Question 1

Which of the following does NOT correctly describe the weighted average cost formula?
A)It prices inventory on the basis of the average cost of beginning inventory.
B)It prices inventory on the basis of the average cost of goods available for sale during the
Period.
C)It takes into account that the volume of goods acquired at each price is different.
D)It includes the cost of beginning inventory in the calculations.

Accepted Answer

The weighted average cost formula does not price inventory solely on the basis of the average cost of beginning inventory; it considers the average cost of all goods available for sale during the period.

Question 2

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)interest on a building mortgage

Accepted Answer

Interest incurred during the production of discrete projects like ships or real estate projects should be capitalized as a product cost because it is directly attributable to the production process.

Question 3

When using a periodic inventory system,
A)a Purchases account is not used.
B)a Cost of Goods Sold account is used.
C)two entries are required to record a sale.
D)a Cost of Goods Sold account is not used.

Accepted Answer

In a periodic inventory system, the cost of goods sold is only calculated at the end of the period, so a Cost of Goods Sold account is not used for each sale. Instead, the cost of goods sold is calculated by subtracting the ending inventory balance from the beginning inventory balance and adding the cost of goods purchased during the period. Therefore, option D is the correct answer.

Question 4

All else being equal, which of the following statements is correct for a company that uses the FIFO costing formula with a perpetual inventory system (compared to a periodic system)?
A)The value of the ending inventory would be higher under a periodic system.
B)The value of the ending inventory would be lower under a periodic system.
C)The value of the ending inventory would be the same under both systems.
D)The periodic system would not require any additional entries at the end of the period.

Accepted Answer

The FIFO (First-In, First-Out) costing formula will result in the same value of ending inventory under both perpetual and periodic inventory systems because the order in which costs are assigned to goods does not change based on the timing of when the inventory is counted or when costs are allocated.

Question 5

To record a "basket purchase" or to allocate a joint product cost, which method is the most rational?
A)average cost
B)relative sales value
C)fair value
D)amortized cost

Accepted Answer

The answer of To record a "basket purchase" or to...

Question 6

Which of the following does NOT correctly describe a perpetual inventory system?
A)Cost of goods sold is calculated every time a sale is made.
B)Assuming shrinkage of zero, inventory and cost of goods sold do not have to be updated
At the end of the period.
C)The use of this system eliminates the requirement for an annual physical inventory count.
D)Assuming a FIFO cost flow, cost of goods sold would equal that calculated by the periodic
System.

Accepted Answer

A perpetual inventory system still requires periodic physical inventory counts to verify records and account for discrepancies such as theft or loss.

Question 7

An EXCEPTION to the general rule that costs should be charged to expense in the period incurred is
A)factory overhead costs incurred on a product manufactured but not sold during the current
Accounting period.
B)interest costs for financing of inventories that are routinely manufactured in large
Quantities on a repetitive basis.
C)general and administrative fixed costs incurred in connection with the purchase of
D)sales commission and salary costs incurred in connection with the sale of inventory.

Accepted Answer

Factory overhead costs are capitalized as part of the inventory cost until the product is sold, at which point they are expensed as cost of goods sold.

Question 8

An inventory cost formula in which the oldest costs incurred rarely have an effect on the ending inventory valuation is
A)FIFO.
B)moving-average cost.
C)LIFO.
D)weighted-average.

Accepted Answer

FIFO (First-In, First-Out) assumes that the first items purchased or produced are the first ones sold, meaning that the oldest costs are matched with the earliest revenues, leading to a lower risk of mismatching costs and revenues. Therefore, the oldest costs have a minimal effect on the ending inventory valuation.

Question 9

Conversion costs include
A)all materials plus direct labour.
B)all materials plus variable overhead allocated.
C)direct labour plus variable and fixed overhead allocated.
D)direct labour plus fixed overhead allocated.

Accepted Answer

Conversion costs are the costs incurred in converting raw materials into finished products. These costs include direct labour and both variable and fixed overhead allocated to the production process. Therefore, option C is the correct choice as it includes all three elements of conversion costs. Option A only includes materials and direct labour, while option B includes materials and variable overhead but omits fixed overhead. Option D omits variable overhead and only includes direct labour and fixed overhead.

Question 10

A "basket purchase" is a purchase of
A)a group of units with similar characteristics at a single lump-sum price.
B)individual units with similar characteristics priced individually.
C)a group of units with different characteristics at a single lump-sum price.
D)individual units with different characteristics priced individually.

Accepted Answer

The answer of A "basket purchase" is a purchase of
A)a...

Question 11

All of the following costs should be charged to expense in the period in which they 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.

Accepted Answer

Costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory should be capitalized as part of the inventory cost and expensed when the inventory is sold, not in the period they are incurred.

Question 12

Which of the following does NOT correctly describe a periodic inventory system?
A)Cost of goods sold is calculated every time a sale is made.
B)Cost of goods sold is a residual amount.
C)Assuming a FIFO cost flow, cost of goods sold would equal those that calculated by the
Perpetual system.
D)Inventory and cost of goods sold must be updated at the end of the period.
Inventory 8 - 17

Accepted Answer

In a periodic inventory system, the cost of goods sold is not calculated every time a sale is made; it is determined at the end of the period.

Question 13

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
A)selling price will be less than their replacement cost.
B)replacement cost will be more than their net realizable value.
C)future utility will be less than their cost.
D)cost will be less than their replacement cost.

Accepted Answer

The primary basis for accounting for inventories is indeed cost, but a departure from this basis is required when there is evidence that the future utility (which can be interpreted as the net realizable value or the eventual selling price) of the inventory items will be less than their cost. This is to recognize any impairment in value and is consistent with the conservatism principle in accounting, which dictates that losses should be recognized when they are anticipated.

Question 14

Which of the following statements is INCORRECT regarding the overriding objectives underlying inventory standards and guide management?
A)Report an inventory cost on the statement of financial position that is representative of the
Inventory's recent cost.
B)Choose an approach that corresponds as closely as possible to the physical flow of
Goods.
C)Use the same method for all inventory assets that have similar economic characteristics.
D)It is permissible under ASPE to use any inventory method, including LIFO.

Accepted Answer

Under ASPE (Accounting Standards for Private Enterprises), the use of LIFO (Last In, First Out) is not permitted for inventory valuation.

Question 15

Which of the following does NOT correctly describe the FIFO cost formula?
A)This method assumes that the oldest inventory costs are the first costs recorded for cost
Of goods sold.
B)This method assumes that most current inventory costs are the first costs recorded for
Cost of goods sold.
C)This method approximates the physical flow of most types of goods.
D)This method is permitted under both ASPE and IFRS.

Accepted Answer

FIFO (First-In, First-Out) assumes that the oldest inventory costs are the first to be recorded as cost of goods sold, not the most current costs.

Question 16

Which of the following best describes the concept of product costs?
A)They are costs that are "attached" to inventory.
B)They are costs that are usually expenses.
C)They usually don't include freight charges.
D)They usually don't include conversion costs.

Accepted Answer

Product costs are costs that are directly related to producing a product and are "attached" to inventory until the product is sold. Examples of product costs include direct materials, direct labor, and manufacturing overhead.

Question 17

Which of the following statements regarding borrowing costs is correct?
A)Neither ASPE nor IFRS usually require disclosure of these items.
B)They are usually amortized until the majority of the underlying products have been sold.
C)They are usually treated as period costs if they are incurred to bring inventories to a
Condition ready for sale.
D)If interest is capitalized, ASPE requires this policy and the amount capitalized to be
Disclosed.

Accepted Answer

Under ASPE, if interest is capitalized, the policy and the amount capitalized must be disclosed.

Question 18

When using the moving-average cost formula with a perpetual system,
A)a weighted-average cost is calculated at year end.
B)a new unit cost is calculated each time a sale is made.
C)a new unit cost is calculated each time a purchase is made.
D)a new unit cost is calculated both when a sale is made and when a purchase is made.

Accepted Answer

A new unit cost is calculated each time a purchase is made in a moving-average cost formula with a perpetual system, reflecting the cost of the most recent purchase.

Question 19

Which of the following best describes the concept of standard costs?
A)They are the costs that should be incurred per unit of finished goods inventory.
B)They are the costs that are actually incurred per unit of finished goods inventory.
C)When using standard costs, unallocated overhead is capitalized.
D)Standard costs are always acceptable for reporting purposes.

Accepted Answer

Standard costs are predetermined costs that are expected to be incurred for the production of a unit of finished goods or service. These costs are used as a benchmark against which the actual costs can be compared, and any differences (variances) can be analyzed. Therefore, option A is the best description of the concept of standard costs.

Question 20

Which of the following does NOT correctly describe the specific identification cost formula?
A)This method is most appropriate when goods are not interchangeable.
B)This method is most appropriate when goods are interchangeable.
C)This method is generally used for expensive, one-of-a-kind merchandise.
D)This method is often used for merchandise with serial numbers such as televisions.

Accepted Answer

The specific identification cost formula is not appropriate when goods are interchangeable, which contradicts choice B. The other options are correct: this method is most appropriate when goods are not interchangeable, is often used for expensive, one-of-a-kind merchandise, and is applicable for merchandise with serial numbers such as televisions.

Quiz 1: Intermediate Accounting Volume 1

Which of the following does NOT correctly describe the weighted average cost formula?

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?

When using a periodic inventory system,

All else being equal, which of the following statements is correct for a company that uses the FIFO costing formula with a perpetual inventory system (compared to a periodic system) ?

To record a "basket purchase" or to allocate a joint product cost, which method is the most rational?

Which of the following does NOT correctly describe a perpetual inventory system?

An EXCEPTION to the general rule that costs should be charged to expense in the period incurred is

An inventory cost formula in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

Conversion costs include

A "basket purchase" is a purchase of

All of the following costs should be charged to expense in the period in which they are incurred EXCEPT for

Which of the following does NOT correctly describe a periodic inventory system?

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Which of the following statements is INCORRECT regarding the overriding objectives underlying inventory standards and guide management?

Which of the following does NOT correctly describe the FIFO cost formula?

Which of the following best describes the concept of product costs?

Which of the following statements regarding borrowing costs is correct?

When using the moving-average cost formula with a perpetual system,

Which of the following best describes the concept of standard costs?

Which of the following does NOT correctly describe the specific identification cost formula?