INTERMEDIATE ACCOUNTING II EXAM WITH CORRECT SOLUTIONS

Inventory is a current asset a. true b. false ANSWER: - a. true Manufacturing inventory includes: a. Raw Materials b. Work in Process c. Finished Goods d. all of the above ANSWER: - d. all of the above the Work in process & the finished goods have 3 cost components a. raw materials b. direct labor c. overhead cost to support production d. all of the above ANSWER: - d. all of the above valuation inventories is usually at cost a. true b. false ANSWER: - a. true inventory cost includes the following: a. invoice price less purchase discounts b. freight-in, including insurance in transit c. applicable taxes & tariffs d. all of the above ANSWER: - d. all the above merchandise-in-transit takes into consideration shipping terns for inventory valuation a. true b. false ANSWER: - a. true goods held on consignment is not included in inventory a. true b. false ANSWER: - a. true the disclosure concept does not require companies to disclose their inventory methods a. true b. false ANSWER: - b. false management must choose among different processing systems which include a. perpetual b. periodic c. all the above d. none the above ANSWER: - c. all the above inventory costing methods include a. LIFO b. FIFO c. Average cost d. all above ANSWER: - d. all above if prices are rising, which inventory method will produce the largest profit an tax liability? a. Lifo b. Fifo c. weighted average d. offshoring ANSWER: - b. fifo according to US GAAP, which of the following attributes would NOT be used to measure inventory? a. NRV b. Historical Cost c. replacement cost d. present value of future cash flows ANSWER: - d. present value of future cash flows sales price is 1000, cost is 900, cost to complete is 200 & selling cost in 100. What is LCNRV a. 700 b. 900 c. 800 d. 1000 ANSWER: - a. 700 () companies need to disclose basis on which they state inventory amounts & their costing method a. true b. false ANSWER: - a. true when a company values inventory at the lower-of-cost-or-market, market is defined as a. replacement cost if it is within ceiling and floor range b. NRV plus profit margin c. value of inventory at a street market d. cost ANSWER: - a. replacement cost if it is within ceiling and floor range which of the following accounts is credited in the loss method of writing down of inventory to its NRV? a. sales revenue b. Loss due to decline of inventory to NRV c. COGS d. inventory ANSWER: - d. inventory a disadvantage of the gross profit method is that it uses past percentages in determining the markup a. true b. false ANSWER: - a. true which statement is true about the gross profit method of inventory valuation? a. it may be used to estimate inventories for annual statements b. when calculated on selling price, it will always be more than the related percentage based on cost c. it may be used to estimate inventories for interim statements d. it eliminates the need for physical inventories ANSWER: - c. it may be used to estimate inventories for interim statements If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should record any expected losses on the commitment in the period in which the market decline takes place. a. true b. false ANSWER: - a. true the average days to sell inventory is computed by dividing a. 365 days by the inventory turnover b. inventory turnover by 365 days c. net sales by inventory turnover d. 365 days by COGS ANSWER: - a. 365 days by the inventory turnover which of the following is not a required inventory disclosure under GAAP? a. significant or unusual inventory financing arrangements, b. the composition of the inventory c. inventory costing methods employed d. all of these are required disclosures ANSWER: - d. all of these are required disclosures which of the following is NOT an acceptable approach in applying the LCNRV method to inventory? a. inventory location b. categories of inventory items c. individual item d. total of the inventory ANSWER: - a. inventory location companies may value inventories at NRV if cost is too difficult to determine a. true b. false ANSWER: - a. true A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original costs a. true b. false ANSWER: - a. true when is the relative sales value method used? a. when purchasing a commodity b. when purchasing damaged inventory c. when purchasing a group of like items d. when purchasing a group of varying units ANSWER: - d. when purchasing a group of varying units the inventory turnover ratio is computed by dividing a. cost of goods sold by average inventory b. cost of goods sold by ending inventory c. sales by average inventory d. sales by ending inventory ANSWER: - a. cost of goods sold by average inventory Property, Plant, and Equipment account is one of the current assets on the balance sheet a. true b. false ANSWER: - b. false