California State University, Fullerton: ACCT 301A | ACCT301A Review Midterm Exam (Answered Summer 2025/2026)

ACCT 301A CHAPTER 5 1. Which of the following has an impact on the dollar amount of the interest related to any financing transaction? a. Principal b. Interest rate c. Time d. All of these 2. The larger the amount of principal, the larger the dollar amount of interest a. True [and/or a longer time period] b. False 3. All things being equal, if a company borrows money it prefers to pay simple interest a. True [borrowers would prefer to pay simple interest is computed on the principal amount only] b. False 4. When the compounding frequency is greater than once a year, the effective-interest rate will always be less than the stated rate a. True b. False [effective-interest rate will always exceed the stated rate] 5. The table that would show the smallest value for 7 periods at 5% is the: a. Future value of 1 table b. Present value of 1 table [The PV of 1 table shows the smallest value for all periods and interest rate] c. Present value of an ordinary annuity table d. Present value of an annuity due table 6. The amounts that must be deposited now at 6% interest to permit withdrawals of $10000 at the end of each period for a specified number of periods are contained I n the: a. Present value of 1 table b. Future value of an ordinary of 1 table c. Present value of an ordinary annuity of 1 table d. Present value of an annuity due of 1 table 7. For an investment that earns 12.5% compounded monthly for two years, how many compounding periods are there? a. 2 b. 24c. 12 d. 100 8. Which of the following is not a fundamental variable to all compound interest problems? a. Interest rate b. Market value c. Future value d. Present value 9. On January 1, 2022, Sandhill Company sold to Flay Corporation $410000 of its 9% bonds for $362971 to yield 11%. Interest is payable semiannually on January 1 and July 1. What amount should Sandhill report as interest expense for the six months ended June 30, 2022? (the effective-interest method of amortization is being used) a. $20036 b. $16397 c. $19964 d. $22550 Interest Expense for 6 months periods = Carrying value * Effective-interest Rate * Number of Period = 362971 * 11% * 6/12 = 19963.4 Cash interest paid = principal * stated interest rate * number of periods = 410000 * 9% * 6/12 = 18450 10. Accounting topics where present value-based accounting measurements are relevant include: a. Taxes b. Inventory c. Environmental liabilities [taxes and inventory do not require the use of PV concepts] d. All of these 11. Environmental liabilities are valued using present value-based measurements a. True b. False 12. Nancy Brown invests $62000 at 12% annual interest. How much money has accumulated after five years, assuming simple interest? a. $69440 b. 99200 c. 106640 d. 37200Simple interest = principal * stated interest rate * number of periods = 62000*12%*5 = 37200 Money has accumulated after 5 years = 62000+37200 = 99200 13. All things being equal, if a company lends money it prefers to receive compound interest a. True [Lenders prefer to receive compound interest because interest is computed on principal and any interest earned but not withdrawn or paid out] b. False 14. To convert an annual interest rate into the “compounding period interest rate”, a company divides that annual interest by the number of compounding periods per year a. True b. False 15. An interest compounding period may be greater than a year a. True b. False [equal or less than one year] 16. Which of the following is not a fundamental variable that is a part of all compound interest problems? a. Future value b. Interest rate c. Present value d. Past value 17. Future value of an interest-bearing transaction is a. The value now of a future amount [refers to the present value] b. The amount that must be invested now to produce a known future value [refers to the present value] c. Always greater than the present value [due to the interest that accumulates over time] d. All of these 18. The present value is always a smaller amount than the known future value a. True b. False 19. Which table would you use to determine how much you will have five years from now if you deposit $10000 today at 8% compounded annually? a. Future value of 1 or present value of 1 b. Future value of an annuity due of 1c. Future value of an ordinary annuity of 1 d. Present value of an ordinary annuity of 1 20. The factor of 0.94232 is taken from the column marked 2% and the row marked three periods in a certain interest table. From what interest table is this figure taken? a. Future value of 1 b. Future value of annuity of 1 c. Present value of 1 [The PV of a dollar is always less than 1] d. Present value of annuity of 1 21. Donald’s uncle has promised her $31000 when she graduates college 4 years from now. what is the equivalent amount stated in today’s dollars? Given below are the PV factors for 1 at 8% for one to three periods with interest compounded annually Period s Present Value of 1 at 8% 1 0.92593 2 0.85734 3 0.79383 a. $31000 x 0.92593 / 0.79383 b. 31000 / 1.08 x 0.79383 c. 31000 / 0.79383 d. 31000 x 0.79383 x 1.08 22. The process of accumulation involves determining: a. Future value b. Present value c. Future value or present value d. The number of time periods 23. Which of the following statements related to an annuity is correct? a. The periodic payments must always be the same amount [An annuity must have equal periodic payments and equal intervals between payments] b. The interval between payments need not be the same c. The interest must be compounded annually [compounding can be annually or for periods less than a year] d. An annuity can be classified as an ordinary annuity or an unordinary annuity [OA or annuity due, not unordinary annuity]24. Which of the following is a primary characteristic of an annuity? a. The periodic rent is always paid at the beginning of each time period [can be paid at the end (ordinary annuity) or at the beginning (annuity due) of the period] b. The periodic rents are always equal [Annuities must have equal periodic rents] c. Interest is compounded one each year [compounding can be annually or for periods less than a year] d. All of these 25. When an annuity is received at the end of each period, it is called a(n): a. Annuity due b. Ordinary annuity c. Annual annuity d. Deferred annuity 26. An annuity due requires that the time intervals between rents vary in length a. True b. False [OA and AD both require that the time intervals between rents remain the same length] 27. Which of the following is true? a. Rents occur at the beginning of each period in an OA b. Rents occur at the end of each period in an AD c. Rents occur at the beginning of each period in an AD d. Rents occur in the middle of each period in an OA 28. Sally Tucker wants to invest a certain sum of money at the end of each year for six years. The investment will earn 6% compounded annually. At the end of six years, she will need to total of $500000 accumulated. How should she compute her required annual investment? a. $500000 times the future value of a 6-year, 6% OA of 1 factor b. 500000 divided by the FV of a 6-year, 6% OA for 1 factor c. 500000 times the PV of a 6-year, 6% OA of 1 factor d. 500000 divided by the PV of a 6-year, 6% OA of 1 factor 29. The future value of an ordinary annuity will always be: a. Equal to the future value of an annuity due b. Greater than the FV of an AD c. Greater than or equal to the FV of