IA1 Semi Final
IA1 Semi Final
IA1 Semi Final
Which of the following recording procedures would result in the highest cost of
goods sold for 2007?
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
During 2007, which was the first year of operations, Luther 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.
Which of the following recording procedures would result in the highest net
income for 2007?
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
(C) Either 1 or 2 will result in the same net income.
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
Costs which are inventoriable include all of the following except
(D) Selling costs of a sales department.
Which inventory costing method most closely approximates current cost?
(B) FIFO LIFO
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.
The pricing of issues from inventory must be deferred until the end of the
accounting period under the following method of inventory valuation:
(B) Weighted-average.
An inventory pricing procedure in which the oldest costs incurred rarely have
an effect on the ending inventory valuation is
(A) FIFO.
Which method of inventory pricing best approximates specific identification of
the actual flow of costs and units in most manufacturing situations?
(B) First-in, first-out
(A) Prices decreased.
In a period of rising prices, the inventory method which tends to give the
highest reported net income is
(B) first-in, first-out.
In a period of rising prices, the inventory method which tends to give the
highest reported inventory is
(A) FIFO
Quayle Corporation's inventory cost 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?
(B) Down
In a period of rising prices, the inventory method which tends to give the
highest reported cost of goods sold is
(C) LIFO
Which of the following statements is not valid as it applies to inventory costing
methods?
(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.
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.
(D) FIFO Method
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
(D) on the balance sheet in the Current Assets section.
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.
Which of the following is not considered an advantage of LIFO when prices
are rising?
(A) The inventory will be overstated.
Which of the following is true regarding the use of LIFO for inventory
valuation?
(D) None of these. If LIFO is used for external financial reporting, then it must
also be used for internal reports, For purposes of external financial reporting,
LIFO may not be used with the lower of cost or market approach, and If LIFO
is used for external financial reporting, then it cannot be used for tax
purposes.
If inventory levels are stable or increasing, an argument which is not an
advantage of the
(C) Cost assignments typically parallel the physical flow of goods.
TJones Manufacturing Company has the following account balances at year
end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 72,000
Prepaid insurance 6,000
What amount should TJones report as inventories in its balance sheet?
(C) $27,000 + $59,000 + $72,000 = $158,000.
JSmith Manufacturing Company has the following account balances at year
end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 92,000
Prepaid insurance 6,000
Assume that the proper correcting entries were made at December 31, 2006.
By how much will 2007 income before taxes be overstated or understated?
(D) 5,000 overstated. $3,000 + $2,000 = $5,000.
Dexter, Inc. is a calendar-year corporation. Its financial statements for the
years 2007 and 2006 contained errors as follows:
2007
2006
Ending inventory $3,000 overstated $8,000
overstated
Depreciation expense $2,000 understated $6,000
overstated
The cost of goods sold is equal to 400% of selling expenses. What is the cost
of goods available for sale?
(D) $260,000 + (4 × $150,000) = $860,000.
Richey Co. records purchases at net amounts. On May 5 Richey purchased
merchandise on account, $16,000, terms 2/10, n/30. Richey returned $1,200
of the May 5 purchase and received credit on account. At May 31 the balance
had not been paid.
The amount to be recorded as a purchase return is
(D) 1,176. $1,200 – ($1,200 × .02) = $1,176.
Richey Co. records purchases at net amounts. On May 5 Richey purchased
merchandise on account, $16,000, terms 2/10, n/30. Richey returned $1,200
of the May 5 purchase and received credit on account. At May 31 the balance
had not been paid.
Assuming that perpetual inventory records are kept in dollars, the ending
inventory on a LIFO basis is
(C) 4,290. (200 × $3.2) + (400 × $3.1) + (400 × $3.4) + (300 × $3.5) =
$4,290.
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 6.00
Assuming that perpetual inventory records are kept in dollars, the ending
inventory on a FIFO basis is
(D) (500 × $3.5) + (800 × $3.4) = $4,470.
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 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
(B) 4,238. $21,210 ÷ 6,500 units = $3.26
$3.26 × 1,300 = $4,238.
Johnson 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”. Johnson 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 Johnson
(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.
Kingman 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”. Kingman 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 Kingman
(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.
Brown 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 2007 was $60,000. The balance in the same account at
the end of 2008 is $90,000. Brown’s Cost of Goods Sold account has a
balance of $450,000 from sales transactions recorded during the year. What
amount should Brown report as Cost of Goods Sold in the 2008 income
statement?
(C) 480,000. $450,000 + ($90,000 – $60,000) = $480,000.
Green 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 2007 was $80,000. The balance in the same account at
the end of 2008 is $120,000. Green’s Cost of Goods Sold account has a
balance of $600,000 from sales transactions recorded during the year. What
amount should Green report as Cost of Goods Sold in the 2008 income
statement?
(C) 640,000. $600,000 + ($120,000 – $80,000) = $640,000.
Johnson Company had 400 units of “Tank” in its inventory at a cost of $4
each. It purchased 600 more units of “Tank” at a cost of $6 each. Johnson
then sold 700 units at a selling price of $10 each. The LIFO liquidation
overstated normal gross profit by
(B) 200. [(700 – 600) × ($6 – $4)] = $200.
Kingman Company had 400 units of “Dink” in its inventory at a cost of $6
each. It purchased 600 more units of “Dink” at a cost of $9 each. Kingman
then sold 700 units at a selling price of $15 each. The LIFO liquidation
overstated normal gross profit by
(B) 300. [(700 – 600) × ($9 – $6)] = $300.
AJ Company had January 1 inventory of $100,000 when it adopted dollar-
value LIFO. During the year, purchases were $600,000 and sales were
$1,000,000. December 31 inventory at year-end prices was $143,360, and the
price index was 112.
What is the cost of the ending inventory at December 31, 2008 under dollar-
value LIFO?
(A) 256,240. $325,000 ÷ 1.30 = $250,000
($220,000 × 1) + ($12,000 × 1.07) + ($18,000 × 1.3) =
$256,240.
Tate Company adopted the dollar-value LIFO method on January 1, 2007, 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, 2007
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 12/7/07 2,000 $ 6.00
A 12/11/07 10,000 5.75
B 12/15/07 10,000 17.00
Using the double-extension method, what is the price index for 2007 that
should be computed by Tate Company?
(B) 109.59% [(2,000 × $6) + (10,000 × $5.75) + (7,000 × $17)] ÷ [(12,000 ×
$5) +
(7,000 × $16)] = 1.0959 = 109.59%.
How should the following costs affect a retailer's inventory valuation?
(A) Freight-in Interest on Inventory Loan
Increase No effect
The following information applied to Grey, Inc. for 2007:
Merchandise purchased for resale $300,000
Freight-in 8,000
Freight-out 5,000
Purchase returns 2,000
Grey's 2007 inventoriable cost was
(C) 306,000. $300,000 + $8,000 – $2,000 = $306,000.
The following information was derived from the 2007 accounting records of
Logan Co.:
Logan
's Goods
Logan 's Central Warehouse Held by
Consignees
Beginning inventory $130,000 $ 14,000
Purchases 575,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
Freight-out 30,000 8,000
Ending inventory 145,000 20,000
Logan 's 2007 cost of sales was
(D) 639,000. $130,000 + $14,000 + $575,000 + $70,000 + $10,000 + $5,000 –
$145,000 – $20,000 = $639,000.
Cole Corp.'s accounts payable at December 31, 2007, totaled $800,000
before any necessary year-end adjustments relating to the following
transactions:
· On December 27, 2007, Cole wrote and recorded checks to creditors
totaling $350,000 causing an overdraft of $100,000 in Cole 's bank account at
December 31, 2007. The checks were mailed out on January 10, 2008.
· On December 28, 2007, Cole purchased and received goods for
$150,000, terms 2/10, n/30. Cole records purchases and accounts payable at
net amounts. The invoice was recorded and paid January 3, 2008.
· Goods shipped f.o.b. destination on December 20, 2007 from a vendor
to Cole were received January 2, 2008. The invoice cost was $65,000.
At December 31, 2007, what amount should Cole report as total accounts
payable?
(B) 1,297,000. $800,000 + $350,000 + $147,000 = $1,297,000.
The balance in Hill Co.'s accounts payable account at December 31, 2007
was $700,000 before any necessary year-end adjustments relating to the
following:
· Goods were in transit to Hill from a vendor on December 31, 2007. The
invoice cost was $40,000. The goods were shipped f.o.b. shipping point on
December 29, 2007 and were received on January 4, 2008.
· Goods shipped f.o.b. destination on December 21, 2007 from a vendor
to Hill were received on January 6, 2008. The invoice cost was $25,000.
· On December 27, 2007, Hill wrote and recorded checks to creditors
totaling $30,000 that were mailed on January 10, 2008.
In Hill's December 31, 2007 balance sheet, the accounts payable should be
(D) 770,000. $700,000 + $40,000 + $30,000 = $770,000.
Gear Co.'s accounts payable balance at December 31, 2007 was $1,500,000
before considering the following transactions:
· Goods were in transit from a vendor to Gear on December 31, 2007.
The invoice price was $70,000, and the goods were shipped f.o.b. shipping
point on December 29, 2007. The goods were received on January 4, 2008.
· Goods shipped to Gear, f.o.b. shipping point on December 20, 2007,
from a vendor were lost in transit. The invoice price was $50,000. On January
5, 2008, Gear filed a $50,000 claim against the common carrier.
In its December 31, 2007 balance sheet, Gear should report accounts payable
of
(A) 1,620,000. $1,500,000 + $70,000 + $50,000 = $1,620,000.
Tysen Retailers purchased merchandise with a list price of $50,000, subject to
trade discounts of 20% and 10%, with no cash discounts allowable. Tysen
should record the cost of this merchandise as
(B) 36,000. $50,000 × .8 × .9 = $36,000.
On June 1, 2007, Mills Corp. sold merchandise with a list price of $20,000 to
Linn on account. Mills allowed trade discounts of 30% and 20%. Credit terms
were 2/15, n/40 and the sale was made f.o.b. shipping point. Mills prepaid
$400 of delivery costs for Linn as an accommodation. On June 12, 2007, Mills
received from Linn a remittance in full payment amounting to
(C) 11,376. $20,000 × .7 × .8 = $11,200
($11,200 × .98) + 400 = $11,376.
Dark Co. recorded the following data pertaining to raw material X during
January 2007:
Units
Date Received Cost Issued On
Hand
1/1/07 Inventory $8.00
3,200
1/11/07 Issue 1,600
1,600
1/22/07 Purchase 4,000 $9.40
5,600
The moving-average unit cost of X inventory at January 31, 2007 is
(C) 9.00. [(1,600 × $8.00) + (4,000 × $9.40)] ÷ 5,600 = $9.00.
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?
(A) FIFO LIFO
Yes No
Earl Co. was formed on January 2, 2007, to sell a single product. Over a two-
year period, Earl's acquisition costs have increased steadily. Physical
quantities held in inventory were equal to three months' sales at December
31, 2007, and zero at December 31, 2008. Assuming the periodic inventory
system, the inventory cost method which reports the highest amount of each
of the following is
(C) Inventory Cost of Sales
December 31, 2007 2008
FIFO FIFO
Noll Co. had 450 units of product A on hand at January 1, 2007, costing $42
each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 600 $44
18 750 46
28 300 48
A physical count on January 31, 2007 shows 600 units of product A on
hand. The cost of the inventory at January 31, 2007 under the LIFO method is
(C) 25,500. (450 × $42) + (150 × $44) = $25,500.
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?
(A) Ending inventory Ending inventory
at current year cost at base year cost
Numerator Denominator
Carr Co. adopted the dollar-value LIFO inventory method on December 31,
2007. Carr's entire inventory constitutes a single pool. On December 31,
2007, the inventory was $320,000 under the dollar-value LIFO method.
Inventory data for 2008 are as follows:
12/31/08 inventory at year-end prices
$440,000
Relevant price index at year end (base year 2007)
110