Intermediate accounting 17th edition kieso test bank

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

No.

Description

T F T F F T F T F T T F F T T F F T T T

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Work-in-process inventory.

Merchandising and manufacturing inventory accounts.

Modified perpetual inventory system.

Determining when title passes.

Period vs. product costs.

Reporting Purchase Discounts Lost.

Cost flow assumption.

FIFO periodic vs. perpetual system.

Selection of inventory method.

Appropriateness of LIFO. LIFO Reserve.

Using LIFO for reporting purposes.

LIFO liquidation.

LIFO liquidations.

Dollar-value LIFO. Dollar-value LIFO method.

LIFO-FIFO comparison.

LIFO conformity rule.

Inventory errors.

Overstatement of purchases and ending inventory.

MULTIPLE CHOICE—Conceptual Answer

No.

Description

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

21.

22.

23.

24.

25.

26.

27.

28.

29.

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31.

32.

33.

Identify manufacturer inventory similar to merchandise inventory.

Sales with buyback agreement.

Sales with high rates of return.

Reason inventories are included in net income computation.

Characteristic of perpetual inventory system.

Reporting consignment inventory in balance sheet.

Reporting goods in transit purchased f.o.b. destination.

Effect of inventory error on net income.

Effect of goods in transit on the current ratio.

Description of consigned inventory.

Entries under perpetual inventory system.

Classification of goods in transit.

Classification of goods in transit.

8-2

Test Bank for Intermediate Accounting, Seventeenth Edition

MULTIPLE CHOICE—Conceptual (cont.)

Answer

No.

Description

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

34.

35.

36.

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S 38.

P 39.

P 40.

S 41.

42.

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S 59.

P 60.

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70.

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72.

73.

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S 80.

Identify inventory ownership.

Identify a product financing arrangement.

Identify ownership under product financing arrangement.

Classification of goods on consignment.

Valuation of inventories.

Classification of beginning inventory.

Effect of beginning inventory overstated.

Effect of understating purchases.

Effect of recording merchandise on consignment.

Effect of ending inventory overvaluation.

Effect of inventory errors on income.

Effect of understating purchases and ending inventory.

Effect of beginning inventory overstatement.

Identification of a product cost.

Identification of a period cost.

Method used to record cash discounts.

Identification of inventory costs.

Identification of product costs.

Determine product costs.

Interest capitalization in manufacturing inventory.

Determine cost of purchased inventory, using net method.

Determine cost of purchased inventory, using gross method.

Recording inventory purchases at gross or net amounts.

Recording inventory purchases at gross or net amounts.

Nature of trade discounts.

Identifying inventoriable costs.

Method approximating current cost.

Average cost inventory valuation.

Weighted-average inventory method.

Nature of FIFO valuation of inventory.

Flow of costs in a manufacturing situation.

FIFO and decreasing prices.

FIFO and increasing prices.

FIFO and increasing prices.

FIFO and LIFO inventory assumptions.

LIFO and increasing prices.

Knowledge of inventory valuation methods.

Periodic and perpetual inventory methods.

Appropriateness of specific identification method.

FIFO and rising prices.

LIFO and falling prices.

LIFO reserve definition.

LIFO reserve account classification.

Specific-goods pooled LIFO approach.

Double-extension method under dollar-value LIFO. Description of LIFO layer.

Dollar-value LIFO method.

Valuation of Inventories: A Cost-Basis Approach

MULTIPLE CHOICE—Conceptual (cont.)

Answer a d c P S

No.

Description

S

Identifying advantages of LIFO. LIFO for tax purposes and external reporting.

LIFO advantages.

81.

82.

83.

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

These questions also appear in the Study Guide.

MULTIPLE CHOICE—Computational Answer

No.

Description

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

84.

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86.

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119.

120.

121.

Classification of inventory.

Classification of inventory.

Perpetual inventory method.

Perpetual inventory method.

Calculate ending inventory.

Calculate ending inventory.

Calculate total assets and net income.

Calculate total assets and net income.

Effect of inventory and depreciation errors on income.

Effect of inventory and depreciation errors on retained earnings.

Effect of inventory errors on working capital.

Calculate cost of goods available for sale.

Accounting for a purchase return (net method).

Adjust Accounts Payable using the net method.

Calculate ending inventory using weighted-average.

Calculate ending inventory using moving average.

Calculate ending inventory using LIFO. Calculate cost of goods sold using FIFO. Effect of using LIFO or FIFO. Perpetual inventory—LIFO valuation.

Perpetual inventory—LIFO valuation.

Perpetual inventory—FIFO valuation.

Perpetual inventory—average cost valuation.

Cost flow assumptions.

Cost flow assumptions.

Calculate units in ending inventory.

Calculate cost of goods sold.

Calculate cost of goods sold using average cost.

Calculate ending inventory using average cost.

Calculate ending inventory using FIFO. Calculate cost of goods sold using FIFO. Calculate ending inventory using LIFO. Calculate cost of goods sold using LIFO. LIFO reserve.

LIFO reserve.

LIFO liquidation.

LIFO liquidation.

Dollar-value LIFO.

8-3

8-4

Test Bank for Intermediate Accounting, Seventeenth Edition

MULTIPLE CHOICE—Computational (cont.)

Answer

No.

Description

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

122.

123.

124.

125.

126.

127.

128.

129.

130.

131.

132.

133.

Dollar-value LIFO. Dollar-value LIFO. Dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate price index using double extension method.

Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO. Calculate ending inventory using dollar-value LIFO.

MULTIPLE CHOICE—CPA Adapted Answer

No.

Description

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

134.

135.

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138.

139.

140.

141.

142.

143.

144.

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147.

Identification of inventory costs.

Determine cost of purchased inventory.

Determine cost of sales.

Calculate Accounts Payable at year end.

Calculate Accounts Payable at year end.

Calculate Accounts Payable at year end.

Determine cost of purchased inventory.

Determine cost of purchased inventory.

Calculate unit cost using moving-average method.

Periodic and perpetual inventory methods.

FIFO and LIFO with increasing prices.

Calculate ending inventory using LIFO. Dollar-value LIFO and the double extension approach.

Calculate ending inventory using dollar-value LIFO.

BRIEF EXERCISES Item BE8-148 BE8-149 BE8-150

Description Recording purchases at net amounts.

Recording purchases at net amounts.

Comparison of FIFO and LIFO.

Valuation of Inventories: A Cost-Basis Approach

EXERCISES Item E8-151 E8-152 E8-153 E8-154 E8-155 E8-156

Description FIFO and LIFO inventory methods.

FIFO and LIFO periodic inventory methods.

Perpetual LIFO. Perpetual LIFO and periodic FIFO. Analysis of gross profit.

Dollar-value LIFO.

PROBLEMS Item

Description

P8-157 P8-158 P8-159 P8-160 P8-161 P8-162

Inventory cut-off.

Analysis of errors.

Accounting for purchase discounts.

Inventory methods.

Dollar-value LIFO. Dollar-value LIFO.

CHAPTER LEARNING OBJECTIVES 1.

2.

3.

4.

5.

Understand inventory classifications and different inventory systems, Determine the goods and costs included in inventory.

Describe and compare the cost flow assumptions used to account for inventories.

