Transcript
CHAPTER 8 VALUAT VALUATION ION OF INVENTORIES: I NVENTORIES: A COST-BASIS APPROACH
TRUE-FALSE—Conceptual Anse! T F F F T T F T F T T F F T T F F T F T
No" 1. 2. 3. . #. %. '. (. +. 1. 11. 12. 13. 1. 1#. 1%. 1'. 1(. 1+. 2.
#esc!$pt$on Work-in-process inventory. Merchandising and manufacturing inventory accounts. Perpetual inventory system. !etermining "hen title passes. $nventory errors. &verstatement of purchases and ending inventory. Period vs. product costs. )eporting Purchase !iscounts *ost. ,ost flo" assumption. F$F& periodic vs. perpetual system. Purchase commitments. sing *$F& for reporting purposes. *$F& li/uidation. *$F& li/uidations. !ollar-value *$F& !ollar-value *$F& method. *$F&-F$F& comparison. *$F& conformity rule. 0election of inventory method. ppropriateness of *$F&.
%ULTIPLE CHOICE—Conceptual Anse! d a d d a c d a a d
No" 21. 22. 23. 2. 2#. 2%. 2'. 0 2(. 2(. P 2+. 2+. P 3. 3. 0 31. 31. 32. 33. 3. 3#.
#esc!$pt$on ntries under perpetual inventory system. ,lassification of goods in transit. ,lassification of goods in transit. $dentify inventory o"nership. $dentify a product financing arrangement. $dentify o"nership under product financing arrangement. ,lassification of goods on consignment. 4aluati uation on of inven nvento tori ries es.. ,las ,lassi sifi fica cati tion on of of egi eginn nnin ing g inve invent ntor ory y. ffe ffect ct of of egi eginn nnin ing g inve invent ntor ory y over overs state tated. d. ffe ffect ct of unde unders rsta tati ting ng purc purcha hase ses. s. ffect of recording merchandise on consignment. ffect of ending inventory overvaluation. ffect of inventory errors on income. ffect of understating purchases and ending inventory.
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Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
%ULTIPLE CHOICE—Conceptual cont". Anse! d d a a c a d a a a a c d d d a a d c
No" 3%. 3'. 3(. 3+. . 1. 2. 3. 0 . . P #. #. %. '. (. +. #. #1. #2. #3. #. ##. #%. #'. 0 #(. 0 #+. #+. %. %1.
#esc!$pt$on $dentification of product costs. !etermine product costs. $nterest capitali5ation in manufacturing inventory. !etermine cost of purchased inventory6 using net method. !etermine co cost of of pu purchased in inventory6 using gr gross me method. )ecording inventory purchases at gross or net amounts. )ecording inventory purchases at gross or net amounts. 7ature of trade discounts. $den $denti tify fyin ing g inve invent ntor oria ial le e cost costs. s. Meth Method od appr appro8 o8im imat atin ing g cur curre rent nt cost cost.. verage cost inventory valuation. Weighted-average inventory method. 7ature of F$F& valuation of inventory. Flo" of costs in a manufacturing situation. F$F& and decreasing prices. F$F& and increasing prices. F$F& and increasing prices. F$F& and *$F& inventory assumptions. *$F& and increasing prices. 9no"ledge of inventory valuation methods. Periodic and perpetual inventory methods. *$F& reserve account classification. !ollar-va -value *$ *$F& me method. $dent dentif ify ying ing adv advanta antage ges s of of *$F *$F&. *$F& for ta8 purposes and e8ternal reporting. *$F& advantages.
P
These /uestions also appear in the Prolem-0olving 0urvival :uide. These /uestions also appear in the 0tudy :uide.
0
%ULTIPLE CHOICE—Co(putat$onal Anse! c c d d d a a d d d d d a
No" %2. %3. %. %#. %%. %'. %(. %+. '. '1. '2. '3. '. '#. '%.
#esc!$pt$on ,lassification as inventory. ,lassification as inventory. Perpetual inventory method. Perpetual inventory method. ffect of inventory and depreciation errors on income. ffect of inventory and depreciation er errors on retained ea earnings. ffect of inventory errors on "orking capital. ,alculate cost of goods availale for sale. ccounting for a purchase return ;net method<. d=ust ccounts Payale using the net method. ,alculate en ending in inventory using "e "eighted-average. ,alculate ending inventory using moving average. ,alculate ending inventory using *$F&. ,alculate cost of goods sold using F$F&. ffect of using *$F& or F$F&.
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Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
%ULTIPLE CHOICE—Conceptual cont". Anse! d d a a c a d a a a a c d d d a a d c
No" 3%. 3'. 3(. 3+. . 1. 2. 3. 0 . . P #. #. %. '. (. +. #. #1. #2. #3. #. ##. #%. #'. 0 #(. 0 #+. #+. %. %1.
#esc!$pt$on $dentification of product costs. !etermine product costs. $nterest capitali5ation in manufacturing inventory. !etermine cost of purchased inventory6 using net method. !etermine co cost of of pu purchased in inventory6 using gr gross me method. )ecording inventory purchases at gross or net amounts. )ecording inventory purchases at gross or net amounts. 7ature of trade discounts. $den $denti tify fyin ing g inve invent ntor oria ial le e cost costs. s. Meth Method od appr appro8 o8im imat atin ing g cur curre rent nt cost cost.. verage cost inventory valuation. Weighted-average inventory method. 7ature of F$F& valuation of inventory. Flo" of costs in a manufacturing situation. F$F& and decreasing prices. F$F& and increasing prices. F$F& and increasing prices. F$F& and *$F& inventory assumptions. *$F& and increasing prices. 9no"ledge of inventory valuation methods. Periodic and perpetual inventory methods. *$F& reserve account classification. !ollar-va -value *$ *$F& me method. $dent dentif ify ying ing adv advanta antage ges s of of *$F *$F&. *$F& for ta8 purposes and e8ternal reporting. *$F& advantages.
P
These /uestions also appear in the Prolem-0olving 0urvival :uide. These /uestions also appear in the 0tudy :uide.
0
%ULTIPLE CHOICE—Co(putat$onal Anse! c c d d d a a d d d d d a
No" %2. %3. %. %#. %%. %'. %(. %+. '. '1. '2. '3. '. '#. '%.
#esc!$pt$on ,lassification as inventory. ,lassification as inventory. Perpetual inventory method. Perpetual inventory method. ffect of inventory and depreciation errors on income. ffect of inventory and depreciation er errors on retained ea earnings. ffect of inventory errors on "orking capital. ,alculate cost of goods availale for sale. ccounting for a purchase return ;net method<. d=ust ccounts Payale using the net method. ,alculate en ending in inventory using "e "eighted-average. ,alculate ending inventory using moving average. ,alculate ending inventory using *$F&. ,alculate cost of goods sold using F$F&. ffect of using *$F& or F$F&.
4aluation 4aluation of $nventories> ,ost-?asis pproach
%ULTIPLE CHOICE—Co(putat$onal Anse! a c d c c c c c c c a
No" ''. '(. '+. (. (1. (2. (3. (. (#. (%. ('. ((. (+. +. +1. +2. +3. +.
#esc!$pt$on Perpetual inventory@*$F& valuation. Perpetual inventory@*$F& valuation. Perpetual inventory@F$F& valuation. Perpetual inventory@average cost valuation. ,ost flo" assumptions. ,ost flo" assumptions. *$F& reserve. *$F& reserve. *$F& li/uidation. *$F& li/uidation !ollar-value *$F&. !ollar-value *$F&. !ollar-value *$F&. !ollar-value *$F&. ,alculate ending inventory using dollar-value *$F&. ,alculate ending inventory using dollar-value *$F&. ,alculate en ending in inventory using do dollar-value *$ *$F&. ,alculate pr price in inde8 us using do doule e8 e8tension me method.
%ULTIPLE CHOICE—CPA A)apt A)apte) e) Anse! a c d d a c c a c c a
No" +#. +%. +'. +(. ++. 1. 11. 12. 13. 1. 1#. 1%. 1'. 1(.
#esc!$pt$on $dentification of inventory costs. !etermine cost of purchased inventory. !etermine cost of sales. ,alculate ccounts Payale at year end. ,alculate ccounts Payale at year end. ,alculate ccounts Payale at year end. !etermine cost of purchased inventory. !etermine cost of purchased inventory. ,alculate unit cost using moving-average method. Periodic and perpetual inventory methods. F$F& and *$F& "ith increasing prices. ,alculate ending inventory using *$F&. !ollar-value *$ *$F& an and th the do doule e8 e8tension ap approach. ,alculate en ending in inventory us using do dollar-value *$ *$F&.
