Question 1

Inventories are defined by IFRS as
A)held-for-sale in the ordinary course of business.
B)in the process of production for sale in the ordinary course of business.
C)in the form of materials or supplies to be consumed in the production process or in the providing of services.
D)All of these answers are correct.

Accepted Answer

Inventories can be held-for-sale in the ordinary course of business, in the process of production for sale in the ordinary course of business, or in the form of materials or supplies to be consumed in the production process or in the providing of services. Therefore, all of these answers are correct.

Question 2

The inventory turnover is computed by dividing cost of goods sold by
A)beginning inventory.
B)ending inventory.
C)average inventory.
D)365 days.

Accepted Answer

The inventory turnover ratio measures the number of times the inventory is sold and replaced in a given period of time. It is calculated by dividing the cost of goods sold by the average inventory. This metric helps in assessing the effectiveness of inventory management and the ability of the business to turn its inventory into sales. Using beginning or ending inventory alone can lead to inaccurate results as it does not take into account any fluctuations in inventory levels throughout the period. Dividing by 365 is also incorrect as it does not consider the actual inventory turnover in the given period.

Question 3

H. Hunter Company's records indicate the following information for the year:  On December 31, a physical inventory determined that ending inventory of $500,000 was in the warehouse. H. Hunter's gross profit on sales has remained constant at 30%. H. Hunter suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of missing inventory?
A)$60,000
B)$100,000
C)$150,000
D)$1,340,000

Accepted Answer

The answer of H. Hunter Company's records indicate the following...

Question 4

The requirements for accounting for and reporting of inventories under IFRS, compared to GAAP, tend to be more
A)detailed.
B)rules-based.
C)principles-based.
D)full of disclosure requirements.

Accepted Answer

IFRS is known for being principles-based, meaning that it focuses on the underlying principles or concepts behind accounting practices rather than strict rules to follow. This can result in more judgment needed by accountants and potentially more disclosure requirements, but it is less rules-based than GAAP.

Question 5

LIFO can be used
A)under neither GAAP nor IFRS.
B)under IFRS but not GAAP.
C)under GAAP but not IFRS.
D)under both GAAP and IFRS.

Accepted Answer

LIFO (Last-In, First-Out) method of accounting is allowed under the GAAP (Generally Accepted Accounting Principles) in the United States, but not under IFRS (International Financial Reporting Standards) which is used in many other countries. Therefore, LIFO can be used under GAAP but not under IFRS.

Question 6

Turturro Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 75%. Goods available for sale at retail amounted to $600,000 and goods were sold during the period for $420,000. The estimated cost of the ending inventory is
A)$135,000.
B)$180,000.
C)$315,000.
D)$450,000.

Accepted Answer

The answer of Turturro Department Store utilizes the retail inventory...

Question 7

The only acceptable cost flow assumptions under IFRS are
A)FIFO and LIFO.
B)FIFO and average.
C)LIFO and average.
D)FIFO, LIFO and average.

Accepted Answer

Under IFRS, the only acceptable cost flow assumptions are FIFO and weighted average. LIFO is not allowed under IFRS. Therefore, the correct choice is B, which includes the two acceptable methods.

Question 8

Inventory items on an assembly line in various stages of production are classified as
A)Finished goods.
B)Work in process.
C)Raw materials.
D)Merchandise inventory.

Accepted Answer

Items on an assembly line that are in various stages of production are considered work in process. Finished goods are completed products ready for sale, raw materials are inputs into the production process, and merchandise inventory refers to items that have been purchased and are ready for resale.

Question 9

Under the LCM approach, the market value is defined as
A)FIFO cost.
B)LIFO cost.
C)current replacement cost.
D)selling price.

Accepted Answer

The LCM (lower of cost or market) approach compares the original cost of inventory with its current replacement cost, and market value is defined as the lower of the two. Therefore, the most appropriate choice for market value under the LCM approach is current replacement cost.

Question 10

The cost flow method that often parallels the actual physical flow of merchandise is the
A)FIFO method.
B)LIFO method.
C)average-cost method.
D)gross profit method.

Accepted Answer

FIFO (first-in, first-out) method assumes that the first items purchased or produced are the first ones sold or used, following the actual physical flow of merchandise. This method is typically used when inventory turnover results in the sale of the oldest units first.

Question 11

The major IFRS requirements related to accounting for and reporting inventories are
A)the same as GAAP.
B)the same as GAAP with a couple of exceptions.
C)completely different from GAAP.
D)not comparable to GAAP.

Accepted Answer

While there are similarities between IFRS and GAAP when it comes to accounting for and reporting inventories, there are some important differences. For example, IFRS allows for the use of the LIFO method while GAAP does not. Additionally, IFRS requires inventories to be measured at the lower of cost or net realizable value, while GAAP requires them to be measured at the lower of cost or market.

Question 12

The convergence issue that will be most difficult to resolve in the area of inventory accounting is:
A)FIFO.
B)LIFO.
C)ownership of goods.
D)costs to include in inventory.

Accepted Answer

LIFO (Last In, First Out) is the most difficult convergence issue because it is not allowed under IFRS, while it is permitted under US GAAP.

Question 13

Goods in transit should be included in the inventory of the buyer when the
A)public carrier accepts the goods from the seller.
B)goods reach the buyer.
C)terms of sale are FOB destination.
D)terms of sale are FOB shipping point.

Accepted Answer

Goods in transit should be included in the inventory of the buyer when the terms of sale are FOB (Free On Board) shipping point, as ownership of the goods transfers to the buyer when the goods leave the seller's premises.

Question 14

GAAP defines market for lower-of-cost-or market essentially as
A)net realizable value.
B)estimated selling price in the ordinary course of business.
C)replacement cost.
D)replacement cost less costs of disposal.

Accepted Answer

GAAP defines the market for the lower-of-cost-or-market rule as the replacement cost, which is the cost to replace the inventory item.

Question 15

IFRS defines market for lower-of-cost-or market as
A)net realizable value.
B)estimated selling price in the ordinary course of business.
C)replacement cost.
D)replacement cost less costs of disposal.

Accepted Answer

IFRS defines market as net realizable value, which is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Question 16

TB Nelson Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $180,000; the beginning inventory on June 1 was $54,000; and the cost of goods purchased during June amounted to $90,000. The estimated cost of TB Nelson Company's inventory on June 30 is
A)$21,600.
B)$36,000.
C)$72,000.
D)$126,000.

Accepted Answer

First, we need to determine the cost of goods sold (COGS) for the month of June:

COGS = Beginning inventory + Cost of goods purchased - Ending inventory

We are trying to find the ending inventory, so we rearrange the formula:

Ending inventory = Beginning inventory + Cost of goods purchased - COGS

To find COGS, we can use the gross profit rate of 40%:

COGS = (1 - Gross profit rate) x Net sales
COGS = (1 - 0.40) x $180,000
COGS = $108,000

Now we can plug in the values to find the ending inventory:

Ending inventory = $54,000 + $90,000 - $108,000
Ending inventory = $36,000

Therefore, the estimated cost of TB Nelson Company's inventory on June 30 is $36,000. The answer is B.

Question 17

In a period of rising prices, FIFO will have
A)lower net income than LIFO.
B)lower cost of goods sold than LIFO.
C)lower income tax expense than LIFO.
D)lower net purchases than LIFO.

Accepted Answer

In a period of rising prices, FIFO (First-in First-out) will have a higher cost of goods sold because it assumes that the oldest inventory items have been sold first. This means that the cost of goods sold will reflect the higher current prices of the most recent inventory purchases, resulting in a lower net income than LIFO (Last-in First-out). However, it will have a lower income tax expense than LIFO because of the lower net income. Lower net purchases than LIFO is not necessarily true and cannot be concluded based on the given information.

Question 18

Goodman Company's inventory records show the following data:  A physical inventory on December 31 shows 6,000 units on hand. Under the FIFO method, the December 31 inventory is
A)$42,000.
B)$49,200.
C)$49,392.
D)$54,000.

Accepted Answer

The answer of Goodman Company's inventory records show the following...

Question 19

Inventory accounting under IFRS differs from GAAP in regard to
A)neither the use of LIFO nor lower-of-cost-or-market.
B)the use of LIFO but not lower-of-cost-or-market.
C)the use of lower-of-cost-or-market but not LIFO.
D)the use of LIFO and lower-of-cost-or-market.

Accepted Answer

Under IFRS, both LIFO and lower-of-cost-or-market are allowed for inventory accounting.

Question 20

In a period of inflation, the cost flow method that results in the lowest income taxes is the
A)FIFO method.
B)LIFO method.
C)average-cost method.
D)gross profit method.

Accepted Answer

LIFO (last-in, first-out) method assumes that the most recently acquired inventory is sold first, which matches the high cost items with current higher selling prices during inflation, resulting in a lower taxable income due to a lower profit margin. Therefore, it results in the lowest income taxes during a period of inflation.

Quiz 6: Inventories

Inventories are defined by IFRS as

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

The requirements for accounting for and reporting of inventories under IFRS, compared to GAAP, tend to be more

LIFO can be used

The only acceptable cost flow assumptions under IFRS are

Inventory items on an assembly line in various stages of production are classified as

Under the LCM approach, the market value is defined as

The cost flow method that often parallels the actual physical flow of merchandise is the

The major IFRS requirements related to accounting for and reporting inventories are

The convergence issue that will be most difficult to resolve in the area of inventory accounting is:

Goods in transit should be included in the inventory of the buyer when the

GAAP defines market for lower-of-cost-or market essentially as

IFRS defines market for lower-of-cost-or market as

In a period of rising prices, FIFO will have

Goodman Company's inventory records show the following data: A physical inventory on December 31 shows 6,000 units on hand. Under the FIFO method, the December 31 inventory is

Inventory accounting under IFRS differs from GAAP in regard to

In a period of inflation, the cost flow method that results in the lowest income taxes is the