an AD’ d. Less than the future value of an AD [FV of AD is always greater than FV of OA]30. Crane Tag makes an investment today (January 1, 2023). Crane will receive $32000 every December 31st for the next six years (2023- 2028). If Crane wants to earn 12% on her investment, what is the most she should invest on January 1, 2023? Time periods Factor PV Annuity due 5 4.03735 PV AD 6 4.60478 PV OA 5 3.60478 PV OA 6 4.11141 a. $131565 b. 115353 c. 147353 d. 129195 N = 6, I = 12%, PV of six ordinary rental = 32000  PV = PVOA(6,12%) * 32000 = 131565 31. Barbara Smith has saved $254000 for her retirement. It is invested is an annuity that pays 12%. Barbara wishes to make equal semi-annual withdrawals over the next 10 years, beginning 6 months from now. how much can she withdraw each period without exhausting her initial investment? Time periods Factor PV AD 12% 10 6.32825 PV AD 6% 20 12.1581 2 PV OA 12% 10 5.65022 PV OA 6% 20 11.4699 2 a. $40137 b. 20891 c. 44954 d. 22145Using PV of OA, 6% for 20 periods (10 years* 2compounding periods per year) factor of 11.46992, and dividing it into the $254000 amount saved, the amount she can withdraw is 250000 / 11.46992 = 22144.87 32. When using the expected cash flow approach, which of the following interest rates is used to discount the cash flows? a. The pure rate of interest b. The expected inflation rate of interest c. The credit risk rate of interest d. The risk-free rate of return 33. Which of the following statements regarding a deferred annuity is correct? a. A deferred annuity does not begin to produce rents until three or more periods have expired b. A deferred annuity can only be an ordinary annuity c. The future value of a deferred annuity includes interest accumulated during the deferral period d. The future value of a deferred annuity is the same as the future value of an annuity not deferred [because there is no accumulation or investment on which interest may accrue] 34. Which of the following is false? a. The future value of a deferred annuity is computed using 1 more compounding period than the future value of an annuity not deferred b. A deferred annuity is an annuity in which the rents begin after a specified number of periods c. To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for five periods 35. Helen wants to set aside enough money now to go vacation in two years. She has developed the following estimates: Estimated Cash Outflows Probability Assessment $4200 30% 4800 50% 6000 20%Time periods Factor PV of 1 2 0.90703 PV Annuity of 1 2 1.85941 FV of 1 2 1.10250 FV OA 2 2.05 How much should she deposit today in an account earning 5%, compounded annually, to have sufficient cash on hand to pay for the vacation? a. $4408 b. 5358 c. 4860 d. 9036 Expected Cash Outflows is [(4200*30%) + (4800*50%) + (6000*20%) = 4860 The present value of 4860 = 4860 * 0.90703 = 4408 36. Kevin Spear invested $18000 today in a fund that earns 12% compounded annually. To what amount will the investment grow in 3 years? To what amount would the investment grow in 3 years if the fund earns 12% annual interest compounded semiannually? Investment at 12% annual interest: PV = 180000, n=3, i= 12% FV = PV * FVF of 1(3,12%) = 18000*1.40493 = 25288.74 = 25289 Investment at 12% annual interest, compounded semiannually: PV = 180000, n=3*2=6, i= 12%/2 =6% FV = PV * FVF of 1(6,6%) = 18000*1.41852 = 25533.36 = 25533 37. Jason Bautista needs $29000 in 9 years. What amount must be invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly? Investment at 12% annual interest: FV = 29000, n=9, i=12% PV= FV*PVF of 1(9,12%) = 29000*0.36061 = 10457.69 = 10458Investment at 12% annual interest, compounded quarterly: FV = 29000, n= 9*4=36, i=12%/4=3% PV= FV*PVF(36,3%) = 29000*0.34503 = 10005.87 = 10006 38. Stacy Medavoy will invest $6400 a year for 20 years in a fund that will earn 4% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years? First payment today: PMT=R = 6400, n=20, i=4% First pm today= R*FV-AD(20,4%) = R*FV-OA(20,4%)(1+i)= 6400*29.77808*1.04 = 198202.9 = 198203 First payment at year-end: PMT=R = 6400, n=20, i=4% First pm at year-end = R*FV-OA(20,4%) = 6400*29.77808 = 190579.712 = 190580 39. The Concord Inc., a manufacturer of low-sugar, low-sodium, lowcholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Concord has decided to locate a new factory in the Panama City area. Concord will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three very similar buildings that will meet their needs. Building A: Purchase for a cash price of $610600, useful life 26 years Building B: Lease for 26 years with annual lease payments of $71980 being made at the beginning of the year Building C: Purchase for $653200 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6050. Rental payments will be received at the end of each year. The Concord Inc. has no aversion to being a landlord In which building would you recommend that The Con corn Inc. locate, assuming a 10% cost of funds? Net Present Value Building A: NPV = Cash purchase price = 610600 Building B: R=71980, n=26, i=10%. NPV = R*PV-AD(26,10%) = 71980*10.07704= 725345.33 = 725345 Building C: NPV = Cash Purchase – PV of Rental = 653200 – 6050*PVOA(26,10%) = 653200 – 6050*9.16095 = 653200 – 55423.7475 = 597776.25 = 597776 40. For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor In a future value of 1 table Annual Rate Number of Years Invested Compounded (a)Rate of Intere st (b)Number of Periods a. 9% 12 Annually 9% 12 b. 8% 7 Quarterly 2% 28 c. 12% 16 Semiannually 6% 32  In a present value of an annuity of 1 table Annu al Rate Number of Years Investe d Numbe r of Rent Involve d Frequency of Rents (a)Rate of Intere st (b)Numbe r of Periods a. 10% 28 28 Annually 10% 28 b. 10% 15 30 Semiannua lly 5% 30 c. 8% 7 28 Quarterly 2% 28 41. Linda has $1300 to invest today. Which of the following will provide the highest future value? a. Five years with a simple interest rate of 10% [ FV = P(1+i)^n = 1300*1.1^5 = 2093.663] b. Ten years with a simple interest rate of 5% [FV = 1300*1.05^10 = 2117.563] c. Eight years with a compound interest rate of 8% [FV= 1300*1.08^8 = 2406.21] d. Five year with a compound interest rate of 9% [FV = 1300*1.09^5 = 2000.21] CHAPTER 61. Short-term investments with original maturities of three months or less are classified as cash equivalents a. True b. False [Cash equivalents include only highly liquid investments that have original maturities of three months or less] 2. Splish Co. uses the gross method to record sales made in credit. On June 1, 2025, it made sales of $63000 with terms 2/15, n/45. On June 12, 2025, Splish received full payment for the June 1 sale. Prepare the required journal entries for Splish Co. Date Account Titles and Explanation Debit Credit June 1 Account Receivable $63,000 Sales Revenue $63000 June 12 Cash $61,740 [63000- 63000*2%] Sales Discounts $1,260 [63000*2% ] Account Receivable $63,000 3. Metlock Company sold $8,590 of its specialty shelving to Elkins Office Supply Co. on account. Prepare the entries ignoring cost of goods sold entries when a. Metlock makes the sale Account Titles and Explanation Debit Credit Account Receivable $8,950 Sales Revenue 8,950 b. Metlock grants an allowance of $638 when some of the shelving does not meet exact specifications but still could be sold by Elkins Account Titles and Explanation Debit CreditSales Returns and Allowances $638 Account Receivable 638 c. At year-end; Method estimates that an additional $215 in allowances will be granted to Elkins Account Titles and Explanation Debit Credit Sales Returns and Allowances $215 Return Liability 215 4. Skysong, Inc. had net sales in 2025 of $1,462,700. At December 31, 2025, before adjusting entries, the balances in selected accounts were Accounts Receivable $233,700 debit, and Allowance for Doubtful Accounts $3,590 credit. If Skysong estimates that 6% of its receivables will prove to be uncollectible. Prepare the December 31, 2025, journal entry to record bad debt expense. Date Account Titles & Explanation Debit Credit Dec. 31, 2025 Bab Debt Expense $10,432 Allowance for Doubtful Accounts 10,432 Net sales = $1,462,700; AR balance = $233,700 (debit); Allowance for Doubtful Accounts = $3,590 (credit); Estimate uncollectible % = 6% - Total Estimate Uncollectible = AR balance * Estimate uncollectible % = 233700*6% = $14,022 - Adjustment Required = Total Estimate Uncollectible - Allowance for Doubtful Accounts = 14022 – 3590 = $10,432 5. Leon Acrobats lent $26,784 to Donaldson, Inc., accepting Donaldson’s 2-year, $33,000, zero-interest-bearing note. The implied interest rate is 11%. Prepare Leon’s journal entries for the initial transaction, recognition of interest each year, and the collection of $33,000 at maturity. Account Titles & Explanation Debit CreditNote Receivable $33,000 Discount on NR 6,216 Cash 26,784 (To record the initial transactions) Discount on NR = NR – Cash = 33,000 – 26,784 = 6,216 Discount on NR $2,946 Interest in first year 2,946 (To record the recognition of interest in year one) Recognition of interest in year 1 = Cash*11% = 26,784*11% = 2,946 Discount on NR $3,270 Interest in Year 2 3,270 (To recognize the interest in year 2) Interest in year 2 = [Cash + Interest year 1] * 11% = (26,784 + 3270) *11% = 3,270 Cash $33,000 NR 33,000 (To record the collection of the note) 6. Kingbird Incorporated factored $166,800 of AR with Oriole Factors Inc., on a without-recourse basis. Oriole assesses a 3% finance charge of the amount of accounts receivable and retains an amount equal to 6% of AR for possible adjustments. Prepare the journal entry for Kingbird Incorporated and Oriole Factors to record the factoring of the AR to Oriole. Account Titles & Explanation Kingbird Debit CreditCash $151,788 [166,800 – 166,800*3% - 166,800*6%] Receivable from Factor 10,008 [166,800*6%] Loss on Sale of Receivable 5,004 [166,800*3%] AR 166,800 Oriole AR $166,800 Cash 151,788 Due to Customer 10,008 Interest Revenue 5,004 7. The present value of a note is determined by adding a. The present value of the face amount and the present value of the annuity of interest receipt b. The face amount of the note and the discount on NP c. The face amount of the note and the total interest to be received d. The precent value of the total interest to be received and the discount on NP 8. The trial balance before adjustment for Concord Company shows the following balances Dr. Cr. AR $84,000 Allowance for Doubtful Accounts 1,820 Sales Revenue $436,500 Using the data above, give the journal entries required to record each of the following cases. [Each situation is independent.]a. To obtain additional cash, Concord factors without recourse $25,800 of accounts receivable with Stills Finance. The finance charge is 11% of the amount factored b. To obtain a 1-year loan of $60,800, Concord pledges $66,600 of specific receivable accounts to Crosby Finance. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial c. The company wants to maintain Allowance for Doubtful Accounts at 5% of gross AR d. Based on an aging analysis, an allowance of $5,808 should be reported. Assume the allowance has a credit balance of $1,117 No . Account Titles & Explanation Debit Credit 1.Cash $22,962 Loss on Sale of Receivables 2,838 [25800*11%] Accounts Receivable 25,800 2.Cash 55,936 [60800 – 4864] Interest Expense 4,864 [60800*8%] NP 60,800 3.Bad Debt Expense 6,020 [5%*84K+182 0] Allowance for Doubtful Accounts 6,020 4.Bad Debt Expense 4,691 [5808 – 1117] Allowance for Doubtful 4,691Accounts 9. Cash consists of all of the following except: a. Personal checks b. Certified checks c. Money orders d. Short-term paper with a maturity of 6 months 10. Cash can be classified as a current or long-term asset a. True b. False 11. Short-term paper with maturities of less than 3 months should be classified as a. Cash equivalents b. Investments c. Temporary investments d. Receivables 12. All of the following are properly classified as temporary investment except: a. Money market funds (no checking privileges) b. Money market certificates c. Money orders [are viewed as cash] d. Certificates of deposit (CDs) 13. Young Enterprises has an overdraft at one of its banks, Bank of Cleveland. Young has no other accounts at Bank of Cleveland. Under U.S. GAP, Young should report the bank overdraft as an offset against cash held at other banks a. True b. False [not offset against the cash account] 14. The minimum cash amounts that banks often require their loan customers to maintain in checking accounts is called: a. Bank overdrafts b. Cash equivalents c. Compensating balances d. Money market funds 15. Non-trade receivables include all of the following except a. Claim against defendants under suit b. Dividends receivable c. Deposits paid to cover potential losses d. Oral promises of the purchaser to pay for goods and services sold16. If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)? a. 1% b. 12% c. 18% [1% / [(30-10)/360] = 18%] d. 30% 17. Notes receivable can be classified as a. Current b. Trade c. Nontrade d. All of these 18. If a company employs the net method of recording accounts receivable from customers, then sales discounts forfeited (not taken) should be reported as a. An addition to sales in the income statement b. An item of “other revenues and gains” in the income statement c. A deduction from accounts receivable in determining the net realizable value of AR d. Sales discounts forfeited in the COGS section of the income statement 19. A cash discount of 1/10, n/30 means the customer gets a: a. 1% discount if they pay within 20 days b. 10% discount if they pay within 30 days c. 1% discount if they pay within 10 days d. 10% discount if they pay within 20 days 20. Which of the following methods of determining annual bad debt expense violates the expense recognition concept? a. Percentage of sales b. Percentage of ending AR c. Percentage of average AR d. Direct write-off 21. Under the direct write-off, bad debts are only recognized when an account is determined to be uncollectible a. True b. False 22. Aging AR is a variation of the percentage-of-sales approach to recognizing bad debt expense a. Trueb. False [aging is an estimation method used with the percentage-ofAR approach] 23. When compared to the aging of accounts approach, the percentage-of-sales approach of estimating bad debts does a better job of matching revenues (sales) and expenses (bad debt expense) on the income statement a. True b. False 24. The required balance in Carla Vista’s Allowance for Doubtful Accounts is $37900, based on an aging of its AR. The Allowance for Doubtful Accounts currently has a debit balance of $5800. Carla’s bad debt expense for the period is a. 5800 b. 37900 c. 43700 d. 32100 The existing balance in Allowance for Doubtful Accounts is considered under the percentage-of-receivables method.  