E0ERCISES Ite( (-1+ (-11 (-111 (-112 (-113 (-11
#esc!$pt$on )ecording purchases at net amounts. )ecording purchases at net amounts. ,omparison of of F$F& an and *$ *$F&. F$F& and *$ *$F& in inventory methods. F$F& and *$F& periodic inventory methods. Perpetual *$F&.
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Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
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E0ERCISES cont". Ite( (-11# (-11% (-11'
#esc!$pt$on Perpetual *$F& and periodic F$F&. nalysis of gross profit. !ollar-value *$F&.
PROBLE%S Ite( P(-11( P(-11+ P(-12 P(-121 P(-122 P(-123
#esc!$pt$on $nventory cut-off. nalysis of errors. ccounting for purchase discounts. $nventory methods. !ollar-value *$F&. !ollar-value *$F&.
CHAPTER LEARNIN2 OB3ECTIVES 1.
$dentify ma=or classifications of inventory.
2.
!istinguish et"een perpetual and periodic inventory systems.
3.
$dentify the effects of inventory errors on the financial statements.
.
nderstand the items to include as inventory cost.
#.
!escrie and compare the cost flo" assumptions used to account for inventories.
%.
8plain the significance and use of a *$F& reserve.
'.
nderstand the effect of *$F& li/uidations.
(.
8plain the dollar-value *$F& method.
+.
$dentify the ma=or advantages and disadvantages of *$F&.
1.
nderstand "hy companies select given inventory methods.
4aluation of $nventories> ,ost-?asis pproach
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SU%%AR5 OF LEARNIN2 OB3ECTIVES B5 6UESTIONS Item
Type
Item
Type
Item
Type
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Type
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Type
1. 11(.
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TF A True-False M, A Multiple ,hoice A 8ercise P A Prolem
M, %3. M, Lea!n$n* O7ect$9e / 0 M, 2(. M, %#. P M, 2+. M, +#. M, %. M, +%. Lea!n$n* O7ect$9e 1 M, 3. M, %%. M, 3#. M, %'. Lea!n$n* O7ect$9e 4 M, 3. M, '. 0 M, . M, '1. M, %+. M, +(. Lea!n$n* O7ect$9e ; M, '3. M, '(. M, '. M, '+. M, '#. M, (. M, '%. M, (1. M, ''. M, (2. Lea!n$n* O7ect$9e < M, (3. M, (. Lea!n$n* O7ect$9e = Lea!n$n* O7ect$9e 8 M, +3. M, 1(. M, +. M, 11'. M, 1'. M, 122. Lea!n$n* O7ect$9e > M, %. M, %1. Lea!n$n* O7ect$9e ?
M, M, M,
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123.
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8-<
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
TRUE FALSE—Conceptual 1.
manufacturing concern "ould report the cost of units only partially processed as inventory in the alance sheet.
2.
?oth merchandising and manufacturing companies normally have multiple inventory accounts.
3.
When using a perpetual inventory system6 freight charges on goods purchased are deited to Freight-$n.
.
$f a supplier ships goods f.o.. destination6 title passes to the uyer "hen the supplier delivers the goods to the common carrier.
#.
$f ending inventory is understated6 then net income is understated.
%.
$f oth purchases and ending inventory are overstated y the same amount6 net income is not affected.
'.
Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.
(.
Purchase !iscounts *ost is a financial e8pense and is reported in the Bother e8penses and lossesC section of the income statement.
+.
The cost flo" assumption adopted must e consistent "ith the physical movement of the goods.
1.
$n all cases "hen F$F& is used6 the cost of goods sold "ould e the same "hether a perpetual or periodic system is used.
11.
The change in the *$F& )eserve from one period to the ne8t is recorded as an ad=ustment to ,ost of :oods 0old.
12.
Many companies use *$F& for oth ta8 and internal reporting purposes.
13.
*$F& li/uidation often distorts net income6 ut usually leads to sustantial ta8 savings.
1.
*$F& li/uidations can occur fre/uently "hen using a specific-goods approach.
1#.
!ollar-value *$F& techni/ues help protect *$F& layers from erosion.
1%.
The dollar-value *$F& method measures any increases and decreases in a pool in terms of total dollar value and physical /uantity of the goods.
1'.
disadvantage of *$F& is that it does not match more recent costs against current revenues as "ell as F$F&.
1(.
The *$F& conformity rule re/uires that if a company uses *$F& for ta8 purposes6 it must also use *$F& for financial accounting purposes.
4aluation of $nventories> ,ost-?asis pproach
8-=
1+.
se of *$F& provides a ta8 enefit in an industry "here unit costs tend to decrease as production increases.
2.
*$F& is inappropriate "here unit costs tend to decrease as production increases.
T!ue False Anse!s— Conceptual Ite(
Ans"
Ite(
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Ite(
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Ite(
1. 2. 3. . #.
T F F F T
%. '. (. +. 1.
T F T F T
11. 12. 13. 1. 1#.
T F F T T
1%. 1'. 1(. 1+. 2.
Ans"
F F T F T
%ULTIPLE CHOICE—Conceptual 21.
When using a perpetual inventory system6 a. no Purchases account is used. . a ,ost of :oods 0old account is used. c. t"o entries are re/uired to record a sale. d. all of these.
22.
:oods in transit "hich are shipped f.o.. shipping point should e a. included in the inventory of the seller. . included in the inventory of the uyer. c. included in the inventory of the shipping company. d. none of these.
23.
:oods in transit "hich are shipped f.o.. destination should e a. included in the inventory of the seller. . included in the inventory of the uyer. c. included in the inventory of the shipping company. d. none of these.
2.
Which of the follo"ing items should e included in a companyDs inventory at the alance sheet dateE a. :oods in transit "hich "ere purchased f.o.. destination. . :oods received from another company for sale on consignment. c. :oods sold to a customer "hich are eing held for the customer to call for at his or her convenience. d. 7one of these.
se the follo"ing information for /uestions 2# and 2%. !uring 2' Foley ,orporation transferred inventory to 9line ,orporation and agreed to repurchase the merchandise early in 2(. 9line then used the inventory as collateral to orro" from 7or"alk ?ank6 remitting the proceeds to Foley. $n 2( "hen Foley repurchased the inventory6 9line used the proceeds to repay its ank loan.
8-8
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
2#.
This transaction is kno"n as a;n< a. consignment. . installment sale. c. assignment for the enefit of creditors. d. product financing arrangement.
2%.
&n "hose ooks should the cost of the inventory appear at the !ecemer 316 2' alance sheet dateE a. Foley ,orporation . 9line ,orporation c. 7or"alk ?ank d. 9line ,orporation6 "ith Foley making appropriate note disclosure of the transaction
2'.
:oods on consignment are a. included in the consigneeDs inventory. . recorded in a ,onsignment &ut account "hich is an inventory account. c. recorded in a ,onsignment $n account "hich is an inventory account. d. all of these
0
2(.
4aluation of inventories re/uires the determination of all of the follo"ing except a. the costs to e included in inventory. . the physical goods to e included in inventory. c. the cost of goods held on consignment from other companies. d. the cost flo" assumption to e adopted.
P
2+.
The accountant for the &rion 0ales ,ompany is preparing the income statement for 2' and the alance sheet at !ecemer 316 2'. &rion uses the periodic inventory system. The anuary 16 2' merchandise inventory alance "ill appear a. only as an asset on the alance sheet. . only in the cost of goods sold section of the income statement. c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the alance sheet. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the alance sheet.
P
3.
$f the eginning inventory for 2% is overstated6 the effects of this error on cost of goods sold for 2%6 net income for 2%6 and assets at !ecemer 316 2'6 respectively6 are a. overstatement6 understatement6 overstatement. . overstatement6 understatement6 no effect. c. understatement6 overstatement6 overstatement. d. understatement6 overstatement6 no effect.
0
31.
The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in a. an overstatement of assets and net income. . an understatement of assets and net income. c. an understatement of cost of goods sold and liailities and an overstatement of assets. d. an understatement of liailities and an overstatement of o"nersD e/uity.
4aluation of $nventories> ,ost-?asis pproach
8->
32.
?elle ,o. received merchandise on consignment. s of March 316 ?elle had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 "ould e a. no effect. . net income "as correct and current assets and current liailities "ere overstated. c. net income6 current assets6 and current liailities "ere overstated. d. net income and current liailities "ere overstated.
33.
ller ,o. received merchandise on consignment. s of anuary 316 ller included the goods in inventory6 ut did not record the transaction. The effect of this on its financial statements for anuary 31 "ould e a. net income6 current assets6 and retained earnings "ere overstated. . net income "as correct and current assets "ere understated. c. net income and current assets "ere overstated and current liailities "ere understated. d. net income6 current assets6 and retained earnings "ere understated.
3.
,ross ,o. accepted delivery of merchandise "hich it purchased on account. s of !ecemer 316 ,ross had recorded the transaction6 ut did not include the merchandise in its inventory. The effect of this on its financial statements for !ecemer 31 "ould e a. net income6 current assets6 and retained earnings "ere understated. . net income "as correct and current assets "ere understated. c. net income "as understated and current liailities "ere overstated. d. net income "as overstated and current assets "ere understated.
3#.
&n une 1#6 2'6 Tolon ,orporation accepted delivery of merchandise "hich it purchased on account. s of une 36 Tolon had not recorded the transaction or included the merchandise in its inventory. The effect of this on its alance sheet for une 36 2' "ould e a. assets and stockholdersD e/uity "ere overstated ut liailities "ere not affected. . stockholdersD e/uity "as the only item affected y the omission. c. assets6 liailities6 and stockholdersD e/uity "ere understated. d. none of these.
3%.
Which of the follo"ing is correctE a. 0elling costs are product costs. . Manufacturing overhead costs are product costs. c. $nterest costs for routine inventories are product costs. d. ll of these.
3'.
ll of the follo"ing costs should e charged against revenue in the period in "hich costs are incurred except for a. manufacturing overhead costs for a product manufactured and sold in the same accounting period. . costs "hich "ill not enefit any future period. c. costs from idle manufacturing capacity resulting from an une8pected plant shutdo"n. d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.
8 - ?
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
3(.
Which of the follo"ing types of interest cost incurred in connection "ith the purchase or manufacture of inventory should e capitali5ed as a product costE a. Purchase discounts lost . $nterest incurred during the production of discrete pro=ects such as ships or real estate pro=ects c. $nterest incurred on notes payale to vendors for routine purchases made on a repetitive asis d. ll of these should e capitali5ed.
3+.
The use of a !iscounts *ost account implies that the recorded cost of a purchased inventory item is its a. invoice price. . invoice price plus the purchase discount lost. c. invoice price less the purchase discount taken. d. invoice price less the purchase discount allo"ale "hether taken or not.
.
The use of a Purchase !iscounts account implies that the recorded cost of a purchased inventory item is its a. invoice price. . invoice price plus any purchase discount lost. c. invoice price less the purchase discount taken. d. invoice price less the purchase discount allo"ale "hether taken or not.
se the follo"ing information for /uestions 1 and 2. !uring 2'6 "hich "as the first year of operations6 *uther ,ompany had merchandise purchases of G+(#6 efore cash discounts. ll purchases "ere made on terms of 2H16 nH3. Three-fourths of the items purchased "ere paid for "ithin 1 days of purchase. ll of the goods availale had een sold at year end. 1.
Which of the follo"ing recording procedures "ould result in the highest cost of goods sold for 2'E 1. )ecording purchases at gross amounts 2. )ecording purchases at net amounts6 "ith the amount of discounts not taken sho"n under Iother e8pensesI in the income statement a. 1 . 2 c. ither 1 or 2 "ill result in the same cost of goods sold. d. ,annot e determined from the information provided.
2.
Which of the follo"ing recording procedures "ould result in the highest net income for 2'E 1. )ecording purchases at gross amounts 2. )ecording purchases at net amounts6 "ith the amount of discounts not taken sho"n under Iother e8pensesI in the income statement a. 1 . 2 c. ither 1 or 2 "ill result in the same net income. d. ,annot e determined from the information provided.
4aluation of $nventories> ,ost-?asis pproach
8 -
3.
When using the periodic inventory system6 "hich of the follo"ing generally "ould not e separately accounted for in the computation of cost of goods soldE a. Trade discounts applicale to purchases during the period . ,ash ;purchase< discounts taken during the period c. Purchase returns and allo"ances of merchandise during the period d. ,ost of transportation-in for merchandise purchased during the period
0
.
,osts "hich are inventoriale include all of the follo"ing except a. costs that are directly connected "ith the ringing of goods to the place of usiness of the uyer. . costs that are directly connected "ith the converting of goods to a salale condition. c. uying costs of a purchasing department. d. selling costs of a sales department.
P
#.
Which inventory costing method most closely appro8imates current cost for each of the follo"ing> nding $nventory ,ost of :oods 0old a. F$F& F$F& . F$F& *$F& c. *$F& F$F& d. *$F& *$F&
%.
$n situations "here there is a rapid turnover6 an inventory method "hich produces a alance sheet valuation similar to the first-in6 first-out method is a. average cost. . ase stock. c. =oint cost. d. prime cost.
'.
The pricing of issues from inventory must e deferred until the end of the accounting period under the follo"ing method of inventory valuation> a. moving average. . "eighted-average. c. *$F& perpetual. d. F$F&.
(.
n inventory pricing procedure in "hich the oldest costs incurred rarely have an effect on the ending inventory valuation is a. F$F&. . *$F&. c. ase stock. d. "eighted-average.
+.
Which method of inventory pricing est appro8imates specific identification of the actual flo" of costs and units in most manufacturing situationsE a. verage cost . First-in6 first-out c. *ast-in6 first-out d. ?ase stock
8 - /
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
#.
ssuming no eginning inventory6 "hat can e said aout the trend of inventory prices if cost of goods sold computed "hen inventory is valued using the F$F& method e8ceeds cost of goods sold "hen inventory is valued using the *$F& methodE a. Prices decreased. . Prices remained unchanged. c. Prices increased. d. Price trend cannot e determined from information given.
#1.
$n a period of rising prices6 the inventory method "hich tends to give the highest reported net income is a. ase stock. . first-in6 first-out. c. last-in6 first-out. d. "eighted-average.
#2.
$n a period of rising prices6 the inventory method "hich tends to give the highest reported inventory is a. F$F&. . moving average. c. *$F&. d. "eighted-average.
#3.
Juayle ,orporationDs inventory cost on its alance sheet "as lo"er using first-in6 first-out than it "ould have een using last-in6 first-out. ssuming no eginning inventory6 in "hat direction did the cost of purchases move during the periodE a. p . !o"n c. 0teady d. ,annot e determined
#.
$n a period of rising prices6 the inventory method "hich tends to give the highest reported cost of goods sold is a. F$F&. . average cost. c. *$F&. d. none of these.
##.
Which of the follo"ing statements is not valid as it applies to inventory costing methodsE a. $f inventory /uantities are to e maintained6 part of the earnings must e invested ;plo"ed ack< in inventories "hen F$F& is used during a period of rising prices. . *$F& tends to smooth out the net income pattern y matching current cost of goods sold "ith current revenue6 "hen inventories remain at constant /uantities. c. When a firm using the *$F& method fails to maintain its usual inventory position ;reduces stock on hand elo" customary levels<6 there may e a matching of old costs "ith current revenue. d. The use of F$F& permits some control y management over the amount of net income for a period through controlled purchases6 "hich is not true "ith *$F&.
4aluation of $nventories> ,ost-?asis pproach
8 - 1
#%.
The ac/uisition cost of a certain ra" material changes fre/uently. The ook value of the inventory of this material at year end "ill e the same if perpetual records are kept as it "ould e under a periodic inventory method only if the ook value is computed under the a. "eighted-average method. . moving average method. c. *$F& method. d. F$F& method.
#'.
When a company uses *$F& for e8ternal reporting purposes and F$F& for internal reporting purposes6 an llo"ance to )educe $nventory to *$F& account is used. This account should e reported a. on the income statement in the &ther )evenues and :ains section. . on the income statement in the ,ost of :oods 0old section. c. on the income statement in the &ther 8penses and *osses section. d. on the alance sheet in the ,urrent ssets section.
0
#(.
Which of the follo"ing statements is not true as it relates to the dollar-value *$F& inventory methodE a. $t is easier to erode *$F& layers using dollar-value *$F& techni/ues than it is "ith specific goods pooled *$F&. . nder the dollar-value *$F& method6 it is possile to have the entire inventory in only one pool. c. 0everal pools are commonly employed in using the dollar-value *$F& inventory method. d. nder dollar-value *$F&6 increases and decreases in a pool are determined and measured in terms of total dollar value6 not physical /uantity.
0
#+.
Which of the follo"ing is not considered an advantage of *$F& "hen prices are risingE a. The inventory "ill e overstated. . The more recent costs are matched against current revenues. c. There "ill e a deferral of income ta8. d. companyDs future reported earnings "ill not e affected sustantially y future price declines.
%.
Which of the follo"ing is true regarding the use of *$F& for inventory valuationE a. $f *$F& is used for e8ternal financial reporting6 then it must also e used for internal reports. . For purposes of e8ternal financial reporting6 *$F& may not e used "ith the lo"er of cost or market approach. c. $f *$F& is used for e8ternal financial reporting6 then it cannot e used for ta8 purposes. d. 7one of these.
%1.
$f inventory levels are stale or increasing6 an argument "hich is not an advantage of the *$F& method as compared to F$F& is a. income ta8es tend to e reduced in periods of rising prices. . cost of goods sold tends to e stated at appro8imately current cost on the income statement. c. cost assignments typically parallel the physical flo" of goods. d. income tends to e smoothed as prices change over time.
8 - 4
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
%ult$ple C,o$ce Anse!s —Conceptual Ite(
21. 22. 23. 2. 2#. 2%.
Ans"
d a d d a
Ite(
2'. 2(. 2+. 3. 31. 32.
Ans"
Ite(
c d
33. 3. 3#. 3%. 3'. 3(.
Ans"
a a d d
Ite(
3+. . 1. 2. 3. .
Ans"
d a a c a d
Ite(
#. %. '. (. +. #.
Ans"
a a a
Ite(
Ans"
Ite(
Ans"
a c d d
#'. #(. #+. %. %1.
d a a d c
#1. #2. #3. #. ##. #%.
0olutions to those Multiple ,hoice /uestions for "hich the ans"er is Bnone of these.C 2. :oods in transit "hich "ere purchased f.o.. shipping point. 3#. ssets and liailities "ere understated ut stockholdersK e/uity "as not affected. %. $f *$F& is used for ta8 purposes6 then it must also e used for e8ternal financial reporting.
%ULTIPLE CHOICE—Co(putat$onal %2.
Tones Manufacturing ,ompany has the follo"ing account alances at year end> &ffice supplies )a" materials Work-in-process Finished goods Prepaid insurance
G 6 2'6 #+6 '26 %6
What amount should Tones report as inventories in its alance sheetE a. G'26. . G'%6. c. G1#(6. d. G1%26. %3.
0mith Manufacturing ,ompany has the follo"ing account alances at year end> &ffice supplies )a" materials Work-in-process Finished goods Prepaid insurance
G 6 2'6 #+6 +26 %6
What amount should 0mith report as inventories in its alance sheetE a. G+26. . G+%6. c. G1'(6. d. G1(26.
4aluation of $nventories> ,ost-?asis pproach
8 - ;
%.
?riggs ,orporation uses the perpetual inventory method. &n March 16 it purchased G16 of inventory6 terms 2H16 nH3. &n March 36 ?riggs returned goods that cost G16. &n March +6 ?riggs paid the supplier. &n March +6 ?riggs should credit a. purchase discounts for G2. . inventory for G2. c. purchase discounts for G1(. d. inventory for G1(.
%#.
Larder ,orporation uses the perpetual inventory method. &n March 16 it purchased G36 of inventory6 terms 2H16 nH3. &n March 36 Larder returned goods that cost G36. &n March +6 Larder paid the supplier. &n March +6 Larder should credit a. purchase discounts for G%. . inventory for G%. c. purchase discounts for G#. d. inventory for G#.
se the follo"ing information for /uestions %% through %(. !e8ter6 $nc. is a calendar-year corporation. $ts financial statements for the years 2' and 2% contained errors as follo"s> 2' 2% nding inventory G36 overstated G(6 overstated !epreciation e8pense G26 understated G%6 overstated %%.
ssume that the proper correcting entries "ere made at !ecemer 316 2%. ?y ho" much "ill 2' income efore ta8es e overstated or understatedE a. G16 understated . G16 overstated c. G26 overstated d. G#6 overstated
%'.
ssume that no correcting entries "ere made at !ecemer 316 2%. Ignoring income taxes, y ho" much "ill retained earnings at !ecemer 316 2' e overstated or understatedE a. G16 understated . G#6 overstated c. G#6 understated d. G+6 understated
%(.
ssume that no correcting entries "ere made at !ecemer 316 2%6 or !ecemer 316 2' and that no additional errors occurred in 2(. Ignoring income taxes 6 y ho" much "ill "orking capital at !ecemer 316 2( e overstated or understatedE a. G . G26 overstated c. G26 understated d. G#6 understated
8 - <
%+.
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
The follo"ing information is availale for 9err ,ompany for 2'> Freight-in Purchase returns 0elling e8penses nding inventory
G 36 '#6 1#6 2%6
The cost of goods sold is e/ual to of selling e8penses. What is the cost of goods availale for saleE a. G%6. . G(+6. c. G(1#6. d. G(%6. se the follo"ing information for /uestions ' and '1. )ichey ,o. records purchases at net amounts. &n May # )ichey purchased merchandise on account6 G1%66 terms 2H16 nH3. )ichey returned G162 of the May # purchase and received credit on account. t May 31 the alance had not een paid. '.
The amount to e recorded as a purchase return is a. G16(. . G1622. c. G162. d. G161'%.
'1.
?y ho" much should the account payale e ad=usted on May 31E a. G. . G3. c. G32. d. G2+%.
se the follo"ing information for /uestions '2 and '3. The follo"ing information "as availale from the inventory records of 7eer ,ompany for anuary> ?alance at anuary 1 Purchases> anuary % anuary 2%
nits 36
nit ,ost G+.''
26 26'
1.3 1.'1
0ales> anuary ' anuary 31 ?alance at anuary 31
;26#< ;6< 162
'2.
Total ,ost G2+631 26% 2(6+1'
ssuming that 7eer does not maintain perpetual inventory records6 "hat should e the inventory at anuary 316 using the "eighted-average inventory method6 rounded to the nearest dollarE a. G126%%. . G1262(. c. G126312. d. G12632.
4aluation of $nventories> ,ost-?asis pproach '3.
8 - =
ssuming that 7eer maintains perpetual inventory records6 "hat should e the inventory at anuary 316 using the moving-average inventory method6 rounded to the nearest dollarE a. G126%%. . G1262(. c. G126312. d. G12632.
se the follo"ing information for /uestions ' and '#. 9iner ,o. has the follo"ing data related to an item of inventory> $nventory6 March 1 1 units N G.2 Purchase6 March ' 3# units N G. Purchase6 March 1% ' units N G.# $nventory6 March 31 13 units '.
The value assigned to ending inventory if 9iner uses *$F& is a. G#'+. . G##2. c. G#%. d. G#(#.
'#.
The value assigned to cost of goods sold if 9iner uses F$F& is a. G#'+. . G##2. c. G16'23. d. G16%+%.
'%.
?aker ,ompany has een using the *$F& method of inventory valuation for 1 years6 since it egan operations. $ts 2' ending inventory "as G66 ut it "ould have een G%6 if F$F& had een used. Thus6 if F$F& had een used6 ?akerDs income efore income ta8es "ould have een a. G26 greater over the 1-year period. . G26 less over the 1-year period. c. G26 greater in 2'. d. G26 less in 2'.
se the follo"ing information for /uestions '' through (. Transactions for the month of une "ere> Purchases une 1 ;alance< ( N G3.2 3 262 N 3.1 ' 162 N 3.3 1# 16( N 3. 22 # N 3.#
une 2 % + 1 1( 2#
0ales % N G#.# 16% N #.# 16 N #.# N %. 16 N %. 2 N %.
8 - 8
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
''.
ssuming that perpetual inventory records are kept in units only6 the ending inventory on a *$F& asis is a. G611. . G61%. c. G62+. d. G6'.
'(.
ssuming that perpetual inventory records are kept in dollars6 the ending inventory on a *$F& asis is a. G611. . G61%. c. G62+. d. G6'.