Identify special issues related to LIFO. Determine the effect of inventory errors on the financial statements.

8-5

8-6

Test Bank for Intermediate Accounting, Seventeenth Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

4 4 4 4

K K K K

17.

18.

19.

20.

4 4 5 5

K K C C

AP AP AP AN AP AP AP AP AN AN AP AP AP AP AP AP AP AP AP AP AN AN AP AP AP AP

125.

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147.

4 4 4 4 4 4 4 4 4 1 1 1 1 1 1 2 2 3 3 3 3 4 4

AP AP AP AP AP AP AP AP AP AN AP AP AP AP AP AP AP AP C AN AP K AP

TRUE-FALSE STATEMENTS 1.

2.

3.

4.

1 1 1 2

C K K C

5.

6.

7.

8.

2 2 3 3

C K K K

9.

10.

11.

12.

4 4 4 4

C C C K

13.

14.

15.

16.

MULTIPLE CHOICE QUESTIONS 21.

22.

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1 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 5 5 5 5 5 5 5

C K K C K K K AN AN K C C C C AP AP K C AP AN AN AN AN AN AN AN

47.

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72.

2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3

C C C K K C C K K AN AN C C C C C K K AN C C AN C C C C

73.

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3 3 4 4 4 4 4 4 4 4 4 1 1 1 1 2 2 5 5 5 5 5 2 2 2 3

C C K C K K K C AN C C AP AP AP AP AP AP AN AN AN AN AN AP AP AP AP

99.

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BRIEF EXERCISES 148.

2

AP

149.

2

AP

150.

3 ,4

AN

EXERCISES 151.

152.

3 3

AP AP

153.

154.

3 3

AP AP

155.

156.

4 4

AN AP

PROBLEMS 157.

158.

1 5

AN AN

159.

160.

2 3

AP AP

161.

162.

4 4

AP AP

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4

Valuation of Inventories: A Cost-Basis Approach

8-7

TRUE FALSE—Conceptual 1.

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

2.

Both merchandising and manufacturing companies normally have multiple inventory accounts.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

3.

A modified perpetual inventory system provides detailed inventory records of increases and decreases in quantities only–not dollar amounts.

Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

4.

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

Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

5.

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

Ans: F, LO: 2, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

6.

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

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

7.

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

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

8.

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

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

9.

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

Ans: F, LO: 4, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA, IFRS: None

10.

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

Ans: T, LO: 4, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA, IFRS: None

11.

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

Ans: T, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

8-8 12.

Test Bank for Intermediate Accounting, Seventeenth Edition Many companies use LIFO for both tax and internal reporting purposes.

Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

13.

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

Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

14.

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

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

15.

Dollar-value LIFO techniques help protect LIFO layers from erosion.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA, IFRS: None

16.

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

Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA, IFRS: None

17.

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

Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA, IFRS: None

18.

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

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA, IFRS: None

19.

If ending inventory is understated, then net income is understated.

Ans: T, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

20.

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

Ans: T, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

True False Answers—Conceptual Item 1.

2.

3.

4.

5.

Ans. T F T F F

Item 6.

7.

8.

9.

10.

Ans. T F T F T

Item 11.

12.

13.

14.

15.

Ans. T F F T T

Item 16.

17.

18.

19.

20.

Ans. F F T T T

Valuation of Inventories: A Cost-Basis Approach

8-9

MULTIPLE CHOICE—Conceptual 21.

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

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

22.

Which of the following methods is also referred as “parking transactions”? a. Consignment sales. b. Sales on installment. c. Sales with high rates of return. d. Sales with buyback agreement.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

23.

Under what circumstances should a company with high rate of return on sales consider the inventory sold? a. When it can reasonably estimate the amount of returns b. When the retailer gives a confirmation that the goods won’t be returned c. When the goods are sold on installment d. When the payment for goods is received

Ans: A, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

24.

Why are inventories included in the computation of net income? a. To determine cost of goods sold. b. To determine sales revenue. c. To determine merchandise returns. d. Inventories are not included in the computation of net income.

Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

25.

Which of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to a Purchases account. b. Inventory records are not kept for every item. c. Cost of goods sold is recorded with each sale. d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

8 - 10 26.

Test Bank for Intermediate Accounting, Seventeenth Edition How is a significant amount of consignment inventory reported in the balance sheet? a. The inventory is reported separately on the consignor's balance sheet. b. The inventory is combined with other inventory on the consignor's balance sheet. c. The inventory is reported separately on the consignee's balance sheet. d. The inventory is combined with other inventory on the consignee's balance sheet.

Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

27.

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet? a. Accounts payable. b. Inventory. c. Equipment. d. Not on the balance sheet.

Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

28.

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a. Overstate net income. b. Understate net income. c. No effect on net income. d. Not sufficient information to determine effect on net income.

Ans: B, LO: 1, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

29.

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory? a. Overstate the current ratio. b. Understate the current ratio. c. No effect on the current ratio. d. Not sufficient information to determine effect on the current ratio.

Ans: B, LO: 1, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None

30.

What is consigned inventory? a. Goods that are shipped, but title transfers to the receiver. b. Goods that are sold, but payment is not required until the goods are sold. c. Goods that are shipped, but title remains with the consignor. d. Goods that have been segregated for shipment to a customer.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

31.

When using a perpetual inventory system, a. no Purchases account is used. b. a Cost of Goods Sold account is used. c. two entries are required to record a sale. d. All of these answer choices are correct.

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 32.

8 - 11

Goods in transit which are shipped f.o.b. shipping point should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. None of these answer choices are correct.

Ans: B, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

33.

Goods in transit which are shipped f.o.b. destination should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. None of these answers are correct.

Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

34.

Which of the following items should be included in a company's inventory at the balance sheet date? a. Goods in transit which were purchased f.o.b. destination. b. Goods received from another company for sale on consignment. c. Goods sold to a customer which are being held for the customer to call for at his or her convenience. d. None of these answer choices are correct.

Ans: D, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Use the following information for questions 35 and 36. During 2020 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2021 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.

35.

This transaction is known as a(n) a. consignment. b. installment sale. c. assignment for the benefit of creditors. d. product financing arrangement.

Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

36.

On whose books should the cost of the inventory appear at the December 31, 2020 balance sheet date? a. Carne Corporation b. Nolan Corporation c. Norwalk Bank d. Nolan Corporation, with Carne making appropriate note disclosure of the transaction

Ans: A, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

8 - 12

Test Bank for Intermediate Accounting, Seventeenth Edition

37.

Goods on consignment are a. included in the consignee's inventory. b. included in the consignor’s inventory. c. included in the consignee’s revenue. d. included in both the consignee’s and the consignor’s inventory.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None S

38.

Valuation of inventories requires the determination of all of the following except a. the costs to be included in inventory. b. the physical goods to be included in inventory. c. the cost of goods held on consignment from other companies. d. the cost flow assumption to be adopted.

Ans: C, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None P

39.

The accountant for the Pryor Sales Company is preparing the income statement for 2020 and the balance sheet at December 31, 2020. Pryor uses the periodic inventory system.

The January 1, 2020 merchandise inventory balance will appear a. only as an asset on the balance sheet. b. 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 balance sheet. d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

Ans: B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None P

40.

If the beginning inventory for 2020 is overstated, the effects of this error on cost of goods sold for 2020, net income for 2020, and assets at December 31, 2021, respectively, are a. overstatement, understatement, overstatement. b. overstatement, understatement, no effect. c. understatement, overstatement, overstatement. d. understatement, overstatement, no effect.

Ans: B, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None S

41.

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. b. an understatement of assets and net income. c. an understatement of cost of goods sold and liabilities and an overstatement of assets. d. an understatement of liabilities and an overstatement of owners' equity.

Ans: D, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 42.

8 - 13

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be a. no effect. b. net income was correct and current assets and current liabilities were overstated. c. net income, current assets, and current liabilities were overstated. d. net income and current liabilities were overstated.

Ans: B, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

43.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be a. net income, current assets, and retained earnings were overstated. b. net income was correct and current assets were understated. c. net income and current assets were overstated and current liabilities were understated. d. net income, current assets, and retained earnings were understated.

Ans: A, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

44.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be a. net income, current assets, and retained earnings were understated. b. net income was correct and current assets were understated. c. net income was understated and current liabilities were overstated. d. net income was overstated and current assets were understated.

Ans: A, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

45.

On June 15, 2020, Wynne Corporation accepted delivery of merchandise which it purchased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2020 would be a. assets and stockholders' equity were overstated but liabilities were not affected. b. stockholders' equity was the only item affected by the omission. c. assets, liabilities, and stockholders' equity were understated. d. assets and liabilities were understated but stockholders’ equity was not affected.

Ans: D, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

46.

What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance? a. Understated by $50,000. b. No effect. c. Overstated by $50,000. d. Need more information to determine.

Ans: B, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 14 47.

Test Bank for Intermediate Accounting, Seventeenth Edition Which of the following is a product cost as it relates to inventory? a. Selling costs. b. Interest costs. c. Raw materials. d. Abnormal spoilage.

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

48.

Which of the following is a period cost? a. Direct costs. b. Freight in. c. Production costs. d. Selling costs.

Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

49.

Which method may be used to record cash discounts a company receives for paying suppliers promptly? a. Net method. b. Gross method. c. Average method. d. Both the net method and the gross method.

Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

50.

Which of the following is included in inventory costs? a. Product costs. b. Period costs. c. Product and period costs. d. Neither product or period costs.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

51.

Which of the following is correct? a. Selling costs are product costs. b. Manufacturing overhead costs are product costs. c. Interest costs for routine inventories are product costs. d. All of these answers are correct.

Ans: B, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

52.

All of the following costs should be charged against revenue in the period in which costs are incurred except for a. manufacturing overhead costs for a product manufactured and sold in the same accounting period. b. costs which will not benefit any future period. c. costs from idle manufacturing capacity resulting from an unexpected plant shutdown. d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

Ans: D, LO: 2, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 53.

8 - 15

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost? a. Purchase discounts lost b. Interest incurred during the production of discrete projects such as ships or real estate projects c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis d. All of these should be capitalized.

Ans: B, LO: 2, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

54.

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus the purchase discount lost. c. invoice price less the purchase discount taken. d. invoice price less the purchase discount allowable whether taken or not.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

55.

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its a. invoice price. b. invoice price plus any purchase discount lost. c. invoice price less the purchase discount taken. d. invoice price less the purchase discount allowable whether taken or not.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

During 2020, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30.

Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

56.

Which of the following recording procedures would result in the highest cost of goods sold for 2020?

1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement a. 1 b. 2 c. Either 1 or 2 will result in the same cost of goods sold. d. Cannot be determined from the information provided.

Ans: A, LO: 2, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 16

Test Bank for Intermediate Accounting, Seventeenth Edition

During 2020, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30.

Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

57.Which of the following recording procedures would result in the highest net income for 2020?

1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement a. 1 b. 2 c. Either 1 or 2 will result in the same net income. d. Cannot be determined from the information provided.

Ans: C, LO: 2, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

58.

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold? a. Trade discounts applicable to purchases during the period b. Cash (purchase) discounts taken during the period c. Purchase returns and allowances of merchandise during the period d. Cost of freight-in for merchandise purchased during the period

Ans: A, LO: 2, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None S

59.

Costs which are inventoriable include all of the following except a. costs that are directly connected with the bringing of goods to the place of business of the buyer. b. costs that are directly connected with the converting of goods to a salable condition. c. buying costs of a purchasing department. d. selling costs of a sales department.

Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None P

60.

Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory Cost of Goods Sold a.

FIFO FIFO b.

FIFO LIFO c.

LIFO FIFO d.

LIFO LIFO

Ans: B, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

61.

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is a. average cost. b. base stock. c. joint cost. d. prime cost.

Ans: A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 62.

8 - 17

The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation: a. moving-average. b. weighted-average. c. LIFO perpetual. d. FIFO.

Ans: B, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

63.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is a. FIFO. b. LIFO. c. base stock. d. weighted-average.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

64.

Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations? a. Average cost b. First-in, first-out c. Last-in, first-out d. Base stock

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

65.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? a. Prices decreased. b. Prices remained unchanged. c. Prices increased. d. Price trend cannot be determined from information given.

Ans: A, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

66.

In a period of rising prices, the inventory method which tends to give the highest reported net income is a. base stock. b. first-in, first-out. c. last-in, first-out. d. weighted-average.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

67.

In a period of rising prices, the inventory method which tends to give the highest reported inventory is a. FIFO. b. moving average. c. LIFO. d. weighted-average.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 18 68.

Test Bank for Intermediate Accounting, Seventeenth Edition Tanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period? a. Up b. Down c. Steady d. Cannot be determined

Ans: B, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

69.

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is a. FIFO. b. average cost. c. LIFO. d. None of these choices are correct.

Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

70.

Which of the following statements is not valid as it applies to inventory costing methods? a. If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. b. LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities. c. When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. d. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Ans: D, LO: 3, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

71.

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the a. weighted-average method. b. moving average method. c. LIFO method. d. FIFO method.

Ans: D, LO: 3, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

72.

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? a. The potential for manipulation of net income is reduced. b. There is no arbitrary allocation of costs. c. The cost flow matches the physical flow. d. Able to use on all types of inventory.

Ans: C, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 73.

8 - 19

In a period of rising prices which inventory method generally provides the greatest amount of net income? a. Average cost. b. FIFO. c. LIFO. d. Specific identification.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

74.

In a period of falling prices, which inventory method generally provides the greatest amount of net income? a. Average cost. b. FIFO. c. LIFO. d. Specific identification.

Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

75.

What is a LIFO reserve? a. The difference between the LIFO inventory and the amount used for internal reporting purposes. b. The tax savings attributed to using the LIFO method. c. The current effect of using LIFO on net income. d. Change in the LIFO inventory during the year.

Ans: A, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, Reporting: None

76.

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported a. on the income statement in the Other Revenues and Gains section. b. on the income statement in the Cost of Goods Sold section. c. on the income statement in the Other Expenses and Losses section. d. on the balance sheet in the Current Assets section.

Ans: D, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

77.

Which of the following statements is true about specific-goods pooled LIFO approach? a. It determines and measures any increases and decreases in a pool in terms of total dollar value. b. Most companies using a LIFO system prefer specific-goods pooled LIFO approach over dollar-value LIFO. c. It usually results in large LIFO liquidation. d. The reduction of one quantity in the pool may be offset by an increase in another.

Ans: D, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

78.

In the double-extension method, the value of the units in inventory is extended at: a. twice the base-year prices. b. twice the current year prices. c. both base-year prices and current-year prices. d. only the base-year prices.

Ans: C, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 20 79.

Test Bank for Intermediate Accounting, Seventeenth Edition In the context of dollar-value LIFO, what is a LIFO layer? a. The difference between the LIFO inventory and the amount used for internal reporting purposes. b. The LIFO value of the inventory for a given year. c. The inventory in base year dollars. d. The LIFO value of an increase in the inventory for a given year.

Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None S

80.

Which of the following statements is not true as it relates to the dollar-value LIFO inventory method? a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO. b. Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool. c. Several pools are commonly employed in using the dollar-value LIFO inventory method. d. Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

Ans: A, LO: 4, Bloom: C, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None S

81.

Which of the following is not considered an advantage of LIFO when prices are rising? a. The inventory will be overstated. b. The more recent costs are matched against current revenues. c. There will be a deferral of income tax. d. A company's future reported earnings will not be affected substantially by future price declines.

Ans: A, LO: 4, Bloom: AN, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

82.

Which of the following is true regarding the use of LIFO for inventory valuation? a. If LIFO is used for external financial reporting, then it must also be used for internal reports. b. For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. c. If LIFO is used for external financial reporting, then it cannot be used for tax purposes. d. None of these answers are correct.

Ans: D, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

83.

The tax benefit that the LIFO method provides might get nullified when: a. unit costs tend to decrease as production increases. b. unit costs tend to increase as production increases. c. revenues are increasing faster than costs. d. a fairly constant “base stock” is present.

Ans: C, LO: 4, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach

8 - 21

Multiple Choice Answers—Conceptual Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

21.

22.

23.

24.

25.

26.

27.

28.

29.

c d a a c a d b b

30.

31.

32.

33.

34.

35.

36.

37.

38.

c d b a d d a b c

39.

40.

41.

42.

43.

44.

45.

46.

47.

b b d b a a d b c

48.

49.

50.

51.

52.

53.

54.

55.

56.

d d a b d b d a a

57.

58.

59.

60.

61.

62.

63.

64.

65.

c a d b a b a b a

66.

67.

68.

69.

70.

71.

72.

73.

74.

b a b c d d c b c

75.

76.

77.

78.

79.

80.

81.

82.

83.

a d d c d a a d c

Solutions to those Multiple Choice questions for which the answer is “none of these are correct.”

34. Goods in transit which were purchased f.o.b. shipping point.

82. If LIFO is used for tax purposes, then it must also be used for external financial reporting.

MULTIPLE CHOICE—Computational 84.

Morgan Manufacturing Company has the following account balances at year end: Office supplies Raw materials Work-in-process Finished goods Prepaid insurance

$ 4,000 27,000 59,000 97,000 6,000

What amount should Morgan report as inventories in its balance sheet? a. $97,000. b. $101,000. c. $183,000. d. $187,000.

Ans: C, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

85.

Lawson Manufacturing Company has the following account balances at year end: Office supplies Raw materials Work-in-process Finished goods Prepaid insurance

$ 4,000 27,000 59,000 109,000 6,000

What amount should Lawson report as inventories in its balance sheet? a. $109,000. b. $113,000. c. $195,000. d. $199,000.

Ans: C, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

8 - 22 86.

Test Bank for Intermediate Accounting, Seventeenth Edition Elkins Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $50,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $5,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit a. purchase discounts for $1,000. b. inventory for $1,000. c. purchase discounts for $900. d. inventory for $900.

Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

87.

Malone Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $80,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost $8,000. On March 9, Malone paid the supplier. On March 9, Malone should credit a. purchase discounts for $1,600. b. inventory for $1,600. c. purchase discounts for $1,440. d. inventory for $1,440.

Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

88.

Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year? a. $780,000. b. $860,000. c. $870,000. d. $930,000.

Ans: D, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

89.

Bell Inc. took a physical inventory at the end of the year and determined that $840,000 of goods were on hand. In addition, the following items were not included in the physical count. Bell, Inc. determined that $96,000 of goods purchased were in transit that were shipped f.o.b. destination (goods were actually received by the company three days after the inventory count).The company sold $40,000 worth of inventory f.o.b. destination. What amount should Bell report as inventory at the end of the year? a. $840,000. b. $936,000. c. $880,000. d. $976,000.

Ans: C, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 90.

8 - 23

Risers Inc. reported total assets of $2,400,000 and net income of $320,000 for the current year. Risers determined that inventory was overstated by $24,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year? a. $2,400,000 and $320,000. b. $2,400,000 and $344,000. c. $2,376,000 and $296,000. d. $2,424,000 and $344,000.

Ans: B, LO: 5, Bloom: AN, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

91.

Risers Inc. reported total assets of $6,400,000 and net income of $510,000 for the current year. Risers determined that inventory was understated by $138,000 at the beginning of the year and $60,000 at the end of the year. What is the corrected amount for total assets and net income for the year? a. $6,460,000 and $570,000. b. $6,340,000 and $588,000. c. $6,460,000 and $432,000. d. $6,400,000 and $510,000.

Ans: C, LO: 5, Bloom: AN, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2021 and 2020 contained errors as follows: 2021 2020 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated 92.

Assume that the proper correcting entries were made at December 31, 2020. By how much will 2021 income before taxes be overstated or understated? a. $ 3,000 understated b. $ 3,000 overstated c. $ 6,000 overstated d. $15,000 overstated

Ans: D, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2021 and 2020 contained errors as follows: 2021 2020 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated 93.

Assume that no correcting entries were made at December 31, 2020. Ignoring income taxes, by how much will retained earnings at December 31, 2021 be overstated or understated? a. $ 3,000 understated b. $22,500 overstated c. $22,500 understated d. $27,000 understated

Ans: A, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 24

Test Bank for Intermediate Accounting, Seventeenth Edition

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2021 and 2020 contained errors as follows: 2021 2020 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated

94.

Assume that no correcting entries were made at December 31, 2020, or December 31, 2021 and that no additional errors occurred in 2022. Ignoring income taxes, by how much will working capital at December 31, 2022 be overstated or understated? a. $0 b. $ 6,000 overstated c. $ 6,000 understated d. $15,000 understated

Ans: A, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

95.

The following information is available for Naab Company for 2020: Freight-in Purchase returns Selling expenses Ending inventory

$ 60,000 150,000 460,000 520,000

The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale? a. $1,840,000. b. $2,300,000. c. $2,370,000. d. $2,360,000.

Ans: D, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid.

96.

The amount to be recorded as a purchase return is a. $5,400. b. $6,120 c. $6,000. d. $5,880.

Ans: D, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach

8 - 25

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid.

97.

By how much should the account payable be adjusted on May 31? a. $ 0. b. $1,720. c. $1,600. d. $1,480.

Ans: D, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

The following information was available from the inventory records of Rich Company for January: Balance at January 1 Purchases: January 6 January 26 Sales: January 7 January 31 Balance at January 31 98.

Units 9,000

Unit Cost $9.77

Total Cost $87,930

6,000 8,100

10.30 10.71

61,800 86,751

(7,500) (11,100) 4,500

Assuming that Rich does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar? a. $47,270. b. $46,067. c. $46,170. d. $46,620.

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

The following information was available from the inventory records of Rich Company for January: Balance at January 1 Purchases: January 6 January 26 Sales: January 7 January 31 Balance at January 31

Units 9,000

Unit Cost $9.77

Total Cost $87,930

6,000 8,100

10.30 10.71

61,800 86,751

(7,500) (11,100) 4,500

8 - 26 99.

Test Bank for Intermediate Accounting, Seventeenth Edition Assuming that Rich maintains perpetual inventory records, what should be the inventory at January 31, using the moving-average inventory method, rounded to the nearest dollar? a. $47,270. b. $46,067. c. $46,170. d. $46,620.

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

100.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400 units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units The value assigned to ending inventory if Niles uses LIFO is a. $1,160. b. $1,104. c. $1,092. d. $1,168.

Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

101.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400 units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units The value assigned to cost of goods sold if Niles uses FIFO is a. $1,160. b. $1,104. c. $3,448. d. $3,392.

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

102.

Emley Company has been using the LIFO method of inventory valuation for 10 years, since it began operations. Its 2020 ending inventory was $60,000, but it would have been $90,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income before income taxes would have been a. $30,000 greater over the 10-year period. b. $30,000 less over the 10-year period. c. $30,000 greater in 2020. d. $30,000 less in 2020.

Ans: A, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach

8 - 27

Transactions for the month of June were: Purchases June 1 (balance) 3,200 @ $3.20 3 8,800 @ 3.10 7 4,800 @ 3.30 15 7,200 @ 3.40 22 2,000 @ 3.50 103.

Sales June 2 2,400 @ $5.50 6 6,400 @ 5.50 9 4,000 @ 5.50 10 1,600 @ 6.00 18 5,600 @ 6.00 25 800 @ 6.00 Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is a. $16,440. b. $16,640. c. $17,160. d. $17,880.

Ans: A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Transactions for the month of June were: Purchases June 1 (balance) 3,200 @ $3.20 3 8,800 @ 3.10 7 4,800 @ 3.30 15 7,200 @ 3.40 22 2,000 @ 3.50 104.

June 2 6 9 10 18 25

Sales 2,400 @ $5.50 6,400 @ 5.50 4,000 @ 5.50 1,600 @ 6.00 5,600 @ 6.00 800 @ 6.00

Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is a. $16,440. b. $16,640. c. $17,160. d. $17,880.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Transactions for the month of June were: Purchases June 1 (balance) 3,200 @ $3.20 3 8,800 @ 3.10 7 4,800 @ 3.30 15 7,200 @ 3.40 22 2,000 @ 3.50 105.

June 2 6 9 10 18 25

Sales 2,400 @ $5.50 6,400 @ 5.50 4,000 @ 5.50 1,600 @ 6.00 5,600 @ 6.00 800 @ 6.00

Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is a. $16,440. b. $16,640. c. $17,160. d. $17,880.

8 - 28

Test Bank for Intermediate Accounting, Seventeenth Edition

Ans: D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Transactions for the month of June were: Purchases June 1 (balance) 3,200 @ $3.20 3 8,800 @ 3.10 7 4,800 @ 3.30 15 7,200 @ 3.40 22 2,000 @ 3.50 106.

June 2 6 9 10 18 25

Sales 2,400 @ $5.50 6,400 @ 5.50 4,000 @ 5.50 1,600 @ 6.00 5,600 @ 6.00 800 @ 6.00

Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the nearest dollar, is a. $16,384. b. $16,952. c. $17,160. d. $17,280.

Ans: B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

107.

Milford Company had 500 units of “Tank” in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of “Tank”. Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford a. is FIFO. b. is LIFO. c. is weighted average. d. cannot be determined from the information given.

Ans: C, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

108.

Nichols Company had 500 units of “Dink” in its inventory at a cost of $5 each. It purchased, for $2,400, 300 more units of “Dink”. Nichols then sold 600 units at a selling price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by Nichols. a. is FIFO. b. is LIFO. c. is weighted average. d. cannot be determined from the information given.

Ans: B, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

109.

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the number of units in the ending inventory? a. 80 units. b. 120 units. c. 200 units. d. 560 units.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach

110.

8 - 29

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the cost of goods sold using the LIFO method? a. $1,600. b. $7,200. c. $9,600. d. $15,480.

Ans: B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

111.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month? a. $167,055. b. $173,700. c. $161,850. d. $167,700.

Ans: A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

112.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the average cost method, what is the amount of ending inventory? a. $25,200. b. $81,048. c. $80,160. d. $24,314.

Ans: D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

113.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the FIFO method, what is the ending inventory? a. $120,438. b. $111,600. c. $125,550. d. $113,700.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

8 - 30 114.

Test Bank for Intermediate Accounting, Seventeenth Edition Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month? a. $81,048. b. $78,000. c. $81,960. d. $80,160.

Ans: D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

115.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the LIFO method, what is the ending inventory? a. $120,438. b. $111,600. c. $125,550. d. $113,700.

Ans: D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

116.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the LIFO method, what is the amount of cost of goods sold for the month? a. $81,048. b. $78,000. c. $81,960. d. $80,160.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

117.

Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2020 was $280,000. The balance in the same account at the end of 2021 is $420,000. Black’s Cost of Goods Sold account has a balance of $2,100,000 from sales transactions recorded during the year. What amount should Black report as Cost of Goods Sold in the 2021 income statement? a. $1,960,000. b. $2,100,000. c. $2,240,000. d. $2,520,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 118.

8 - 31

White Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2020 was $320,000. The balance in the same account at the end of 2021 is $480,000. White’s Cost of Goods Sold account has a balance of $2,400,000 from sales transactions recorded during the year. What amount should White report as Cost of Goods Sold in the 2021 income statement? a. $2,240,000. b. $2,240,000. c. $2,560,000. d. $2,880,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

119.

Milford Company had 600 units of “Tank” in its inventory at a cost of $6 each. It purchased 900 more units of “Tank” at a cost of $9 each. Milford then sold 1,050 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by a. $ -0b. $450. c. $900. d. $1,350.

Ans: B, LO: 4, Bloom: AN, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

120.

Nichols Company had 600 units of “Dink” in its inventory at a cost of $12 each. It purchased 900 more units of “Dink” at a cost of $18 each. Nichols then sold 1,050 units at a selling price of $30 each. The LIFO liquidation overstated normal gross profit by a. $ -0b. $ 900. c. $1,800. d. $2,700.

Ans: B, LO: 4, Bloom: AN, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at yearend prices was $430,080, and the price index was 112.

121.

What is RF Company’s ending inventory? a. $300,000. b. $384,000. c. $394,080. d. $430,080.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at yearend prices was $430,080, and the price index was 112.

8 - 32

122.

Test Bank for Intermediate Accounting, Seventeenth Edition What is RF Company’s gross profit? a. $1,248,000. b. $1,294,080. c. $1,330,380. d. $2,605,920.