Bad debt expense = Required Allowance for Doubtful Accounts Balance + Allowance for Doubtful Accounts current debit balance = 37900 + 5800 = $43,700 25. During the year, Ivanhoe Enterprises made an entry to write off an $8400 uncollectible account. Before this entry was made, the balance in accounts receivable was $100300 and the balance in the allowance account was $9390 (credit balance). The net realizable value of AR before and after write-off entry was a. 100300 b. 99310 c. 82510 d. 90910 Before: AR - Allowance Account = 100300 – 9310 = 90910 After: AR (100300 – 8400 = 91900) – Allowance (9390 – 8400 = 990) = 90910 26. On December 31, 2021 Oriole Company sold for $152900 an old machine having an original cost of $170300 and a book value of $122800. The terms of the sale were as follows: $31100 down payment $62200 payable on December 31 each of the next two years The agreement of sale made no mention of interest; however, 8% would be a fair rate for this type of transaction. What should beamount of the notes receivable net of the unamortized discount on December 31, 2021 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 8% for 2 years is 1.78326) a. 110919 b. 142019 c. 122800 d. 218984 In instances where no interest rate is stated, the company measures the present value of the note. The present value of the annuity is (62200 * 1.78326) = $110,919 27. The interest rate that equates the cash paid with the amount received in the future on a zero-interest-bearing note is the: a. Implicit rate [can be computed based on the PV and FV involved] b. Effective rate c. Imputed rate d. Stated rate 28. Blossom Company received a seven-year zero-interest-bearing note on February 22, 2020, in exchange for property it sold to Ayayai Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 6.3% on February 22, 2020, 6.8% on December 31, 2020, 7% on February 22, 2021, and 7.3% on December 31, 2021. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2020 and 2021, respectively? A. 0% and 0% B. 6.3% and 6.3% C. 6.3% and 7% D. 6.8% and 7.3% 29. If a company cannot determine the fair value of the goods exchanged for a note, and if the note has no ready market a. The note is not recorded in the financial statements, it is only disclosed in the notes to the financial statements b. The stated rate of interest on the note is used to value the note c. An imputed interest rate is used to value the note d. The prevailing rate of interest at each balance sheet date is used to value the note 30. If a company receives a zero-interest-bearing note, its present value is the equal to the face amount of the note a. Trueb. False [its PV is the cash paid to the borrower] 31. In a transfer of receivables accounted for as a secured borrowing: a. A gain or loss is recorded b. Receivables are reduced c. A finance charge is recorded d. A recourse liability is recognized 32. Which of the following statements is incorrect? a. Securitization takes a pool of assets, such as credit card receivables, and sells shares in these pools of interest and principal payments b. Securitization can be done with virtually every asset with a payment stream and a long-term payment history c. Securitization involves relatively tight margins and higher quality receivables d. Securitization requires the purchaser to service the receivables [usually with a securitization, the seller continues to service the receivables] 33. Which of the following is a method used to generate cash from AR? a. Assignment: Yes, Factoring: No b. Assignment: Yes, Factoring: Yes c. Assignment: No, Factoring: Yes d. Assignment: No, Factoring: No 34. The AR turnover ratio measures the a. Number of times the average balance of AR is collected during the period b. Percentage of AR turned over to a collection agency during the period c. Percentage of AR arising during certain seasons d. Number of times the average balance of inventory is sold during the period 35. Finance companies that buy receivables from businesses are called a. Receivers b. Principles c. Factors [buy other companies’ receivables for a fee] d. Recoursers 36. On March 1, 2021, Sunland Pasta Company assigns $1404000 of its AR to Bank of China as collateral for a $1003400 note. Bank ofChina assesses a finance charge of 1% of the AR and interest on the note of 15%. Which of the following is correct regarding this transaction? a. Bank of China has purchased Sunland Pasta’s receivables b. On march 1, 2021 Bank of China will credit interest Revenue for $14040 c. On march 1, 2021, Bank of China will credit Gain on Purchase of Receivables for $34108 d. On march 1, 2021, Bank of China will credit Due from Factor for $20068 Bank of China: Notes Receivable 1003400 Interest Revenue 14040 [1%*1404000] Cash 989360 37. Of the following conditions, which is the only one that is not required if the transfer of receivables with recourse is to be accounted for as a sale? a. The transferor is obligated to make a genuine effort to identity those receivables that are uncollectible. [not obligated] b. The transferred asset has been isolated from the transferor c. The transferee does not maintain effective control over the transferred assets through an agreement to repurchase or redeem them before their maturity d. The transferees have obtained the right to pledge or exchange the receivables 38. The AR turnover ratio is computed by dividing gross sales by ending net receivables a. True b. False [dividing net sales by average net AR] 39. Carla Company’s average collection period is 45 days and its net sales are $2431700. What are Carla Company’s average AR for the period? a. 300210 b. 54038 c. 6671 d. 202642 Dividing net sales by average AR(net) = AR turnover ratioThe average collection period = 365 / AR Turner ratio  AR turnover ratio = 365/45 = 8.1  Average AR = Net sale / AR turnover ratio = 2431700 / 8.1 = 300210 40. Which of the following help to reduce the size of a company’s float? a. Lockbox accounts [Multiple collection center with lockboxes generally reduce the size of a company’s float. The greatest advantage of a lockbox is that is accelerates the availability of collected cash] b. Imprest accounts c. Petty cash accounts d. Bank reconciliation procedures 41. In preparing its August 31, 2021 bank reconciliation, Sunland Corp. has available the following information: Balance per bank statement, 8/31/21 $22200 Deposit in transit, 8/31/21 6170 Return of customer’s check for insufficient funds, 8/30/21 890 Outstanding checks, 8/31/21 3410 Bank service charges for August 100 At August 31, 2021, Sunland’s correct cash balance is a. 24960 b. 24070 c. 23970 d. 19440 Cash balance = balance per bank statement + deposit in transit – outstanding checks = 22200 + 6170 – 2410 = 24,960 42. A creditor bases an impairment loan loss on the difference between the present value of the future cash flows (using the historical effective-interest rate) and the fair value of the note a. True b. False [and the carrying amount of the receivable] 43. A company considers a loan receivable impaired when it is probable, based on current information and events, that it will be successful at collecting all amounts due (both principal and interest) a. True b. False [will not collect all amounts due (both principal and interest)] 44. Under IFRS, bank overdrafts area. Reported as current liabilities b. Netted against cash balances c. Netted against cash balances only if there is a second account at the same bank with a balance sufficient to cover the overdraft d. Reported as an expense 45. The IFRS approach to transferring of receivable focuses on which of the following? a. Rewards b. Risks c. Loss of control d. All CHAPTER 7 