Question 1

Which statement is true about the retail inventory method?

Accepted Answer

A)  It may not be used to estimate inventories for interim statements. 
B)  It may not be used to estimate inventories for annual statements. 
C)  It may not be used by auditors. 
D)  None of these are correct. 
A)  It may not be used to estimate inventories for interim statements. 
B)  It may not be used to estimate inventories for annual statements. 
C)  It may not be used by auditors. 
D)  None of these are correct. D

Question 2

Under International Financial Reporting Standards (IFRS), agricultural activity results in which of the following types of assets?
I. Agricultural produce
II. Biological assets

Accepted Answer

A)  I only. 
B)  II only. 
C)  I and II. 
D)  Neither I nor II. 
A)  I only. 
B)  II only. 
C)  I and II. 
D)  Neither I nor II. C

Question 3

When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because

Accepted Answer

A)  there may be no markdowns in a given year. 
B)  this tends to give a better approximation of the lower of cost or net realizable value. 
C)  markups are also ignored. 
D)  this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold. 
A)  there may be no markdowns in a given year. 
B)  this tends to give a better approximation of the lower of cost or net realizable value. 
C)  markups are also ignored. 
D)  this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold. B

Question 4

The inventory turnover is computed by dividing the cost of goods sold by

Accepted Answer

A)  beginning inventory. 
B)  ending inventory. 
C)  average inventory. 
D)  number of days in the year. 
A)  beginning inventory. 
B)  ending inventory. 
C)  average inventory. 
D)  number of days in the year.

Question 5

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative standalone sales value.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.

Accepted Answer

A) True 
 B)False

Question 8

If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should recognize a liability and corresponding loss in the period in which the market decline takes place.

Accepted Answer

A) True 
 B)False

Question 9

When inventory declines in value below original (historical) cost what is the maximum amount that the inventory can be valued at?

Accepted Answer

A)  Sales price 
B)  Net realizable value 
C)  Historical cost 
D)  Sales price reduced by estimated costs to sell 
A)  Sales price 
B)  Net realizable value 
C)  Historical cost 
D)  Sales price reduced by estimated costs to sell

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which statement is not true about the gross profit method of inventory valuation?

Accepted Answer

A)  It may be used to estimate inventories for interim statements. 
B)  It may be used to estimate inventories for annual statements. 
C)  It may be used by auditors. 
D)  It may be used when fire or other catastrophe destroys the inventory. 
A)  It may be used to estimate inventories for interim statements. 
B)  It may be used to estimate inventories for annual statements. 
C)  It may be used by auditors. 
D)  It may be used when fire or other catastrophe destroys the inventory.

Question 12

Which of the following statements is correct regarding International Financing Reporting Standards (IFRS) and U.S. GAAP with regard to inventory?

Accepted Answer

A)  LIFO (last-in, first-out) is permitted under IFRS but not under U.S. GAAP. 
B)  When applying lower-of-cost-or-market, U.S. GAPP defines market as net realizable value. 
C)  IFRS permits valuing inventories at fair value, similar to the accounting for property, plant, and equipment. 
D)  Under U.S. GAPP, if inventory is written down under lower-of-cost-or-market, it may not be written back up to its original cost in a subsequent period. 
A)  LIFO (last-in, first-out) is permitted under IFRS but not under U.S. GAAP. 
B)  When applying lower-of-cost-or-market, U.S. GAPP defines market as net realizable value. 
C)  IFRS permits valuing inventories at fair value, similar to the accounting for property, plant, and equipment. 
D)  Under U.S. GAPP, if inventory is written down under lower-of-cost-or-market, it may not be written back up to its original cost in a subsequent period.

Question 13

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory?

Accepted Answer

A)  Commodities held by broker-traders. 
B)  Computer components held for sale to manufacturers. 
C)  Inventories priced on an item by-item basis, but not those priced on a total-inventory basis. 
D)  All of the choices are held at NRV under IFRS. 
A)  Commodities held by broker-traders. 
B)  Computer components held for sale to manufacturers. 
C)  Inventories priced on an item by-item basis, but not those priced on a total-inventory basis. 
D)  All of the choices are held at NRV under IFRS.

Question 14

Under International Financial Reporting Standards (IFRS), agricultural activity can result in the production of both agricultural produce and biological assets.

Accepted Answer

A) True 
 B)False

Question 15

A disadvantage of the gross profit method is that it uses past percentages in determining the markup.

Accepted Answer

A) True 
 B)False

Question 16

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Accepted Answer

A) True 
 B)False

Question 17

Agricultural produce is

Accepted Answer

A)  Harvested from biological assets. 
B)  Valued at the time of harvest at its cost to produce. 
C)  Valued at each reporting period at its fair value less costs to sell. 
D)  All of the choices are correct regarding agricultural produce. 
A)  Harvested from biological assets. 
B)  Valued at the time of harvest at its cost to produce. 
C)  Valued at each reporting period at its fair value less costs to sell. 
D)  All of the choices are correct regarding agricultural produce.

Question 18

Why are inventories stated at lower-of-cost-or-net realizable value?

Accepted Answer

A)  To report a loss when there is a decrease in the future utility. 
B)  To be conservative. 
C)  To report a loss when there is a decrease in the future utility below the original cost. 
D)  To permit future profits to be recognized. 
A)  To report a loss when there is a decrease in the future utility. 
B)  To be conservative. 
C)  To report a loss when there is a decrease in the future utility below the original cost. 
D)  To permit future profits to be recognized.

Question 19

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Which statement is true about the retail inventory method?

Under International Financial Reporting Standards (IFRS), agricultural activity results in which of the following types of assets? I. Agricultural produce II. Biological assets

When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because

The inventory turnover is computed by dividing the cost of goods sold by

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative standalone sales value.

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

In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.

If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should recognize a liability and corresponding loss in the period in which the market decline takes place.

When inventory declines in value below original (historical) cost what is the maximum amount that the inventory can be valued at?

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

Which statement is not true about the gross profit method of inventory valuation?

Which of the following statements is correct regarding International Financing Reporting Standards (IFRS) and U.S. GAAP with regard to inventory?

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory?

Under International Financial Reporting Standards (IFRS), agricultural activity can result in the production of both agricultural produce and biological assets.

A disadvantage of the gross profit method is that it uses past percentages in determining the markup.

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Agricultural produce is

Why are inventories stated at lower-of-cost-or-net realizable value?

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

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

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters

Exam 9: Inventories: Additional Valuation Issues

Which statement is true about the retail inventory method?

Under International Financial Reporting Standards (IFRS), agricultural activity results in which of the following types of assets? I. Agricultural produce II. Biological assets

When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because

The inventory turnover is computed by dividing the cost of goods sold by

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative standalone sales value.

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

In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.

If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should recognize a liability and corresponding loss in the period in which the market decline takes place.

When inventory declines in value below original (historical) cost what is the maximum amount that the inventory can be valued at?

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

Which statement is not true about the gross profit method of inventory valuation?

Which of the following statements is correct regarding International Financing Reporting Standards (IFRS) and U.S. GAAP with regard to inventory?

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing which of the following types of inventory?

Under International Financial Reporting Standards (IFRS), agricultural activity can result in the production of both agricultural produce and biological assets.

A disadvantage of the gross profit method is that it uses past percentages in determining the markup.

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Agricultural produce is

Why are inventories stated at lower-of-cost-or-net realizable value?

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

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

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters