Question 1

What is the purpose of using a "cost allocation system" such as FIFO?

Accepted Answer

A) Determining which expenditures to capitalize into the "inventory" account. 
B) Determining which expenditures to expense into the "cost of goods sold" account. 
C) Determining how much of the costs recognized in inventory should be expensed in the year. 
D) Determining the appropriate valuation of inventories that remain on hand. 
A) Determining which expenditures to capitalize into the "inventory" account. 
B) Determining which expenditures to expense into the "cost of goods sold" account. 
C) Determining how much of the costs recognized in inventory should be expensed in the year. 
D) Determining the appropriate valuation of inventories that remain on hand.

Question 2

Comfy Feet manufactures slippers. In 2020, the company hired a new bookkeeper who did not have appropriate training. The bookkeeper charged all of the following costs for manufacturing 70,000 pairs of slippers to "Production Expense."
 $$\begin{array} { l | r | } 
\hline \text { Raw materials } & \$ 34,000 \
\hline \text { Factory labour } & 115,000 \
\hline \text { Variable manufacturing overhead } & 14,000 \
\hline \text { Fixed manufacturing overhead } & 17,000 \
\hline \text { Factory depreciation } & 30,000 \
\hline \text { Finished goods storage } & 1,500 \
\hline \text { Interest for carrying finished goods } & \underline { 1,600 } \
\hline \text { Total } & \$ 213,100 \
\hline
\end{array}$$ The company had zero work-in-process at the end of both 2019 and 2020. Finished goods amounted to 20,000 pairs at $9.00 per pair at the end of 2019. There were 6,500 pairs in finished goods inventory at the end of 2020.
Required:
a. Provide the adjusting journal entry or entries at Dec 31, 2020 to correct the bookkeeper's errors and properly record the above expenditures recorded in the "Production Expense" account.
b. Assume the company uses a periodic inventory system and the FIFO cost flow assumption for finished goods. Calculate the cost of goods sold and the ending value of finished goods inventory for the year 2020.
c. Now assume the company uses the weighted-average cost flow assumption. Calculate the cost of goods sold and the ending value of finished goods.

Accepted Answer

a. The costs related to production shoul

Question 3

Which goods in transit would be recorded in inventory at year end?

Accepted Answer

A) Goods purchased with terms F.O.B. destination point that were received after year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped before year end. 
C) Goods purchased with terms F.O.B. shipping point that were received after year end. 
D) Goods sold with terms F.O.B. destination point that were shipped before year end. 
A) Goods purchased with terms F.O.B. destination point that were received after year end. 
B) Goods sold with terms F.O.B. shipping point that were shipped before year end. 
C) Goods purchased with terms F.O.B. shipping point that were received after year end. 
D) Goods sold with terms F.O.B. destination point that were shipped before year end.

Question 4

Connect has been selling cellular phones for the last five years. Its best-selling model is the E-PHONE. The following information pertains to the E-PHONE inventory for August 2020:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Units } & \text { Unit cost } \
\hline \text { Opening inventory } & 4,000 & \$ 50 \
\hline \text { Purchase 1 } & 2,400 & 40 \
\hline \text { Sale 1 } & ( 1,800 ) & \
\hline \text { Purchase 2 } & 4,400 & 53 \
\hline \text { Sale 2 } & \underline { 4,200 } & \
\hline \text { Ending inventory } & \underline { 4,800 } \
\hline
\end{array}$$ Required:
a. If Connect uses the FIFO method under a periodic inventory system, what would be the cost of ending inventory for August 2020?
b. If Connect uses the weighted-average method under a periodic inventory system, what would be the cost of goods sold for August 2020?
c. If Connect uses the weighted-average method under a perpetual inventory system, what would be the cost of ending inventory for August 2020?

Accepted Answer

None

Question 5

Using the following information, what amount of "shrinkage" would be identified under the periodic inventory system? $\begin{array}{|l|r}
\text { Inventory at the beginning of the year } & \$ 300,000 \
\hline \text { Inventory based on count at the end of the year } & \$ 650,000 \
\hline \text { Inventory purchases during the year } & \$ 1,000,000
\end{array}$

Accepted Answer

A) $ 0 
B) $300,000 
C) $650,000 
D) $700,000 
A) $ 0 
B) $300,000 
C) $650,000 
D) $700,000

Question 6

Which statement is not correct about inventory errors?