'+.
ssuming that perpetual inventory records are kept in dollars6 the ending inventory on a F$F& asis is a. G611. . G61%. c. G62+. d. G6'.
(.
ssuming that perpetual inventory records are kept in units only6 the ending inventory on an average-cost asis6 rounded to the nearest dollar6 is a. G6+%. . G623(. c. G62+. d. G6322.
(1.
ohnson ,ompany had # units of BTankC in its inventory at a cost of G each. $t purchased6 for G26(6 3 more units of BTankC. ohnson then sold units at a selling price of G1 each6 resulting in a gross profit of G16%. The cost flo" assumption used y ohnson a. is F$F&. . is *$F&. c. is "eighted average. d. cannot e determined from the information given.
(2.
9ingman ,ompany had # units of B!inkC in its inventory at a cost of G# each. $t purchased6 for G266 3 more units of B!inkC. 9ingman then sold % units at a selling price of G1 each6 resulting in a gross profit of G261. The cost flo" assumption used y 9ingman a. is F$F&. . is *$F&. c. is "eighted average. d. cannot e determined from the information given.
(3.
?ro"n ,orporation uses the F$F& method for internal reporting purposes and *$F& for e8ternal reporting purposes. The alance in the *$F& )eserve account at the end of 2' "as G%6. The alance in the same account at the end of 2( is G+6. ?ro"nKs ,ost of :oods 0old account has a alance of G#6 from sales transactions recorded during the year. What amount should ?ro"n report as ,ost of :oods 0old in the 2( income statementE
4aluation of $nventories> ,ost-?asis pproach a. . c. d.
8 - >
G26. G#6. G(6. G#6.
(.
:reen ,orporation uses the F$F& method for internal reporting purposes and *$F& for e8ternal reporting purposes. The alance in the *$F& )eserve account at the end of 2' "as G(6. The alance in the same account at the end of 2( is G126. :reenKs ,ost of :oods 0old account has a alance of G%6 from sales transactions recorded during the year. What amount should :reen report as ,ost of :oods 0old in the 2( income statementE a. G#%6. . G%6. c. G%6. d. G'26.
(#.
ohnson ,ompany had units of BTankC in its inventory at a cost of G each. $t purchased % more units of BTankC at a cost of G% each. ohnson then sold ' units at a selling price of G1 each. The *$F& li/uidation overstated normal gross profit y a. G -. G2. c. G. d. G%.
(%.
9ingman ,ompany had units of B!inkC in its inventory at a cost of G% each. $t purchased % more units of B!inkC at a cost of G+ each. 9ingman then sold ' units at a selling price of G1# each. The *$F& li/uidation overstated normal gross profit y a. G -. G3. c. G%. d. G+.
se the follo"ing information for (' and (( ,ompany had anuary 1 inventory of G16 "hen it adopted dollar-value *$F&. !uring the year6 purchases "ere G%6 and sales "ere G166. !ecemer 31 inventory at year-end prices "as G1363%6 and the price inde8 "as 112. ('.
What is ,ompanyKs ending inventoryE a. G16. . G12(6. c. G13163%. d. G1363%.
((.
What is ,ompanyKs gross profitE a. G2(6. . G3163%. c. G36%. d. G(%(6%.
8 - /?
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
se the follo"ing information for (+ and + ly ,ompany had anuary 1 inventory of G16 "hen it adopted dollar-value *$F&. !uring the year6 purchases "ere G%6 and sales "ere G166. !ecemer 31 inventory at year-end prices "as G12%6#6 and the price inde8 "as 11. (+.
What is ly ,ompanyKs ending inventoryE a. G116. . G11#6. c. G11%6#. d. G12%6#.
+.
What is ly ,ompanyKs gross profitE a. G1#6. . G1%6#. c. G2%6#. d. G((36#.
se the follo"ing information for /uestions +1 through +3. !olan ,orporation adopted the dollar-value *$F& method of inventory valuation on !ecemer 316 2#. $ts inventory at that date "as G226 and the relevant price inde8 "as 1. $nformation regarding inventory for suse/uent years is as follo"s> !ate !ecemer 316 2% !ecemer 316 2' !ecemer 316 2(
$nventory at ,urrent Prices G2#%6( 2+6 32#6
,urrent Price $nde8 1' 12# 13
+1.
What is the cost of the ending inventory at !ecemer 316 2% under dollar-value *$F&E a. G26. . G2#%6(. c. G216. d. G23#6.
+2.
What is the cost of the ending inventory at !ecemer 316 2' under dollar-value *$F&E a. G2326. . G2316. c. G2326(. d. G26.
+3.
What is the cost of the ending inventory at !ecemer 316 2( under dollar-value *$F&E a. G2#%62. . G2#6(. c. G2#6. d. G2%36.
+.
Tate ,ompany adopted the dollar-value *$F& method on anuary 16 2'6 at "hich time its inventory consisted of %6 units of $tem N G#. each and 36 units of $tem ? N G1%. each. The inventory at !ecemer 316 2' consisted of 126 units of $tem and '6 units of $tem ?. The most recent actual purchases related to these items "ere as follo"s>
4aluation of $nventories> ,ost-?asis pproach $tems ?
Juantity Purchased 26 16 16
Purchase !ate 12H'H' 12H11H' 12H1#H'
8 - /
,ost Per nit G %. #.'# 1'.
sing the doule-e8tension method6 "hat is the price inde8 for 2' that should e computed y Tate ,ompanyE a. 1(.33 . 1+.#+ c. 111.# d. 22.#1
%ult$ple C,o$ce Anse!s— Co(putat$onal Ite(
Ans"
%2. %3. %. %#. %%.
c c d d d
Ite(
Ans"
%'. %(. %+. '. '1.
a a d d d
Ite(
'2. '3. '. '#. '%.
Ans"
d d a
Ite(
''. '(. '+. (. (1.
Ans"
a c d c
Ite(
(2. (3. (. (#. (%.
Ans"
Ite(
Ans"
Ite(
Ans"
c c
('. ((. (+. +. +1.
c c c
+2. +3. +.
c a
%ULTIPLE CHOICE—CPA A)apte) +#.
Lo" should the follo"ing costs affect a retailerDs inventory valuationE a. . c. d.
+%.
Freight-in $ncrease $ncrease 7o effect 7o effect
$nterest on $nventory *oan 7o effect $ncrease $ncrease 7o effect
The follo"ing information applied to :rey6 $nc. for 2'> Merchandise purchased for resale G36 Freight-in (6 Freight-out #6 Purchase returns 26 :reyDs 2' inventoriale cost "as a. G36. . G336. c. G3%6. d. G3116.
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
8 - //
+'.
The follo"ing information "as derived from the 2' accounting records of *ogan ,o.> *ogan Ds :oods *ogan Ds ,entral Warehouse Leld y ,onsignees ?eginning inventory G136 G 16 Purchases #'#6 '6 Freight-in 16 Transportation to consignees #6 Freight-out 36 (6 nding inventory 1#6 26 *ogan Ds 2' cost of sales "as a. G#'6. . G%6. c. G%36. d. G%3+6.
+(.
,ole ,orp.Ds accounts payale at !ecemer 316 2'6 totaled G(6 efore any necessary year-end ad=ustments relating to the follo"ing transactions> •
•
•
&n !ecemer 2'6 2'6 ,ole "rote and recorded checks to creditors totaling G3#6 causing an overdraft of G16 in ,ole Ds ank account at !ecemer 316 2'. The checks "ere mailed out on anuary 16 2(. &n !ecemer 2(6 2'6 ,ole purchased and received goods for G1#66 terms 2H16 nH3. ,ole records purchases and accounts payale at net amounts. The invoice "as recorded and paid anuary 36 2(. :oods shipped f.o.. destination on !ecemer 26 2' from a vendor to ,ole "ere received anuary 26 2(. The invoice cost "as G%#6.
t !ecemer 316 2'6 "hat amount should ,ole report as total accounts payaleE a. G163%26. . G162+'6. c. G16#6. d. G+#6. ++.
The alance in Lill ,o.Ds accounts payale account at !ecemer 316 2' "as G'6 efore any necessary year-end ad=ustments relating to the follo"ing> •
•
•
:oods "ere in transit to Lill from a vendor on !ecemer 316 2'. The invoice cost "as G6. The goods "ere shipped f.o.. shipping point on !ecemer 2+6 2' and "ere received on anuary 6 2(. :oods shipped f.o.. destination on !ecemer 216 2' from a vendor to Lill "ere received on anuary %6 2(. The invoice cost "as G2#6. &n !ecemer 2'6 2'6 Lill "rote and recorded checks to creditors totaling G36 that "ere mailed on anuary 16 2(.
$n LillDs !ecemer 316 2' alance sheet6 the accounts payale should e a. G'36 . G'6. c. G'%#6. d. G''6.
4aluation of $nventories> ,ost-?asis pproach 1.
8 - /1
:ear ,o.Ds accounts payale alance at !ecemer 316 2' "as G16#6 efore considering the follo"ing transactions> •
•
:oods "ere in transit from a vendor to :ear on !ecemer 316 2'. The invoice price "as G'66 and the goods "ere shipped f.o.. shipping point on !ecemer 2+6 2'. The goods "ere received on anuary 6 2(. :oods shipped to :ear6 f.o.. shipping point on !ecemer 26 2'6 from a vendor "ere lost in transit. The invoice price "as G#6. &n anuary #6 2(6 :ear filed a G#6 claim against the common carrier.
$n its !ecemer 316 2' alance sheet6 :ear should report accounts payale of a. G16%26. . G16#'6. c. G16##6. d. G16#6. 11.
Tysen )etailers purchased merchandise "ith a list price of G#66 su=ect to trade discounts of 2 and 16 "ith no cash discounts allo"ale. Tysen should record the cost of this merchandise as a. G3#6. . G3%6. c. G3+6. d. G#6.
12.
&n une 16 2'6 Mills ,orp. sold merchandise "ith a list price of G26 to *inn on account. Mills allo"ed trade discounts of 3 and 2. ,redit terms "ere 2H1#6 nH and the sale "as made f.o.. shipping point. Mills prepaid G of delivery costs for *inn as an accommodation. &n une 126 2'6 Mills received from *inn a remittance in full payment amounting to a. G16+'%. . G1163%(. c. G1163'%. d. G1161+%.
13.
!ark ,o. recorded the follo"ing data pertaining to ra" material O during anuary 2'> nits !ate )eceived ,ost $ssued &n Land 1H1H' $nventory G(. 362 1H11H' $ssue 16% 16% 1H22H' Purchase 6 G+. #6% The moving-average unit cost of O inventory at anuary 316 2' is a. G(.'. . G(.(#. c. G+.. d. G+..
8 - /4
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
1.
!uring periods of rising prices6 a perpetual inventory system "ould result in the same dollar amount of ending inventory as a periodic inventory system under "hich of the follo"ing inventory cost flo" methodsE F$F& *$F& a. es 7o . es es c. 7o es d. 7o 7o
1#.
arl ,o. "as formed on anuary 26 2'6 to sell a single product. &ver a t"o-year period6 arlDs ac/uisition costs have increased steadily. Physical /uantities held in inventory "ere e/ual to three monthsD sales at !ecemer 316 2'6 and 5ero at !ecemer 316 2(. ssuming the periodic inventory system6 the inventory cost method "hich reports the highest amount of each of the follo"ing is $nventory ,ost of 0ales !ecemer 316 2' 2( a. *$F& F$F& . *$F& *$F& c. F$F& F$F& d. F$F& *$F&
1%.
7oll ,o. had # units of product on hand at anuary 16 2'6 costing G2 each. Purchases of product during anuary "ere as follo"s> !ate nits nit ,ost an. 1 % G 1( '# % 2( 3 ( physical count on anuary 316 2' sho"s % units of product on hand. The cost of the inventory at anuary 316 2' under the *$F& method is a. G2(62. . G2%6'. c. G2#6#. d. G26%.
1'.
When the doule e8tension approach to the dollar-value *$F& inventory cost flo" method is used6 the inventory layer added in the current year is multiplied y an inde8 numer. Lo" "ould the follo"ing e used in the calculation of this inde8 numerE
a. . c. d.
nding inventory at current year cost 7umerator 7umerator !enominator 7ot used
nding inventory at ase year cost !enominator 7ot used 7umerator !enominator
4aluation of $nventories> ,ost-?asis pproach 1(.
8 - /;
,arr ,o. adopted the dollar-value *$F& inventory method on !ecemer 316 2'. ,arrDs entire inventory constitutes a single pool. &n !ecemer 316 2'6 the inventory "as G326 under the dollar-value *$F& method. $nventory data for 2( are as follo"s> 12H31H( inventory at year-end prices )elevant price inde8 at year end ;ase year 2'<
G6 11
sing dollar value *$F&6 ,arrDs inventory at !ecemer 316 2( is a. G3#26. . G(6. c. G6. d. G6.
%ult$ple C,o$ce Anse!s— CPA A)apte) Ite(
+#. +%.
Ans"
Ite(
a c
+'. +(.
Ans"
Ite(
Ans"
Ite(
Ans"
Ite(
Ans"
Ite(
Ans"
Ite(
Ans"
d
++. 1.
d a
11. 12.
c
13. 1.
c a
1#. 1%.
c c
1'. 1(.
a
#ERIVATIONS — Co(putat$onal No" %2.
Anse! c
#e!$9at$on G2'6 Q G#+6 Q G'26 A G1#(6.
%3.
c
G2'6 Q G#+6 Q G+26 A G1'(6.
%.
d
R;G16 S G16< .2U A G1(.
%#.
d
R;G36 S G36< .2U A G#.
%%.
d
G36 Q G26 A G#6.
%'.
a
G%6 S ;G36 Q G26< A G16.
%(.
a
The effect of the errors in ending inventories reverse themselves in the follo"ing year.
%+.
d
G2%6 Q ; G1#6< A G(%6.
'.
d
G162 S ;G162 .2< A G161'%.
'1.
d
;G1%6 S G162< .2 A G2+%.
'2.
;G2+631 Q G26% Q G2(6+1'< V ;36 Q 26 Q 26'< A G1.23'Hunit G1.23' 162 A G1262(.
8 - /<
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
No" '3.
Anse! d
'.
;1 G.2< Q ;3 G.< A G##2.
'#.
d
1 Q 3# Q ' S 13 A 3+ units ;1 G.2< Q ;2+ G.< A G16%+%.
'%.
a
;G%6 S G6< A G26.
''.
a
vailale ;purchases< A %6# units 0ales A #62 units $ A %6# S #62 A 163 units ;( G3.2< Q ;# G3.1< A G611.
'(.
c
;2 G3.2< Q ; G3.1< Q ; G3.< Q ;3 G3.#< A G62+.
!ate %H1 %H2 %H3
#e!$9at$on vg. on 1H% G+6+1 V #6 A G+.+(2Hunit 1H2% G#36('2 V #62 A G1.3%Hunit G1.3% 162 A G12632.
Purchase ;( N 3.2< 26#%
;% N 3.2< ;262 N 3.1<
;16% N 3.1< ;162 N 3.3<
;16 N 3.3<
%H1
;2 N 3.3< ;2 N 3.1< ;16( N 3.<
363
162(
%612
%H1( %H22 %H2#
6+%
36+%
%H+
%H1#
16+2
%6(2
%H% %H'
0old
;16 N 3.< 6'% ;# N 3.#<
16'# ;2 N 3.#<
'
'+.
d
;# G3.#< Q ;( G3.< A G6'.
(.
G21621 V %6# units A G3.2% G3.2% 163 A G623(.
?alance ;( N 3.2< ;2 N 3.2< ;2 N 3.2< ;262 N 3.1< ;2 N 3.2< ;% N 3.1< ;2 N 3.2< ;% N 3.1< ;162 N 3.3< ;2 N 3.2< ;% N 3.1< ;2 N 3.3< ;2 N 3.2< ; N 3.1< ;2 N 3.2< ; N 3.1< ;16( N 3.< ;2 N 3.2< ; N 3.1< ; N 3.< ;# N 3.#< ;2 N 3.2< ; N 3.1< ; N 3.< ;3 N 3.#<
26#% % '6% 26# %6% 361% 16(( (6 362 6++ 62+
4aluation of $nventories> ,ost-?asis pproach
No" (1.
Anse! c
#e!$9at$on ; G1< S G16% A G26 ,&:0 R;# G< Q G26(U S G26 A G26 .$. ;G6( V (< units A G26 .$. under "eighted avg.
(2.
;% G1< S G261 A G36+ ,&:0 R;# G#< Q G26U S G36+ A G16 .$. 2 G# A G16 .$. under *$F&.
(3.
c
G#6 Q ;G+6 S G%6< A G(6.
(.
c
G%6 Q ;G126 S G(6< A G%6.
(#.
R;' S %< ;G% S G@)ecording purchases at net amounts.
,ola" ,o. records purchase discounts lost and uses perpetual inventories. entries in general =ournal form for the follo"ing>
Prepare =ournal
;a< Purchased merchandise costing G+ "ith terms 2H16 nH3. ;< Payment "as made thirty days after the purchase.
Solut$on 8-?>
;a< $nventory ;.+( G+<............................................................... ccounts Payale..........................................................
((2
;< ccounts Payale...................................................................... Purchase !iscounts *ost........................................................... ,ash..............................................................................
((2 1(
((2
+
4aluation of $nventories> ,ost-?asis pproach
8 - />
E@" 8-?@)ecording purchases at net amounts.
lco ,o. records purchases at net amounts and uses periodic inventories. Prepare entries for the follo"ing> une 11 Purchased merchandise on account6 G#66 terms 2H16 nH3. 1# )eturned part of une 11 purchase6 G(6 and received credit on account. 3 Prepared the ad=usting entry re/uired for financial statements.
Solut$on 8-?
une 11 Purchases ;.+( G#6<............................................... ccounts Payale............................................... 1# ccounts Payale ;.+( G(<...................................... Purchase )eturns and llo"ances..................... 3 Purchase !iscounts *ost ;.2 G62<........................ ccounts Payale...............................................
6+ 6+ '( '( ( (
E@" 8-@,omparison of F$F& and *$F&.
!uring periods of rising prices6 the use of F$F& ;as compared "ith *$F&< "ill result in "hat effect on the financial statementsE Solut$on 8-
!uring periods of rising prices6 the use of F$F& "ill result in higher inventory6 lo"er cost of goods sold6 and higher gross profit6 net income6 income ta8es6 and retained earnings.
E@" 8-/@F$F& and *$F& inventory methods.
!uring une6 the follo"ing changes in inventory item 2' took place> une 1 1 2 ( 1 2+
?alance Purchased Purchased 0old 0old 0old
16 units N G2 ( units N G3% ' units N G3 units N G# 16 units N G # units N G
Perpetual inventories are maintained. Inst!uct$ons
What is the cost of the ending inventory for item 2' under the follo"ing methodsE ;0ho" calculations.< ;a< F$F&. ;< *$F&.
8 - 1?
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
Solut$on 8-/
;a< ' N G3 A 3 N G3% A
G216 16( G316(
;< ( N G3% A 2 N G3 A
G2(6( %6 G36(
E@" 8-1@F$F& and *$F& periodic inventory methods.
The Pine 0hop sho"s the follo"ing data related to an item of inventory> $nventory6 anuary 1 1 units N G#. Purchase6 anuary + 3 units N G#. Purchase6 anuary 1+ ' units N G%. $nventory6 anuary 31 12 units Inst!uct$ons
;a< What value should e assigned to the ending inventory using F$F&E ;< What value should e assigned to cost of goods sold using *$F&E
Solut$on 8-1
;a< ' N G%. A # N G#. A ;<
G2 2' G%+
' N G%. A G 2 2( N G#. A 16#12 G16+32
E@" 8-4@Perpetual *$F&.
record of transactions for the month of May "as as follo"s> Purchases May 1 ;alance< N G.2 May 3 163 N G.1 % ( ( N G.3 12 1 ' N G. 1( 22 162 N G.# 2# 2+ # N G.##
0ales 3 16 + 16
N G'. N '. N '.# N '.# N (.
ssuming that perpetual inventory records are kept in dollars6 determine the inventory using *$F&.
4aluation of $nventories> ,ost-?asis pproach
8 - 1
Solut$on 8-4
1 N G.2 A G 2 2 N G.1 A (2 1 N G. A # N G.## A 262'# G36+##
E@" 8-;@Perpetual *$F& and Periodic F$F&.
0eit5er ,orporation sells item as part of its product line. $nformation as to alances on hand6 purchases6 and sales of item are given in the follo"ing tale for the first si8 months of 2'. !ate anuary 11 anuary 2 Feruary ( March 1% une 11
Juantities
Purchased @ 163 @ @ %
0old @ @ 3 #% @
?alance 16' 16 ( 16
nit Price of Purchase G2.# G2.% @ @ G2.'#
Inst!uct$ons
;a< ,ompute the ending inventory at une 3 under the perpetual *$F& inventory pricing method. ;< ,ompute the cost of goods sold for the first si8 months under the periodic F$F& inventory pricing method. Solut$on 8-;
;a<
N G2.# A N G2.% A % N G2.'# A 16
G16 161 16%# G36'+
;<
N G2.# A % N G2.% A (%
G16 161+% G261+%
E@" 8-<@nalysis of gross profit.
!uring 2'6 LillKs !rug ,ompany e8perienced a significant increase in the rate of gross profit on sales6 compared "ith the rate it has averaged in recent years. ou are asked to determine the most likely reason for this improvement. 0upport your ans"er. The follo"ing data are from the records of the company> 2' sales ;at an average price of G a unit< "ere G16(6. 2' purchases ;at an average cost of G2 a unit< "ere G+%6. The company uses the *$F& inventory method and has used it since 1+(2.
8 - 1/
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
Solut$on 8-<
Five thousand more units "ere sold than "ere purchased. This has resulted in the partial li/uidation of the eginning *$F& inventory layers. ssuming rising prices6 the increased rate of gross profit is most likely due to the matching of old6 lo"er inventory costs against current sales. ,omputations nits sold> G16(6 V G A #6 nits purchased> G+%6 V G2 A 6
E@" 8-=@!ollar-value *$F& method.
Part .
:ant ,ompany has a eginning inventory in year one of G36 and an ending inventory of G3%36. The price level has increased from 1 at the eginning of the year to 11 at the end of year one. ,alculate the ending inventory under the dollarvalue *$F& method.
Part ?.
t the end of year t"o6 :antDs inventory is G3'6 in terms of a price level of 11# "hich e8ists at the end of year t"o. ,alculate the inventory at the end of year t"o continuing the use of the dollar-value *$F& method.
Solut$on 8-=
Part . ,omputation of nding $nventory6 ear &ne nding $nventory *ayers at at ?ase-ear Price ?ase-ear Prices Price $nde8 G3%36 V 1.1 A G336 G36 1. A G36 1.1 A
nding $nventory at !ollar-4alue *$F& G36 336 G3336
Part ?. ,omputation of nding $nventory6 ear T"o nding $nventory *ayers at at ?ase-ear Price ?ase-ear Prices Price $nde8 G3'6 V 1.1# A G3(6 G36 1. A G36 1.1 A G#6 1.1# A
nding $nventory at !ollar-4alue *$F& G36 336 #'6# G3+6#
4aluation of $nventories> ,ost-?asis pproach
8 - 11
PROBLE%S P!" 8-8@$nventory cut-off.
0lone ,ompany sells T4s. The perpetual inventory "as stated as G2(6# on the ooks at !ecemer 316 2%. t the close of the year6 a ne" approach for compiling inventory "as used and apparently a satisfactory cut-off for preparation of financial statements "as not made. 0ome events that occurred are as follo"s. 1. T4s shipped to a customer anuary 26 2'6 costing G#6 "ere included in inventory at !ecemer 316 2%. The sale "as recorded in 2'. 2. T4s costing G126 received !ecemer 36 2%6 "ere recorded as received on anuary 26 2'. 3. T4s received during 2% costing G6% "ere recorded t"ice in the inventory account. . T4s shipped to a customer !ecemer 2(6 2%6 f.o.. shipping point6 "hich cost G166 "ere not received y the customer until anuary6 2'. The T4s "ere included in the ending inventory. #. T4s on hand that cost G%61 "ere never recorded on the ooks. Inst!uct$ons
,ompute the correct inventory at !ecemer 316 2%.
Solut$on 8-8
$nventory per ooks dd> 0hipment received 12H3H% T4s on hand !educt>
T4s recorded t"ice T4s shipped 12H2(H% ,orrect inventory 12H31H%
G2(6# G126 %61 6% 16
1(61 %6% 16% G326
8 - 14
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
P!" 8-> @nalysis of errors.