1. Merchandising companies report the cost assigned to unsold units left on hand as finished goods inventory a. True b. False [merchandising companies call their unsold units Merchandise Inventory] 2. Crane Manufacturing Company has the following account balances at year-end: Office supplies $8500 Raw materials 24100 Work-in-process 45000 Finished goods 52700 Prepaid insurance 9000 What amount should Crane report as inventories in its balance sheet? a. 52700 b. 97700 c. 121800 d. 130300 Inventories = Raw materials + Work-in-process + Finished goods = 24100 + 45000 + 52700 = 121,800 3. Under a perpetual inventory system, which accounts should be debited each time a sale on account is made? a. AP and Purchasesb. AR and COGS [when a sale on account is made under a perpetual inventory, AR is debited for the selling price of the goods, COGS is debited for the cost of the goods] c. Inventory and COGS d. AR and Purchases 4. Which of the following would not be included in a manufacturing company’s balance sheet? a. Finished goods inventory b. Merchandise inventory c. Raw materials invent tory d. Work-in-process inventory 5. Crane Manufacturing Company has the following account balances at year-end: Office supplies $5700 Raw materials 23200 Work-in-process 32100 Finished goods 47900 Prepaid insurance 8900 What amount should Crane report as inventories in its balance sheet? a. 47900 b. 80000 c. 103200 d. 112100 6. Which of the following accounts does not exist in a perpetual inventory system? a. Inventory b. COGS c. Sale returns and allowances d. Purchases [periodic inventory system] 7. Goods shipped FOB destination, which arrive to a customer, on January 2, 2022 should be included in the seller’s December 31, 2021 inventory. a. True [For goods shipped FOB destination, title does not pass to the customer until the goods are delivered, so the seller has title at year-end] b. False 8. When goods are shipped FOB shipping point, title passes to the buyer when the seller delivers the goods to a common carrier a. True b. False9. 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 FOB shipping point b. Goods received from another company for sale on consignment c. Goods sold to a customer that are being held for the customer to call for at his or her convenience d. Goods sold to a customer, that were shipped FOB shipping point 10. Interest incurred while getting inventories ready for sale is a product cost a. True b. False [interest is an indirect cost of financing and is thus treated as a period cost, not a product cost] 11. Which of the following are excluded from the cost of inventory? a. Interest costs related to financing inventory b. General administrative costs c. Selling cost d. All 12. A sale with a “repurchase” agreement allows the seller to finance its inventory and retain the risks of ownership even though the technical title has been transferred a. True b. False 13. The buyer would report the inventory in its balance sheet for items a. Received on consignment b. Shipped from a supplier FOB destination and in transit c. Purchased with a buyback agreement d. Purchased FOB shipping point and in transit 14. MHB Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $45400 of inventory, terms 2/10, n/30. On May 13, MHB returned goods that cost $5100. On May 19, FBS paid the supplier. On May 19, the company should credit a. Purchase discount for $908 b. Inventory for 908 c. Purchase discount for 806 d. Inventory for 806 Cash Discount = (Purchase – Purchase return)* 2% = (45400 – 5100)*2% = 806Using the perpetual inventory method and the gross method for recording purchases, the complete journal entry to record the payment of the balance on May 19: AP 40300 Inventory 806 Cash 39494 [40300 – 806] 15. Freight charges on goods sold are accounted for as: a. Manufacturing costs b. Product costs c. Period costs d. Variable costs 16. The use of a Purchase Discount 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 17. In a period of rising prices, the inventory method that produces the lowest ending inventory is the: a. Average-cost method b. FIFO perpetual method c. LIFO periodic method [In a period of rising prices, LIFO method always produces the lowest ending inventory and LIFO periodic results in a lower inventory than LIFO perpetual] d. LIFO perpetual method 18. A business whose inventory consists of similar items would be most likely to use which of the following cost flow assumptions? a. Specific identification b. FIFO c. Average-cost [is used when an inventory consists of similar items] d. LIFO 19. Which cost flow assumption would be most appropriate hen a relatively small number of costly, easily distinguishable items are sold? a. Specific identification [to use in such circumstances] b. LIFO c. FIFO d. Average-cost20. All of the following are major disadvantages of using LIFO, except: a. Lower profits reported in inflationary times b. Doesn’t approximate the physical flow of inventory c. Future earnings will not be affected substantially by future price declines. [Future earnings will increase instead of not being substantially, if there are future price declines] d. Inventory is understated 21. Atlantic Company had 500 units of “CL-10” in its inventory at a cost of $12 each. It purchased 300 more units of “CL-10”, for $8400. Atlantic then sold 400 units of “CL-10” at a selling price of $30 each, resulting in a gross profit of $4800. The cost flow assumption used by Atlantic is a. FIFO b. LIFO c. Average-cost d. Cannot be determined from the information given Rev = 400*30 = 12,000; COGS = Rev – Gross profit = 12000 – 4800 = 7,200 Weight-average cost per units = 7200 / 400 = 18 Total cost = 18*800 [500+300] = 14,400 Cost of first 500 units = 500*12 = $6,000 Cost of next 300 units = 8400  Average-cost 22. An inventory method that makes it possible to manipulate net income is the a. Average-cost b. FIFO method c. LIFO method d. Specific identification method 23. The ending inventory and COGS will be the same whether a perpetual or periodic system is used under the: a. Average-cost method b. Moving-average method c. LIFO method d. FIFO method 24. The Allowance to Reduce Inventory to LIFO account is reported on the income statement in the Other Expenses and Losses section a. Trueb. False [Allowance to Reduce Inventory account should be reported on the balance sheet in the Current Assets section as a deduction from Inventory] 25. Select the correct statement concerning LIFO liquidations from the following a. FIFO liquidations often distort net income and do not result in substantial tax payments b. LIFO liquidations seldom distort net income and do not result in substantial tax payments c. LIFO liquidations seldom distort net income and may result in substantial tax payments d. LIFO liquidations often distort net income and may result in substantial tax payments 26. 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. [NOT easier. Dollarvalue LIFO techniques protect LIFO layers from erosion] 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 27. Under dollar-value LIFO, each layer in ending inventory at LIFO cost is calculated by a. First expressing the year at base-year prices and then extending it to current LIFO cost by multiplying by the year’s price index b. Dividing the layer at base-year prices by base-year price index c. Multiplying the layer at current-year prices by the current year price index d. Dividing the layer at current-year prices by the current year price index 28. Which of the following statements related to the LIFO method is incorrect? a. LIFO is preferable if revenues have been increasing faster than costs b. LIFO is preferable if a company has a fairly constant “base stock”c. LIFO is not appropriate where prices tend to lead costs [when price tend to lag] d. LIFO is not appropriate in situations where specific identification is traditional 29. 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 COGS section c. On the income statement in the Other Expenses and Losses section d. On the balance sheet in the Current Assets section 30. LIFO liquidation can distort net income, but generally results in substantial tax savings a. True b. False [cannot distort; not substantial tax savings] 31. A new layer is formed under dollar-value LIFO when the ending inventory at a. End-of-year prices exceeds the beginning inventory at end-of-year prices b. End-of-year prices exceeds the beginning inventory at base-year prices c. Base-year price exceeds the beginning inventory at base-year prices d. Current cost exceeds the beginning inventory at base-year cost 32. The approach employed by most companies that currently use the LIFO method is a. Dollar-value LIFO b. Specific-goods LIFO c. Specific-goods pooled LIFO d. Unit LIFO 33. Pharoah Company had January 1 inventory of $172000 when it adopted dollar-value LIFO. During the year, purchases were $922000 and sales were $1720000. December 31 inventory at year-end prices was $224700, and the price index was 110. What is Pharoah Company’s gross profit? a. 798000 b. 833500 c. 745300 d. 626000Gross profit = Sales – [(Beginning Inventory * Price Index) + Purchase] – Ending Inventory GP = 1,720,000 – (172,000*110 + 922,000) – 224,700 = 833,500 34. If inventory levels are stable or increasing, an argument which is not an advantage of the LIFO method as compared to FIFO is a. Income taxes tend to be reduced in periods of rising prices b. COGS tends to be stated at approximately current cost on the income statement c. Cost assignments typically parallel the physical flow of goods d. Income tends to be smoothed as prices change over time 35. All of the following are advantages of LIFO except a. Recent costs are matched against current revenues b. A deferral of income tax occurs as klong as the price level increases c. An improvement of cash flow d. An approximation of the physical flow of goods is achieved 36. Which of the following statements related to the LIFO method is incorrect? a. LIFO is preferable if revenues have been increasing faster than costs b. LIFO is preferable in situations where it has been traditional c. LIFO is appropriate where prices tend to lag behind costs [not appropriate] d. LIFO is not appropriate in situations where specific identification is traditional 37. If the beginning inventory is overstated [COGS overstated, NI & R/E are understated] a. The current ratio is overstated b. COGS is understated c. Retained earnings is understated d. Working capital is understated 38. Crane Inc. is a calendar-year corporation. Its financial statements for the years 2022 and 2021 contained errors as follow: Ending inventory $11700 overstated 20400 overstated Depreciation expense understated overstated Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022 income before taxes be overstated or understated? a. 3300 understated b. 8000 overstated c. 11300 overstated d. 20100 overstated Entries were made in 2021,No misstatement in the NI calculation for 2022 In 2022, overstatement of the ending inventory by 11700 results in an understatement of COGS  overstatement of NI 11700 Understatement of depreciation expense 8400  overstates NI 8400 Total overstatement of NI = 11700 + 8400 = 20100 39. TAMARISK COMPANY USES A PERPETUAL INVENTORY SYSTEM. ITS BEGINNING INVENTORY CONSISTS OF 90 UNITS THAT COST $61 EACH. DURING JUNE, (1) THE COMPANY PURCHASES 270 UNITS AT $61 EACH, (2) RETURNED 11 UNITS FOR CREDIT, AND (3) SOLD 225 UNITS AT $90 EACH Journalize the June transactions No . Account Titles and Explanation Debit Credit (1) Inventory 16,47 0 AP 16,47 0 (2) AP 671 Inventory 671 (3) AR 20,25 0 Sales Revenue 20,25 0 (To record sales)COGS 13,725 Inventory 13,72 5 (To record COGS) 40. Windsor company took a physical inventory on December 31 and determined that goods costing $191,500 were on hand. Not included in the physical count were $24,510 of goods-in-transit purchased FOB shipping point from Pelzer corporation, and $21,620 of goods-in-transit sold to Alvarez company for $29,090, f.o.b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year-end. What amount should Windsor report as its December 31 inventory? December 31 inventory = COG + goods purchased from P, FOB + goods sold to A = 191500 + 24510 + 21620 = 237,630 COGS = 191,500 Goods purchased from P, FOB = 24,510 Goods sold to A = 21,620 41. Which of the following would be included in the balance sheet of a merchandiser? a. Work-in-process inventory b. Raw material inventory c. Finished goods inventory d. Merchandise inventory 42. Which of the following is not a disadvantage of the LIFO method? a. Tax consequences when involuntary liquidation occurs b. Lower earnings relative to the FIFO method c. Understated inventory reported on the balance sheet d. All 43. The FIFO method assumes that a company sells inventory in the order in which it purchased the items a. True b. False 44. An inventory costing 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-average45. In a period of rising prices, the inventory method which tends to give the highest reported net income is a. LIFO b. Weighted-average c. Base stock d. FIFO 46. What is a LIFO reserve? a. Change in the LIFO inventory during the year b. The current effect of using LIFO on net income c. The tax savings attributed to using the LIFO method d. The difference between the LIFO inventory and the amount used for internal reporting purpose 47. The ending inventory and COGS will be the same whether a perpetual or periodic system is used under the a. Average-cost method b. Moving-average method c. FIFO method d. LIFO method 48. When a periodic inventory system is used a. The balance in the inventory account should approximate inventory on hand b. A physical count of inventory is required at the end of the accounting period to determine COGS c. Two entries are required to record a sale d. Purchases of inventory are charged to the inventory accountCHAPTER 8 1. The method of recording inventory at net realizable cost that substitutes the net realizable cost for the historical cost and reports the loss as a part of COGS is the a. Gross profit method b. COGS method c. Loss method d. Replacement method 2. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the 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. Cost will be less than their replacement cost d. Future utility will be less than their cost 3. Net realizable value is defined as estimated selling price less purchase price a. True b. False [Net realizable value is equal to estimated selling price less predictable cost of completion and disposal] 4. The COGS method of recording inventory at net realizable value under the lower-of-cost and net-realizable value (LCNRV) rule establishes a separate contra asset account and a loss account to record the write-off a. True b. False [the loss method, not the COGS method, uses a separate contra account and loss account to record write-off]5. When the COGS method is used adjust cost to ”NRV” in the LCNRV approach, what account is debited? a. Inventory b. COGS c. Loss Due to Market Decline of Inventory to NRV d. Allowance to Reduce Inventory to Market Value 6. When net realizable value is lower than cost, and the loss method applying the LCNRV approach of recording the write-down is used, what account is credited? a. A loss amount b. Inventory c. Allowance account d. COGS 7. In applying lower-of-cost-or-market, the designated market value is a. Higher of replacement cost or NRV less a normal profit margin b. NRV less a normal profit margin c. The lower of NRV or replacement cost d. The middle value of replacement cost, NRV and NRV less a normal profit margin 8. In applying the lower-of-cost-or-market rule, the floor is defined as a. Current replacement cost b. Historical cost c. NRV d. NRV less a normal profit margin 9. In the lower-of-cost-or-market rule, NRV is referred to as the a. Current market b. Ceiling c. Floor d. Wall 10. In no case can “market” in the lower-of-cost-or-market rule be more than a. Estimated selling price in the ordinary course of business b. Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal c. Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin d. Estimated selling price in the ordinary of business less reasonably predictable costs of completion and disposal, an allowance for anapproximately normal profit margin, and an adequate reserve for possible future losses 11. IFRS uses a floor to determine market for inventory valuation a. True b. False [does not use a ceiling or a floor to determine market] 12. The term market in the phrase “lower-of-cost-or-market” generally means the a. Ceiling b. Floor c. NRV d. Replacement cost 13. The lower limit (floor) for inventory valuation is defined as the selling price less a. A normal profit margin b. Estimated costs of completion and disposal c. Estimated costs of completion and disposal (NRV) less a normal profit margin d. The NRV 14. The Company uses the lower-of-cost-or-market approach. The replacement cost of an inventory item is $77. NRV is 86.91. NRV less a normal profit margin is 67. The cost of the item is 77.42. the inventory item would be valued at a. 67 b. 77 c. 77.42 d. 86.91 Designated market value is determined as the middle amount from replacement cost, NRV, and NRV less normal profit margin. [77; 86.91; 67  77] Compared designated market value and cost item [77 & 77.42  77]  Inventory item would be valued at $77 15. The replacement cost of an inventory item is $93. NRV is 99.07. NRV less normal profit margin is 90.39. Cost is 98. The designated market value used in applying lower-of-cost-or-market is a. 90.39 b. 93 c. 98 d. 99.07Compared and choose the middle amount of [93; 99.07; 90.39 93 is designated market value] 16. Inventory may be recorded at NRV if a. There is a controlled market with a quoted price b. There are no significant costs of disposal c. The inventory or products are available for immediate delivery d. All 17. The relative sales value method is used throughout the a. Agricultural products industry b. Meat-packing industry c. Mining industry d. Petroleum industry 18. Oriole Corporation acquired two inventory items at a lump-sum cost of $69100. The acquisition included 3100 units of knife X001, and 3100 units of knife X002. X001 normally sells for $20 per unit, X002 for $10 per unit. If Oriole sells 1300 units of X002, what amount of gross profit should it recognize? a. $1300 b. 3341 c. 9659 d. 13000 Sale value of X001 = 3100*20 = 62,000; X002 = 3100*10 = 31,000 total = 93,000. The cost allocate to X002 based on relative sales value = (31000/93000)*69100 = 23,031 Cost per unit X002 = 23031/3100 = $7.43  COGS = 7.43*1300 = 9659 Gross profit = Sales – COGS = 1300*10 – 9659 = 3341 19. If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, a. This fact should be disclosed b. Disclosure is required only if prices have declined since the date of the order c. Disclosure is required only if prices have since risen substantially d. An appropriation of retained earnings is necessary 20. Inventories of certain minerals and agricultural products are valued at a. Cost b. Lower of cost or market c. NRVd. Replacement cost 21. Cullumber Corporation acquired two inventory items at a lumpsum cost of $90000. The acquisition included 7200 units of product A, 14600 units of B. A normally sells for $12 per unit, B for $6 per unit. If Cullumber sells 2300 units A, what gross profit should recognize? a. 621 b. 1863 c. 13317 d. 5221 Sales value: 7200*12+14600*6 = 174,000. Cost allocate to A based on relate sales value = (86400/174000)*90000 = 44690  cost per unit of A = 44690/7200 = 6.21 Gross profit = 2300*12 – 6.21 *2300 = 13,317 22. An estimated loss on purchase commitments is reported a. As a valuation account b. As an allowance account to be offset against a related asset c. Under Other Expenses and Losses [an estimated loss on purchase commitment is reported as Unrealized Holding Gain or Loss (income) under “Other Expenses and Losses” in the Income statement] d. As a deduction from purchases 23. The percentage markup on cost can be computed by dividing gross profit on selling price by a. 100% plus gross profit on selling price b. 100% minus gross profit on selling price c. 100% plus markup on cost d. 100% minus markup on cost 24. The gross profit method of estimating inventory is acceptable for both interim and annual financial reports a. True b. False [not acceptable for annual financial reports; can be used for interim periods] 25. Which statement is not true about the gross profit method of inventory valuation? a. It may be used to estimate inventories for interim statements b. It may be used to estimate inventories for annual statements c. It may be used by auditors d. None 26. Orole company’s October 31 inventory was destroyed by fire. The company’s beginning inventory was $502000, and purchases forJanuary through October were $1219000. Sales for the same period were $1815000. The company’s normal gross profit percentage is 30% of sales. Using the gross profit method, October 31 inventory is estimated to be A. 42500 B. 544500 C. 298000 D. 450500 Cost = sale – gross profit = 1,815,000 – 30%*1,815,000 = 1,270,500 Inventory = - 1270500 + 502000 + 1219000 = 450500 27. Which of the following is included in the calculation of the costof-retail ratio under the conventional retail inventory method? a. Markdowns only b. Markdowns and markdown cancellations c. Markups only d. Markups and markup cancellations 28. Which one of the following is deducted from both the cost and retail columns in computing the cost-to-retail ratio? a. Abnormal shortages b. Sales returns c. Normal shortages d. Employee discounts 29. The conventional retail inventory method includes both net markups and net markdowns to calculate the cost-to-retail ratio a. True b. False [no markdowns] 30. The following data concerning the retail inventory method are taken from the financial records of Oriole company Cost Retail Beginning inventory Purchases Freight-in Net markups 0 40100 Net markdowns 0 29000 Sales 0 673300If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $109300 at retail, the business has a. Realized a windfall gain b. Sustained a loss c. No gain or loss as there is close coincidence of the inventories d. None Ending inventory at retail = beginning + purchase + net markups – net markdowns – sales = 141000 + 647000 + 40100 – 29000 – 673300 = 125,800 According to the financial records, while inventory on hand, at retail, is only 109,300  it is loss 31. Under the conventional retail inventory method, the cost-ofretail ratio includes the retail price of goods available and a. Markups only b. Markups and markdowns c. Net markups only d. Net markdowns only 32. A decrease in the original sales price of an items is called a a. Markdown b. Markup cancellation c. Markup d. Markdown cancellation 33. Pharoah Corporation’s computation of COGS is Beginning inventory $176000 Add: COG purchase 677000 COG available for sale 853000 Ending inventory 193000 COGS 660000 The average days to sell inventory for Pharoah are a. 51 days b. 100 c. 102 d. 106.7 Average days to sell = 365 / {COGS / [(Beginning + Ending)/2]} = 365 / {660,000 / [(176,000 + 193,000)/2] = 102 34. The inventory turnover ratio is computed by dividing the COGS by a. Beginning inventoryb. Ending inventory c. Average inventory d. Number of days in the year 35. The LIFO retail method assumes that markups and markdowns apply to both beginning inventory and goods purchased during the period a. True b. False [apply only to the goods purchased during the period] 36. Which of the following is not permitted under IFRS? a. Reporting of any type of inventory at NRV b. Lower-of-cost-or-market valuation c. Reversals of lower-of-cost-or-market write-downs d. The use of the LIFO cost flow assumption 37. IFRS permits the use of the LIFO cost flow assumption and specific identification where appropriate a. True b. False [use of specific identification where appropriate but does not allow used the LIFO cost flow] 38. Which of the following statements about IFRS for inventory accounting is not true a. IFRS provide less detailed guidelines than GAAP for inventory accounting b. IFRS allows reversals of write-downs up to the amount of the previous write-down c. IFRS prohibits the use of LIFO d. IFRS defines market value as replacement cost subject to the constraints of a ceiling and floor 39. Which of the following statements is true regarding IFRS and inventories a. IFRS permits the option of valuing inventories at fair value b. With respect to inventories, IFRS defines market as NRV c. IFRS allows inventory to be written up above its original cost d. GAAP and IFRS permit the use of the same inventory cost flow assumptions 40. When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by a. Last year’s cost ratio and this year ‘s index b. This year’s cost ratio and this year’s index c. Last year’s cost ratio and last year’s index d. This year’s cost ratio and last year’s index41. Ivanhoe industries uses IFRS and has the following inventory values; Inventory cost (on December 31, 2020) = $2400 Inventory sales value (on Dec 31, 2020) = 2398 Inventory NRV (on Dec 31, 2020) = 2330 Inventory cost (on June 30, 2021) = 2400 Inventory sales value (on June 30, 2021) = 2640 Inventory NRV (on June 30, 2021) = 2576 Under IFRS, what is the inventory carrying value on June 30, 2021 a. 2400 b. 2640 c. 2576 d. 2330 IFRS defines “market” as NRV. IFRS applies LCNRV method when valuing inventory at year-end. Cost 2400 is lower than 2576, the inventory is reported at cost 42. Presented below is information related to Vaughn Inc.’s inventory (per unit) Skis Boots Parkas Historical cost $332. 5 185.5 92.75 Selling price 371 253.7 5 129.06 Cost to sell 33.25 14 4.38 Cost to complete 56 50.75 37.19 Determine the following: NRV for each item, the carrying value of each item under LCNRV Item Cost NRV LCNRV Skis 332.5 371-33.25-56 =281.75 281.75 Boots 185.5 253.75-14-50.75 = 189 185.5 Parkas 92.75 129.06-4.38-37.19 = 87.49 87.4943. Whispering Inc. uses a perpetual inventory system. At January 1, 2025, inventory was $556,400 at both cost and NRV. At December 31, 2025, the inventory was $743,600 at cost and $689,000 at NRV. Prepare the entry under (a) COGS method and (b) the loss method No. Account Titles and Explanation Debit Credit (a) COGS = 54600 Inventory 54600 To record loss on inventory under COGS method (b) Inventory Loss 54600 Inventory 54600 To record loss on inventory loss method 44. Presented below is information related to Whispering Inc.’s inventory, assuming Whispering uses lower-of-FIFO cost-or-market (per unit) Skis Boots Parkas Historical cost $231. 8 129.3 2 64.66 Selling price 258.6 4 176.9 0 89.98 Cost to distribute 23.18 9.76 3.05 Current replacement cost 247.6 6 128.1 62.22 Normal profit margin 39.04 35.38 25.93 a. The two limits to market value that should be used in the LCM computation for skis Ceiling = NRV = Selling price – cost of distributed = 258.64 – 23.18 = 235.46 Floor = Ceiling – normal profit margin = 235.46 – 39.04 = 196.42 b. The cost amount that should be used in the LCM comparison of bootsCost amount = Historical cost of inventory = 129.32 c. The market amount that should be used to value parkas on the basis of LCM Ceiling = 89.98 – 3.05 = 86.93 Floor = 86.93 – 25.93 = 61 NRV > current replacement cost  market amount = current replacement cost = 62.22 45. Wildhorse, Inc. buys 1300 video game CDs from a distributor who is discontinuing those games. The purchase price for the lot is $8000. W will group the CDs into three price categories for resale, as indicated below Group No. of CDs Price per CD 1 300 $5 2 800 10 3 200 15 Determine the cost per CD for each group, using the relative sales value method Group Cost per CD 1 8000*12%/300 = 3.2 2 8000*64%/800 = 6.4 3 8000*24%/200 = 9.6 Sales value = 300*5 +800*10 +200*15 = 12500 Sales value %: G1= 1500 / 12500 = 12%; G2= 8000 / 12500 = 64%; G3= 3000 / 12500=24% 46. Sheffield corporation’s April 30 inventory was destroyed by fire. January 1 inventory was $160,600, and purchases for January through April totaled $474,000. Sales revenue for the same period was $669,900. S’s normal gross profit is 30% on sales. Using the gross profit method, estimate S’s April 30 inventory that was destroyed by fire. Estimated ending inventory destroyed in fire = begin + purchase – [sales – gross profit] = 160,600 + 474,000 – (669,900 – 669,900*30%) = 165,67047. The financial statements of W, Inc’s. 2025 annual report disclose the following information: (in millions) May 24, 2025 May 25, 2024 May 26, 2023 Inventories $ Fiscal Year Sales $3,700 3,800 COGS 1,500 1,300 Net income 270 280 Compute W’s (a) inventory turnover and (b) average days to sell inventory for 2025 and 2024 (a)Inventories turnover 1500/ [(250+260)/2] = 5.88 Times 1300/ [(220+260)/2] = 5.42 Times (b)Average days to sell inventory 365 / 5.88 = 62.1 Days 365 / 5.42 = 67.3 days a. Inventory Turnover Ratio =COGS / Average inventory Average inventory = (beginning inventory + ending inventory) / 2 b. Average days to sell inventory = 365 days / inventory turnover ratio 48. NRV is a. Acquisition cost plus costs to complete and sell b. Selling price less costs to complete, sell, and transport c. Selling price d. Selling price plus costs to complete and sell 49. When valuing materials inventory at LCM, what is the meaning of the term “market”? a. Replacement, NRV, or NRV less a normal profit margin b. Discounted present value c. NRVd. NRV less normal profit margin 50. The average days to sell inventory is computed by dividing a. 365 days by the inventory turnover b. The inventory turnover by 365 days c. Net sales by the inventory turnover d. 365 days by COGS 51. Given the acquisition cost of product Dominoe is $27, NRV for product Dominoe is $24, the normal profit for product Dominoe is $2, market value (replacement cost) for product D is $28, what is the proper per unit inventory price for product D if LCM applied? a. 24 b. 28 c. 22 d. 27