Accepted Answer

A) Misstatements in inventory can affect the beginning inventory amounts. 
B) Misstatements in inventory can affect the ending inventory amounts. 
C) Misstatements in inventory affect current ratios. 
D) Misstatements in inventory have no effect on net income. 
A) Misstatements in inventory can affect the beginning inventory amounts. 
B) Misstatements in inventory can affect the ending inventory amounts. 
C) Misstatements in inventory affect current ratios. 
D) Misstatements in inventory have no effect on net income.

Question 7

Inventive Controls Ltd. was incorporated and started business early in January 2019 to manufacture electronic control devices to monitor traffic. Inventive purchased a small manufacturing plant and office building in a new industrial park and was in operation immediately. General ledger account balances at December 31, 2019 are as follows:
 $$\begin{array} { l | r | } 
\hline \text { Sales commission } & 62,000 \
\hline \text { Supervisory salaries, production manager } & 66,000 \
\hline \text { Executive salaries } & 120,000 \
\hline \text { Raw material purchases } & 136,500 \
\hline \text { Miscellaneous plant supplies } & 13,700 \
\hline \text { Depreciation, office building } & 7,900 \
\hline \text { Depreciation, plant equipment } & 9,900 \
\hline \text { Property tax (80\% for office building; 20\% for plant building) } & 4,400 \
\hline \text { Sales } & 850,000 \
\hline \text { Direct labour } & 64,000 \
\hline \text { Raw material inventory, Dec } 31,2019 & 13,600 \
\hline \text { Utilities expense (60\% related to office) } & 19,000 \
\hline \text { General administrative expense } & 42,300 \
\hline
\end{array}$$ At December 31, 2019, there was no work-in-process, but 30% of the units manufactured remained in ending finished goods inventory. Inventive uses the straight-line method to calculate depreciation.
Required:
a. Calculate the value of cost of goods sold and ending finished goods inventory under IFRS.
b. Prepare an income statement for Inventive for the year ended December 31, 2019.

Accepted Answer

a. To calculate cost of goods sold and e

Question 8

Give some examples of how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

Accepted Answer

When an enterprise incurs an expenditure

Question 9

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this NOT have on fiscal 2020 financial reporting?

Accepted Answer

A) Beginning inventory is understated by $1,000. 
B) Gross margin is overstated by $1,000. 
C) Cost of sales is understated by $1,000. 
D) Inventory is understated on the balance sheet. 
A) Beginning inventory is understated by $1,000. 
B) Gross margin is overstated by $1,000. 
C) Cost of sales is understated by $1,000. 
D) Inventory is understated on the balance sheet.

Question 10

Top Trimaran manufactures sailboats. Due to recessionary conditions which have significantly depressed sales, the company had to cut back production to levels significantly below the normal level of 900 units a year. In 2020, the company's production resulted in the following figures:
 $$\begin{array} { | l | r | } 
\hline \text { tem } & \text { Amount } \
\hline \text { Number of boats } &  \
\hline \text { Opening inventory } &50  \
\hline \text { Production } & 740\
\hline \text { Sales } & (690 ) \
\hline \text { Ending inventory } &100  \
\hline &  \
\hline \text { Standard cost per unit based on 500 units per year } & \
\hline \text { Raw materials } & \$ 13,000 / \text { unit } \
\hline \text { Production wages } & 28,000 / \text { unit } \
\hline \text { Variable production overhead } & 15,000 / \text { unit } \
\hline \text { Fixed production overhead } & 25,000 / \text { unit } \
\hline \text { Total production cost } & \$ 81,000 / \mathrm { unit } \
\hline & \$ 3,950,000 \
\hline \text { }&\text { }\
\hline \text { Opening inventory cost } & 89,700,000 \
\hline \text { Sales } & \$ 5 \
\hline
\end{array}$$ Actual amounts of variable and fixed costs were not materially different from standard costs.
Required:
Determine the amount of cost that should be included in inventories and the gross margin for the year. Top Trimaran uses the first-in, first-out cost flow assumption.