Ans: B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $379,500, and the price index was 110.

123.

What is Hay Company’s ending inventory? a. $330,000. b. $345,000. c. $349,500. d. $379,500.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $379,500, and the price index was 110.

124.

What is Hay Company’s gross profit? a. $1,245,000. b. $1,249,500. c. $1,279,500. d. $2,650,500.

Ans: B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Use the following information for questions 125 through 127.

Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2019. Its inventory at that date was $1,100,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows: Date December 31, 2020 December 31, 2021 December 31, 2022 125.

Inventory at Current Prices $1,284,000 1,450,000 1,625,000

Current Price Index 107 125 130

What is the cost of the ending inventory at December 31, 2020 under dollar-value LIFO? a. $1,200,000. b. $1,284,000. c. $1,207,000. d. $1,177,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach

126.

8 - 33

What is the cost of the ending inventory at December 31, 2021 under dollar-value LIFO? a. $1,160,000. b. $1,157,000. c. $1,164,200. d. $1,200,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

127.

What is the cost of the ending inventory at December 31, 2022 under dollar-value LIFO? a. $1,281,200. b. $1,274,000. c. $1,250,000. d. $1,317,000.

Ans: A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

128.

Wise Company adopted the dollar-value LIFO method on January 1, 2020, at which time its inventory consisted of 6,000 units of Item A @ $5.00 each and 3,000 units of Item B @ $16.00 each. The inventory at December 31, 2020 consisted of 12,000 units of Item A and 7,000 units of Item B. The most recent actual purchases related to these items were as follows: Quantity Items Purchase Date Purchased Cost Per Unit A 12/7/20 2,000 $ 6.00 A 12/11/20 10,000 5.75 B 12/15/20 7,000 17.00 Using the double-extension method, what is the price index for 2020 that should be computed by Wise Company? a. 108.33% b. 109.59% c. 111.05% d. 220.51%

Ans: B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

129.

Web World began using dollar-value LIFO for costing its inventory last year. The base year layer consists of $600,000. Assuming the current inventory at end of year prices equals $828,000 and the index for the current year is 1.10, what is the ending inventory using dollar-value LIFO? a. $828,000. b. $768,000. c. $752,727. d. $910,800.

Ans: B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 34

130.

Test Bank for Intermediate Accounting, Seventeenth Edition

Willy World began using dollar-value LIFO for costing its inventory two years ago. The ending inventory for the past two years in end-of-year dollars was $300,000 and $450,000 and the year-end price indices were 1.0 and 1.2, respectively. Assuming the current inventory at end of year prices equals $645,000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO? a. $532,500. b. $559,200. c. $570,000. d. $566,250.

Ans: D, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

131.

Opera Corp. uses the dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: Year ended December 31.

2019 2020 2021

Inventory at End-of-year Prices $650,000 1,260,000 1,350,250

Price Index 1.00 1.05 1.10

What is the 2019 inventory balance using dollar-value LIFO? a. $650,000. b. $619,040. c. $1,227,270. d. $1,350,250.

Ans: A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

132.

Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: Year ended December 31.

2019 2020 2021

Inventory at End-of-year Prices $ 650,000 1,260,000 1,350,250

Price Index 1.00 1.05 1.10

What is the 2020 inventory balance using dollar-value LIFO? a. $1,260,000. b. $1,285,000. c. $1,227,500. d. $1,257,500.

Ans: C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 133.

8 - 35

Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: Year ended December 31.

2019 2020 2021

Inventory at End-of-year Prices $ 650,000 1,260,000 1,350,250

Price Index 1.00 1.05 1.10

What is the 2021 inventory balance using dollar-value LIFO? a. $1,350,250. b. $1,285,000. c. $1,227,500. d. $1,257,750.

Ans: D, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Multiple Choice Answers—Computational Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

84.

85.

86.

87.

88.

89.

90.

91.

c c d d d c b c

92.

93.

94.

95.

96.

97.

98.

99.

d a a d d d b d

100.

101.

102.

103.

104.

105.

106.

107.

b d a a c d b c

108.

109.

110.

111.

112.

113.

114.

115.

b c b a d c d d

116.

117.

118.

119.

120.

121.

122.

123.

c c c b b c b c

124.

125.

126.

127.

128.

129.

130.

131.

b c c a b b d a

132.

133.

c d

MULTIPLE CHOICE—CPA Adapted 134.

How should the following costs affect a retailer's inventory valuation? a. b. c. d.

Freight-in Increase Increase No effect No effect

Interest on Inventory Loan No effect Increase Increase No effect

Ans: A, LO: 1, Bloom: AN, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 36

Test Bank for Intermediate Accounting, Seventeenth Edition

135.

The following information applied to Howe, Inc. for 2020: Merchandise purchased for resale $410,000 Freight-in 8,000 Freight-out 5,000 Purchase returns 2,000 Howe's 2020 inventoriable cost was a. $410,000. b. $413,000. c. $416,000. d. $421,000.

Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

136.

The following information was derived from the 2020 accounting records of Perez Co.: Perez's Goods Perez's Central Warehouse Held by Consignees Beginning inventory $130,000 $ 14,000 Purchases 625,000 70,000 Freight-in 10,000 Transportation to consignees 5,000 Freight-out 30,000 8,000 Ending inventory 145,000 20,000 Perez's 2020 cost of sales was a. $620,000. b. $650,000. c. $684,000. d. $689,000.

Ans: D, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

137.

Dole Corp.'s accounts payable at December 31, 2020, totaled $900,000 before any necessary year-end adjustments relating to the following transactions: •

On December 27, 2020, Dole wrote and recorded checks to creditors totaling $350,000 causing an overdraft of $100,000 in Dole's bank account at December 31, 2020. The checks were mailed out on January 10, 2021.

•

On December 28, 2020, Dole purchased and received goods for $150,000, terms 2/10, n/30. Dole records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2021.

•

Goods shipped f.o.b. destination on December 20, 2020 from a vendor to Dole were received January 2, 2021. The invoice cost was $65,000.

At December 31, 2020, what amount should Dole report as total accounts payable? a. $1,462,000. b. $1,397,000. c. $1,150,000. d. $1,050,000.

Ans: B, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 138.

8 - 37

The balance in Moon Co.'s accounts payable account at December 31, 2020 was $980,000 before any necessary year-end adjustments relating to the following: •

Goods were in transit to Moon from a vendor on December 31, 2020. The invoice cost was $40,000. The goods were shipped f.o.b. shipping point on December 29, 2020 and were received on January 4, 2021.

•

Goods shipped f.o.b. destination on December 21, 2020 from a vendor to Moon were received on January 6, 2021. The invoice cost was $25,000.

•

On December 27, 2020, Moon wrote and recorded checks to creditors totaling $30,000 that were mailed on January 10, 2021.

In Moon's December 31, 2020 balance sheet, the accounts payable should be a. $1,010,000. b. $1,020,000. c. $1,045,000. d. $1,050,000.

Ans: D, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

139.

Kerr Co.'s accounts payable balance at December 31, 2020 was $1,600,000 before considering the following transactions: •

Goods were in transit from a vendor to Kerr on December 31, 2020. The invoice price was $70,000, and the goods were shipped f.o.b. shipping point on December 29, 2020. The goods were received on January 4, 2021.

•

Goods shipped to Kerr, f.o.b. shipping point on December 20, 2020, from a vendor were lost in transit. The invoice price was $50,000. On January 5, 2021, Kerr filed a $50,000 claim against the common carrier.

In its December 31, 2020 balance sheet, Kerr should report accounts payable of a. $1,720,000. b. $1,670,000. c. $1,650,000. d. $1,600,000.

Ans: A, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

140.

Walsh Retailers purchased merchandise with a list price of $150,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. Walsh should record the cost of this merchandise as a. $105,000. b. $108,000. c. $117,000. d. $150,000.

Ans: B, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

8 - 38 141.

Test Bank for Intermediate Accounting, Seventeenth Edition On June 1, 2020, Penny Corp. sold merchandise with a list price of $70,000 to Linn on account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point. Penny prepaid $1,000 of delivery costs for Linn as an accommodation. On June 12, 2020, Penny received from Linn a remittance in full payment amounting to a. $38,416. b. $39,788. c. $39,416. d. $39,186.

Ans: C, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

142.

Groh Co. recorded the following data pertaining to raw material X during January 2020: Units Date Received Cost Issued On Hand 1/1/20 Inventory $2.00 3,200 1/11/20 Issue 1,600 1,600 1/22/20 Purchase 4,000 $2.35 5,600 The moving-average unit cost of X inventory at January 31, 2020 is a. $2.17. b. $2.21. c. $2.25. d. $2.35.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

143.

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?

FIFO LIFO a.

Yes No b.

Yes Yes c.

No Yes d.

No No

Ans: A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

144.

Hite Co. was formed on January 2, 2020, to sell a single product. Over a two-year period, Hite's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2020, and zero at December 31, 2021.

Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is Inventory Cost of Sales December 31, 2020 2021 a.

LIFO FIFO b.

LIFO LIFO c.

FIFO FIFO d.

FIFO LIFO

Ans: C, LO: 3, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

Valuation of Inventories: A Cost-Basis Approach 145.

8 - 39

Keck Co. had 300 units of product A on hand at January 1, 2020, costing $21 each.

Purchases of product A during January were as follows: Date Units Unit Cost Jan. 10 400 $22 18 500 23 28 200 24 A physical count on January 31, 2020 shows 400 units of product A on hand. The cost of the inventory at January 31, 2020 under the LIFO method is a. $9,400. b. $8,900. c. $8,500. d. $8,200.

Ans: C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

146.

When the double-extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number.

How would the following be used in the calculation of this index number?

Ending inventory at current year cost a.

Numerator b.

Numerator c.

Denominator d.

Not used

Ending inventory at base year cost Denominator Not used Numerator Denominator

Ans: A, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

147.

Farr Co. adopted the dollar-value LIFO inventory method on December 31, 2020. Farr's entire inventory constitutes a single pool. On December 31, 2020, the inventory was $960,000 under the dollar-value LIFO method. Inventory data for 2021 are as follows: 12/31/21 inventory at year-end prices Relevant price index at year end (base year 2020)

$1,320,000 110

Using dollar value LIFO, Farr's inventory at December 31, 2021 is a. $1,056,000. b. $1,224,000. c. $1,200,000. d. $1,320,000.

Ans: B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

8 - 40

Test Bank for Intermediate Accounting, Seventeenth Edition

Multiple Choice Answers—CPA Adapted Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

134.

135.

a c

136.

137.

d b

138.

139.

d a

140.

141.

b c

142.

143.

c a

144.

145.

c c

146.

147.

a b

DERIVATIONS — Computational No.

Answer

84.

c

Derivation $27,000 + $59,000 + $97,000 = $183,000.

85.

c

$27,000 + $59,000 + $109,000 = $195,000.

86.

d

[($50,000 – $5,000) × .02] = $900.

87.

d

[($80,000 – $8,000) × .02] = $1,440.

88.

d

$780,000 + $60,000 + $90,000 = $930,000.

89.

c

$840,000 + $40,000 = $880,000.

90.

b

$2,400,000 and ($320,000 + $24,000) = $344,000.

91.

c

($6,400,000 + $60,000) and ($510,000 – $138,000 + $60,000) = $432,000.

92.

d

$9,000 + $6,000 = $15,000.

93.

a

$18,000 – ($9,000 + $6,000) = $3,000.

94.

a

The effect of the errors in ending inventories reverse themselves in the following year.

95.

d

$520,000 + (4 × $460,000) = $2,360,000.

96.

d

$6,000 – ($6,000 × .02) = $5,880.

97.

d

($80,000 – $6,000) × .02 = $1,480.

98.

b

($87,930+ $61,800+ $86,751) ÷ (9,000 + 6,000 + 8,100) = $10.237/unit $10.237 × 4,500 = $46,067.

99.

d

Avg. on 1/6 $149,730÷ 15,000 = $9.982/unit 1/26 $161,616÷ 15,600 = $10.36/unit $10.36 × 4,500 = $46,620.

100.

b

(400 × $2.10) + (120 × $2.20) = $1,104.

Valuation of Inventories: A Cost-Basis Approach

8 - 41

No.

Answer

101.

d

400 + 1,400 + 280 – 520 = 1,560 units (400 × $2.10) + (1,160 × $2.20) = $3,392.

102.

a

($90,000 – $60,000) = $30,000.

103.

a

Available (purchases) = 26,000 units Sales = 20,800 units EI = 26,000 – 20,800 = 5,200 units (3,200 × $3.20) + (2,000 × $3.10) = $16,440.

104.

c

(800 × $3.2) + (1,600 × $3.1) + (1,600 × $3.4) + (1,200 × $3.5) = $17,160.

Date 6/1 6/2 6/3

Derivation

Purchase (3,200 @ 3.2) 10,240

(2,400 @ 3.2)

7,680

(8,800 @ 3.1) 27,280

6/6 6/7

Sold

(6,400 @ 3.1) 19,840 (4,800 @ 3.3) 15,840

6/9

(4,000 @ 3.3) 13,200

6/10

(800 @ 3.3) (800 @ 3.1)

6/15

(7,200 @ 3.4) 24,480

6/18

6/22 6/25

5,120

(5,600 @ 3.4) 19,040

(2,000 @ 3.5)

7,000 (800 @ 3.5)

2,800

Balance (3,200 @ 3.2) 10,240 ( 800 @ 3.2) 2,560 ( 800 @ 3.2) (8,800 @ 3.1) 29,840 ( 800 @ 3.2) (2,400 @ 3.1) 10,000 ( 800 @ 3.2) (2,400 @ 3.1) (4,800 @ 3.3) 25,840 ( 800 @ 3.2) (2,400 @ 3.1) ( 800 @ 3.3) 12,640 ( 800 @ 3.2) ( 1,600 @ 3.1) 7,520 ( 800 @ 3.2) ( 1,600 @ 3.1) (7,200 @ 3.4) 32,000 ( 800 @ 3.2) ( 1,600 @ 3.1)12,960 ( 1,600 @ 3.4) (2,000 @ 3.5) 19,960 ( 800 @ 3.2) ( 1,600 @ 3.1) ( 1,600 @ 3.4) ( 1,200 @ 3.5)17,160

105.

d

(2,000 × $3.5) + (3,200 × $3.4) = $17,880.

106.

b

$84,840 ÷ 26,000 units = $3.26 $3.26 × 5,200 = $16,952.

107.

c

(400 × $10) – $1,600 = $2,400 COGS [(500 × $4) + $2,800] – $2,400 = $2,400 E.I. ($4,800 ÷ 800) × 400 units = $2,400 E.I. under weighted avg.

8 - 42

Test Bank for Intermediate Accounting, Seventeenth Edition

No.

Answer

Derivation

108.

b

(600 × $10) – $2,100 = $3,900 COGS [(500 × $5) + $2,400] – $3,900 = $1,000 E.I. 200 × $5 = $1,000 E.I. under LIFO.

109.

c

80 + 480 – 360 = 200 units.

110.

b

360 × $20/unit = $7,200.

111.

a

[(7,200 × $12) + (3,000 × $13) + (12,000 × $13.50]  (7,200 + 3,000 + 12,000)=$12.95; $12.95 × 12,900 = $167,055.

112.

d

[(480 × $65) + (720 × $68) + (360 × $70)]  (480 + 720 + 360) = $67.54; $67.54 × (1,560 – 1,200) = $24,314.

113.

c

(7,200 + 3,000 + 12,000) – 12,900 = 9,300; 9,300 × $13.50 = $125,550.

114.

d

(480 × $65) + [(1,200 – 480) × $68] = $80,160.

115.

d

(7,200 + 3,000 + 12,000) – 12,900 = 9,300; (7,200 × $12) + [(9,300 – 7,200) × $13] = $113,700.

116.

c

(360 × $70) + (720 × $68) + (120 × $65) = $81,960.

117.

c

$2,100,000 + ($420,000 – $280,000) = $2,240,000.

118.

c

$2,400,000 + ($480,000 – $320,000) = $2,560,000.

119.

b

[(1,050 – 900) × ($9 – $6)] = $450.

120.

b

[(1,050 – 900) × ($18 – $12)] = $900.

121.

c

$430,080 ÷ 1.12 = $384,000 – $300,000 = $84,000. $300,000 + ($84,000 × 1.12) = $394,080.

122.

b

$300,000 + $1,800,000 – $394,080.= $1,705,920 COGS $3,000,000 – $1,705,920 = $1,294,080.

123.

c

$379,500 ÷ 1.10 = $345,000 – $300,000 = $45,000. $300,000 + ($45,000 × 1.10) = $349,500.

124.

b

$300,000 + $1,800,000 – $349,500 = $1,750,500 COGS $3,000,000 – $1,750,500= $1,249,500.

125.

c

$1,284,000 ÷ 1.07 = $1,200,000 ($1,100,000 × 1) + [(1,200,000– $1,100,000) × 1.07] = $1,207,000.

126.

c

$1,450,000 ÷ 1.25 = $1,160,000 ($1,100,000 × 1) + ($60,000 × 1.07) = $1,164,200.

Valuation of Inventories: A Cost-Basis Approach

8 - 43

No.

Answer

Derivation

127.

a

$1,625,000 ÷ 1.30 = $1,250,000 ($1,100,000 × 1) + ($60,000 × 1.07) + ($90,000 × 1.3) = $1,281,200.

128.

b

[(2,000 × $6) + (10,000 × $5.75) + (7,000 × $17)] ÷ [(12,000 × $5) + (7,000 × $16)] = 1.0959 = 109.59%.

129.

b

$828,000 ÷ 1.10 = $752,727 – $600,000 = $152,727; $600,000 + ($152,727× 1.10) = $768,000.

130.

d

$645,000 ÷ 1.25 = $516,000; $516,000 – ($450,000 ÷ 1.20) = $141,000; $300,000 + [($450,000 ÷ 1.20) – $300,000) × 1.2] = $390,000 $390,000 + ($141,000 × 1.25) = $566,250.

131.

a

$650,000 × 1.00 = $650,000.

132.

c

$1,260,000 ÷ 1.05 = $1,200,000; $1,200,000 – $650,000 = $550,000. $650,000 + ($550,000 × 1.05) = $1,227,500.

133.

d

$1,350,250 ÷ 1.10 = $1,227,500; $1,227,500 – ($1,260,000 ÷ 1.05) = $27,500; $1,260,000 ÷ 1.05 = $1,200,000; $1,200,000 – $650,000 = $550,000; $650,000 + ($550,000 × 1.05) + ($27,500 × 1.10) = $1,257,750.

DERIVATIONS — CPA Adapted No.

Answer

Derivation

134.

a

Conceptual.

135.

c

$410,000 + $8,000 – $2,000 = $416,000.

136.

d

$130,000 + $14,000 + $625,000 + $70,000 + $10,000 + $5,000 – $145,000 – $20,000 = $689,000.

137.

b

$900,000 + $350,000 + $147,000 = $1,397,000.

138.

d

$980,000 + $40,000 + $30,000 = $1,050,000.

139.

a

$1,600,000 + $70,000 + $50,000 = $1,720,000.

140.

b

$150,000 × .8 × .9 = $108,000.

141.

c

$70,000 × .7 × .8 = $39,200 ($39,200 × .98) + 1,000 = $39,416.

142.

c

[(1,600 × $2.00) + (4,000 × $2.35)] ÷ 5,600 = $2.25.

143.

a

Conceptual.

8 - 44

Test Bank for Intermediate Accounting, Seventeenth Edition

No.

Answer

Derivation

144.

c

Conceptual.

145.

c

(300 × $21) + (100 × $22) = $8,500.

146.

a

Conceptual.

147.

b

$1,320,000 ÷ 1.1 = $1,200,000 $960,000 + ($240,000 × 1.1) = $1,224,000.

BRIEF EXERCISES BE. 8-148—Recording purchases at net amounts.

Flint Co. records purchase discounts lost and uses perpetual inventories. Prepare journal entries in general journal form for the following: (a) Purchased merchandise costing $3,500 with terms 2/10, n/30. (b) Payment was made thirty days after the purchase.

Ans: NA, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 6–8, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Solution 8-148 (a) Inventory (.98 × $3,500) ...........................................................

Accounts Payable .........................................................

3,430

(b) Accounts Payable .....................................................................

Purchase Discounts Lost ..........................................................

Cash .............................................................................

3,430 70

3,430

3,500

BE. 8-149—Recording purchases at net amounts.

Dill Co. records purchases at net amounts and uses periodic inventories. Prepare entries for the following: June 11 Purchased merchandise on account, $15,000, terms 2/10, n/30.

15 Returned part of June 11 purchase, $800, and received credit on account.

30 Prepared the adjusting entry required for financial statements.

Ans: NA, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 10–12, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

Solution 8-149 June 11 Purchases (.98 × $15,000) ............................................

Accounts Payable ..............................................

15 Accounts Payable (.98 × $800) .....................................

Purchase Returns and Allowances ....................

30 Purchase Discounts Lost (.02 × $14,200) .....................

Accounts Payable ..............................................

14,700 14,700 784 784 284 284