;ll sales and purchases are on credit.< $ndicate in each of the spaces provided the effect of the descried errors on the various elements of a companyDs financial statements. se the follo"ing codes> & A amount is overstated A amount is understated 7 A no effect. ssume a periodic inventory system. ccounts )eceivale OMP*> 8cluded goods in rented "arehouse from inventory count.
7
ccounts $nventory Payale 0ales
7
7
,ost of :oods 0old &
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 1. :oods in transit shipped If.o.. destinationI y supplier "ere recorded as a purchase ut "ere e8cluded from ending inventory. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2. :oods held on consignment "ere included in inventory count and recorded as a purchase. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3. :oods in transit shipped If.o.. shipping pointI "ere not recorded as a sale and "ere included in ending inventory. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX . :oods "ere shipped and appropriately e8cluded from ending inventory ut sale "as not recorded. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Solut$on 8->
1. 2. 3. .
7 7
7 & & 7
& & 7 7
7 7
& 7 7
4aluation of $nventories> ,ost-?asis pproach
8 - 1;
P!" 8-/? @ccounting for purchase discounts.
7eer ,orp. purchased merchandise during 2' on credit for G36 terms 2H16 nH3. ll of the gross liaility e8cept G%6 "as paid "ithin the discount period. The remainder "as paid "ithin the 3-day term. t the end of the annual accounting period6 !ecemer 316 2'6 + of the merchandise had een sold and 1 remained in inventory. The company uses a periodic system. Inst!uct$ons
;a< ssuming that the net method is used for recording purchases6 prepare the entries for the purchase and t"o suse/uent payments. ;< What dollar amounts should e reported for the final inventory and cost of goods sold under the ;1< net method ;2< gross methodE ssume that there "as no eginning inventory.
Solut$on 8-/?
;a< Purchases............................................................................................. 2+6 ccounts Payale...................................................................... ;To record the purchase at net amount> .+( G36 A G2+6.< ccounts Payale................................................................................. 23#62 ,ash.......................................................................................... ;To record payment "ithin the discount period> G36 S G%6 A G26 .+( G26 A G23#62.< ccounts Payale................................................................................. Purchase !iscounts *ost....................................................................... ,ash.......................................................................................... ;To record the final payment.< ;< ;1< 7et method> Purchases> Final inventory> 1 G2+6 A ,ost of goods sold> + G2+6 A
2+6
23#62
#(6( 162 %6
G2+6 2+6 G2%6%
;The G162 discount lost is reported in the other e8pense section of the income statement.< ;2< :ross method> Purchases> *ess purchase discounts> .2 G26 A :oods availale Final inventory> 1 G2+#62 A ,ost of goods sold> + G2+#62 A
G36 6( 2+#62 2+6#2 G2%#6%(
;ssuming that the G6( discount is prorated et"een the cost of goods sold6 +6 and the final inventory6 1.<
&)
Purchases> *ess purchase discounts> .2 G26 A :oods availale Final inventory> 1 G36 A ,ost of goods sold> G2+#62 S G36 A
G36 6( 2+#62 36 G2%#62
;ssuming that the G6( discount is used to reduce cost of goods sold. Final inventory is carried at the gross amount.<
8 - 1<
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
P!" 8-/ @$nventory methods.
Flynt ,ompany "as formed on !ecemer 16 2%. The follo"ing information Flynt Ds inventory record for Product O. nits anuary 16 2' ;eginning inventory< 16% Purchases> anuary #6 2' 26% anuary 2#6 2' 26 Feruary 1%6 2' 16 March 1#6 2' 16(
is availale from nit ,ost G1(. G2. G21. G22. G23.
physical inventory on March 316 2'6 sho"s 26# units on hand. Inst!uct$ons
Prepare schedules to compute the ending inventory at March 316 2'6 under each of the follo"ing inventory methods> ;a< F$F&. ;< *$F&. ;c< Weighted-average. 0ho" supporting computations in good form.
Solut$on 8-/
;a<
Flynt ,ompany ,&MPTT$&7 &F $747T&) F&) P)&!,T O 7!) F$F& $747T&) MTL&! March 316 2' March 1#6 2' Feruary 1%6 2' March 316 2'6 inventory
;<
nits 16( ' 26#
nit ,ost G23. 22.
Total ,ost G16 1#6 G#%6(
Flynt ,ompany ,&MPTT$&7 &F $747T&) F&) P)&!,T O 7!) *$F& $747T&) MTL&! March 316 2' ?eginning inventory anuary #6 2' ;portion< March 316 2'6 inventory
nits 16% + 26#
nit ,ost G1(. 2.
Total ,ost G2(6( 1(6 G%6(
4aluation of $nventories> ,ost-?asis pproach
8 - 1=
Solut$on 8-/ ;cont.<
;c<
Flynt ,ompany ,&MPTT$&7 &F $747T&) F&) P)&!,T O 7!) W$:LT!-4): $747T&) MTL&! March 316 2' nits 16% 26% 26 16 16( +6
?eginning inventory anuary #6 2' anuary 2#6 2' Feruary 1%6 2' March 1#6 2'
nit ,ost G1(. 2. 21. 22. 23.
Weighted average cost ;G1+6% V +6<
Total ,ost G 2(6( #26 #6 226 16 G1+6%
G2.'
March 316 2'6 inventory
26#
G2.'
G#16'#
P!" 8-// @!ollar-value *$F&.
!ent ,ompany manufactures one product. &n !ecemer 316 2#6 !ent adopted the dollar-value *$F& inventory method. The inventory on that date using the dollar-value *$F& inventory method "as G1(6. $nventory data are as follo"s> $nventory at year-end prices G2#26 3%(6 3('6#
ear 2% 2' 2(
Price inde8 ;ase year 2#< 1.# 1.1# 1.2#
Inst!uct$ons
,ompute the inventory at December 31, 2006, 2007, and 2008, using the dollar-value *$F& method for each year. Solut$on 8-//
!ent ,ompany !ollar-4alue *$F& ,omputations t !ecemer 316 2%6 2'6 and 2(
t 12H316 2%>
nding $nventory at ?ase-ear Price G2#26 V 1.# A G26
*ayers at ?ase-ear Prices G1(6 G%6
t 12H316 2'>
G3%(6 V 1.1# A G326
G1(6 G%6 G(6
Price $nde8 1. A 1.# A 1. 1.# 1.1#
A A A
nding $nventory !ollar-4alue *$F& G1(6 %36 G236 G1(6 %36 +26 G33#6
Test Ban& 'o! Inte!(e)$ate Account$n*+ Tel't, E)$t$on
8 - 18
Solut$on 8-// ;cont.<
t 12H316 2(>
G3('6# V 1.2# A G316
G1(6 G%6 G'6
1. 1.# 1.1#
A A A
G1(6 %36 (6# G3236#
P!" 8-/1 @!ollar-value *$F&.
!ay ,ompany adopted the dollar-value *$F& inventory method on 12H31H%. &n this date6 its inventory consisted of the follo"ing items. $tem O
7umer of nits 2 %
,ost Per nit G2. .#
dditional information> 1. 2. 3. .
Total ,ost G 26' G361 !ecemer 31 2' 2( 3 G3. G3.2# ( 162 G#.# G%.
nits of O in inventory ,ost of each O unit nits of in inventory ,ost of each unit
Inst!uct$ons
;a< ;< ;c< ;d<
,ompute the price inde8 for 2'. )ound to 2 decimal places. ,alculate the 12H31H' inventory. *ael all numers. ,ompute the price inde8 for 2(. )ound to 2 decimal places. ,alculate the 12H31H( inventory. *ael all numers.
Solut$on 8-/1
;a< nding $nventory $n nd of ear !ollars> O 3 G3. A ( G#.# A
nding $nventory $n ?ase !ollars O 3 G2. A ( G.# A
G + 6 G#63
G % 36% G62
$nde8 A G#63 V G62 A 1.2%2 or 1.2% ;< ?ase *ayer $ncremental *ayer 2' nding $nventory ;c< nding $nventory $n nd of ear !ollars> O G3.2# A 162 G%. A
G361 161 G62
G163 '62 G(6#
$nde8 A G(6# V G%62 A 1.3'1 or 1.3'
1. A 1.2% A nding $nventory $n ?ase !ollars O G2. A 162 G.# A
G361 163(% G6(%
G ( #6 G%62