Accepted Answer

None

Question 11

Which statement is correct about overhead?

Accepted Answer

A) Fixed overhead is expensed under absorption costing. 
B) Fixed overhead is never capitalized. 
C) Variable overhead is always capitalized. 
D) Fixed overhead is capitalized under absorption costing. 
A) Fixed overhead is expensed under absorption costing. 
B) Fixed overhead is never capitalized. 
C) Variable overhead is always capitalized. 
D) Fixed overhead is capitalized under absorption costing.

Question 12

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Accepted Answer

A) Gross margin is overstated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) No effect on beginning inventory. 
A) Gross margin is overstated by $1,000. 
B) Cost of sales is overstated by $1,000. 
C) Ending inventory is understated by $1,000. 
D) No effect on beginning inventory.

Question 13

A company has fixed production overhead costs totalling $25,000. The normal production level is 2,500 units per year, yielding a standard fixed overhead rate of $10.00 per unit. If the actual production level is 2,000 units, how much would be the amount of fixed overhead per unit and the amount of total fixed overhead included in inventory? Select the letter for the best answer:

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 12.50 & 25,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 25,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 12.50 & 20,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 12.50 & 25,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 25,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 10.00 & 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\text { Fixed overhead per unit } & \text { Fixed overhead included in inventory } \
\hline 12.50 & 20,000 \
\hline
\end{array}$$

Question 14

Dianna Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is 20%. The following information relates to the month of September.
$\begin{array} { l r } 
\text { Accounts receivable, September 1 } & \$ 121,000 \
\text { Inventory, September 1 } & 147,000 \
\text { Collections of accounts during September } & 184,000 \
\text { Purchases during September } & 165,000 \
\text { Accounts receivable, September } 30 & 127,000
\end{array}$ 
Required:
Calculate the estimated cost of the inventory on September 30.

Accepted Answer

GP % = 20% /(1 +20%)= 16.667%
Cost of go

Question 15

What journal entry is required when inventory is purchased under the periodic inventory system?

Accepted Answer

A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  Dr Inventory
$\mathrm { Cr }$ Accounts Payable 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable 
A)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory 
B)  Dr Cost of goods sold
$\mathrm { Cr }$ Inventory
Cr Purchases 
C)  Dr Inventory
$\mathrm { Cr }$ Accounts Payable 
D)  Dr Purchases
$\mathrm { Cr }$ Accounts Payable

Question 16

Which statement is correct about inventory errors?

Accepted Answer

A) Misstatements in inventory can affect the beginning inventory amounts. 
B) Misstatements in inventory are likely to affect only the current accounting period. 
C) Misstatements in inventory are likely to only affect one reporting period. 
D) Misstatements self-correct over three reporting periods. 
A) Misstatements in inventory can affect the beginning inventory amounts. 
B) Misstatements in inventory are likely to affect only the current accounting period. 
C) Misstatements in inventory are likely to only affect one reporting period. 
D) Misstatements self-correct over three reporting periods.

Question 17

Which statement best explains the FIFO cost flow assumption?

Accepted Answer

A) A method that uses the most recent costs in the calculation of cost of sales. 
B) A method that uses the cost of goods available for sale divided by the number of units available for sale. 
C) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
D) A method that uses the oldest costs in the calculation of cost of sales. 
A) A method that uses the most recent costs in the calculation of cost of sales. 
B) A method that uses the cost of goods available for sale divided by the number of units available for sale. 
C) A method that assigns costs to inventories and cost of sales based on actual costs of each item. 
D) A method that uses the oldest costs in the calculation of cost of sales.

Question 18

Given the following information, what would the ending inventory value be on December 31 under the LIFO method in a periodic inventory system? $$\begin{array} { | l | l | } 
\hline \text { Dates } & \text { Units of Inventory } \
\hline \text { Opening Inventory } & 200 \text { units at } \$ 5.00 \
\hline \text { Purchases: } & \
\hline  \text { April } 12 & 300 \text { units at } \$ 5.10 \
\hline \text {  July 7 } & 400 \text { units at } \$ 5.25 \
\hline \text { Sales: }& \
\hline \text { August } 12 & 100 \text { units at } \$ 8.00 \
\hline \text { December } 15 & 500 \text { units at } \$ 8.20 \
\hline
\end{array}$$

Accepted Answer

A) $1,510 
B) $1,575 
C) $2,075 
D) $3,120 
A) $1,510 
B) $1,575 
C) $2,075 
D) $3,120

Question 19

A particular production process requires two types of raw materials to produce the end product. Each unit of finished product requires three units of raw material A and 2 units of raw material B, plus processing costs of $35. The following provides information on inventories at fiscal 2019 year-end:
$\begin{array} { | l | r | r | r | r | } 
\hline \text { Inventoryitem } & & & \begin{array} { r } 
\text { Replacement } \
\text { cost }
\end{array} & \begin{array} { r } 
\text { Net realizable } \
\text { value }
\end{array} \
\hline \text { Finished goods } & \text { \# units } & \text { Cost per unit } & \text { NA } & 161 \
\hline \text { Raw material A } & 800 & 181 & 17 & \text { NA } \
\hline \text { Raw material B } & 150 & 10 & 53 & \text { NA } \
\hline
\end{array}$
Required:
a. Evaluate these inventories to determine the amount of write-down, if any.
b. If the entry required in part (a)is not made in fiscal 2019, what is the effect on
i)2019 and 2020 inventory on the balance sheet
ii)2019 and 2020 cost of goods sold
iii)2019 and 2020 net income
iv)2019 and 2020 retained earnings

Accepted Answer

a. The finished product's NRV < cost. Th

Question 20

A specialized retailer has a selection of five products. The following is information relating to these products.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Product } & \text { \# Units } & \begin{array} { c } 
\text { Cost per } \
\text { unit }
\end{array} & \begin{array} { c } 
\text { Selling } \
\text { price }
\end{array} \
\hline \text { A } & 80 & \$ 60 & \$ 50 \
\hline \text { B } & 130 & 100 & 180 \
\hline \text { C } & 60 & 70 & 220 \
\hline \text { D } & 80 & 120 & 60 \
\hline \text { E } & 60 & 90 & 120 \
\hline
\end{array}$$ The company estimates selling costs to be 4% of selling price, primarily for sales commissions.
Required:
Determine the amount of inventory write-down per product required, if any.

Accepted Answer

None

What is the purpose of using a "cost allocation system" such as FIFO?

Which goods in transit would be recorded in inventory at year end?

Using the following information, what amount of "shrinkage" would be identified under the periodic inventory system? Inventory at the beginning of the year \ 300,000 Inventory based on count at the end of the year \ 650,000 Inventory purchases during the year \ 1,000,000

Which statement is not correct about inventory errors?

Give some examples of how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this NOT have on fiscal 2020 financial reporting?

Which statement is correct about overhead?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

What journal entry is required when inventory is purchased under the periodic inventory system?

Which statement is correct about inventory errors?

Which statement best explains the FIFO cost flow assumption?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

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Exam 6: Inventories

What is the purpose of using a "cost allocation system" such as FIFO?

Which goods in transit would be recorded in inventory at year end?

Using the following information, what amount of "shrinkage" would be identified under the periodic inventory system? Inventory at the beginning of the year \ 300,000 Inventory based on count at the end of the year \ 650,000 Inventory purchases during the year \ 1,000,000

Which statement is not correct about inventory errors?

Give some examples of how a manufacturing company can manipulate earnings by including non-production costs in inventories. What does an auditor or financial statement user do to detect this type of manipulation?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this NOT have on fiscal 2020 financial reporting?

Which statement is correct about overhead?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

What journal entry is required when inventory is purchased under the periodic inventory system?

Which statement is correct about inventory errors?

Which statement best explains the FIFO cost flow assumption?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters