 MC 46. MC 51. S MC 47. MC 52. P MC 48. MC 53. MC 49. MC 106. MC 50. MC 107.

MC MC MC MC MC

9. 54. S 55.

TF MC MC

56. 57. 58.

MC MC MC

59. 60. 61.

10. 11. 12. 13. 14.

TF TF TF TF TF

15. 16. 62. 63. 64.

TF TF MC MC MC

65. 66. 67. 68. 69.

17. 18. 19. 20. 79. 80. 81.

TF TF TF TF MC MC MC

82. 83. 84. 85. 86. 87. 88.

MC MC MC MC MC MC MC

89. 90. 91. 92. 93. 118. 119.

21. 94.

TF MC

121. 133.

MC MC

134. 135.

22.

TF

23.

TF

95.

P

24.

TF

26. 98. 99.

TF MC MC

25.

TF

97.

100. 141. 142. 143.

MC MC MC MC

144. 145. 146. 147.

S

Type

Item

Type

Learning Objective 3 MC 110. MC 113. MC 111. MC 114. MC 112. MC 179. Learning Objective 4 MC 70. MC 75. MC 71. MC 76. S MC 72. MC 77. MC 73. MC 78. MC 74. MC 115. Learning Objective 5 MC 120. MC 128. MC 122. MC 129. MC 123. MC 130. MC 124. MC 131. MC 125. MC 132. MC 126. MC 162. MC 127. MC 163. Learning Objective 6* MC 136. MC 175. MC 174. E 176. Learning Objective 7* MC 96. MC 137. Learning Objective 8* MC 139. MC 140. Learning Objective 9* MC 148. MC 152. MC 149. MC 153. MC 150. MC 166. MC 151. MC 167.

Item

Type

Item

Type

108. 109. 154. 155. 156.

MC MC MC MC MC

157. 158. 159. 178.

MC MC MC P

MC MC MC MC MC

116. 117. 157. 160. 161.

MC MC MC MC MC

168. 169. 180.

E E P

MC MC MC MC MC MC MC

164. 165. 170. 171. 172. 173. 174.

MC MC E E E E E

175. 176. 181.

E E P

E E

181.

P

MC

138.

MC

177. 182. 183.

E P P

MC MC P

MC MC MC MC MC

Valuation of Inventories: A Cost-Basis Approach

27.

TF

28.

TF

29.

TF

30.

TF

Note:

Learning Objective 10* 101. MC 102. MC 103. Learning Objective 11 170. E

S

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

MC

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Test Bank for Intermediate Accounting: IFRS Edition

TRUE FALSE—Conceptual 1.

A manufacturing concern would report the cost of units only partially processed as inventory in the statement of financial position.

2.

Both merchandising and manufacturing companies normally have multiple inventory accounts.

3.

IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes.

4.

Goods in transit, shipped FOB shipping point, are included in the buyer’s statement of financial position at the time of delivery to the common carrier.

5.

Tang, Inc. sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position.

6.

Companies must allocate the cost of all the goods available for sale (or use) between the income statement and the statement of financial position.

7.

When using a perpetual inventory system, freight charges on goods purchased are debited to Freight-In.

8.

If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier.

9.

If both purchases and ending inventory are overstated by the same amount, net income is not affected.

10.

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

11.

Purchase Discounts Lost is a financial expense and is reported in the “other income and expense” section of the income statement.

12.

Interest costs incurred to manufacture large quantities of inventory that are produced routinely should be capitalized.

13.

A trade discount that is granted as an incentive for a first-time customer or as a reward for large order should be accounted for by the purchaser as revenue.

14.

Freight costs incurred by the seller to ship merchandise to the purchaser are accounted for by the seller as part of inventory on the statement of financial position.

15.

Abnormal freight costs are not included on the statement of financial position as part of the cost of inventory.

16.

Under IFRS, agricultural inventories, such as wheat, oranges, etc., are recorded at their fair value less estimated selling costs at the point of harvest.

Valuation of Inventories: A Cost-Basis Approach

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17.

The International Accounting Standards Board (IASB) requires the specific identification method of inventory costing where individual items of inventory can be identified and costed.

18.

The International Accounting Standards Board requires the specific identification method when unit price is low, inventory turnover is high, and inventory quantities are large.

19.

The cost flow assumption adopted must be consistent with the physical movement of the goods.

20.

In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

*21.

The LIFO perpetual method results in the same ending inventory and cost of goods sold amounts as under the LIFO periodic method.

*22.

The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

*23.

Many companies use LIFO for both tax and internal reporting purposes.

*24.

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

*25.

LIFO liquidations can occur frequently when using a specific-goods approach.

*26.

The dollar-value LIFO method measures any increases and decreases in a pool in terms of total dollar value and physical quantity of the goods.

*27.

A disadvantage of LIFO is that it does not match more recent costs against current revenues as well as FIFO.

*28.

The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes.

*29.

Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as production increases.

*30.

LIFO is inappropriate where unit costs tend to decrease as production increases.

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

Ans. T F T T F

Item 6. 7. 8. 9. 10.

Ans. T F F T F

Item 11. 12. 13. 14. 15.

Ans. T F F F T

Item 16. 17. 18. 19. 20.

Ans. T T F F T

Item *21. *22. *23. *24. *25.

Ans. F T F F T

Item *26. *27. *28. *29. *30.

Ans. F F T F T

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Test Bank for Intermediate Accounting: IFRS Edition

MULTIPLE CHOICE—Conceptual 31.

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer? a. Raw materials. b. Work-in-process. c. Finished goods. d. Supplies.

32.

Where should raw materials be classified on the statement of financial position? a. Prepaid expenses. b. Inventory. c. Equipment. d. Not on the statement of financial position.

33.

Which of the following accounts is not reported in inventory? a. Raw materials. b. Equipment. c. Finished goods. d. Supplies.

34.

Computers For You is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account reported on the statement of financial position for Computers For You at December 31, 2011? a. Computer purchased for resale during November 2011. b. Shelving materials purchased during December 2011. c. Freight costs related to the computers purchased in November. d. All of the choices are included in the merchandise inventory account at December 31, 2011.

35.

Culver Company purchases the majority of its inventory from three primary suppliers for re-sale to customers around the world. Culver Company’s statement of financial position will include a. Finished goods inventory. b. Work-in-process inventory. c. Merchandise inventory. d. All of the choices are correct.

36.

Companies must allocate the cost of all the goods available for sale (or use) between a. The cost goods on hands at the beginning of the period as reported on the statement of financial position and the cost of goods acquired or produced du...