Mother Class Intermediate Accounting 1: Item 1

Mother Class Intermediate Accounting 1
Item 1
Multiple choice (one answer)
I. In a period of rising prices, the use of FIFO relates the current high costs of
acquiring goods with rising sales prices. As a result, FIFO tends to have a stabilizing
effect on gross profit margins.
II. The gross method of accounting for purchase discounts is theoretically preferable
to the net method.
Both statements are incorrect.
Both statements are correct.
Only the 2nd statement is correct.
Only the 1st statement is correct.
Item 2
I. The gross method of accounting for purchase discounts reflects the fact that
discounts not taken are in effect credit-related expenditures incurred for failure to pay
within the discount period.
II. The specific identification method is a highly objective approach to matching
historical costs with revenues.

Item 3
I. Specific identification as an inventory method matches the flow of recorded costs to

the physical flow of goods.
II. With FIFO, inventories are reported on the balance sheet at or near their current
value.
Item 4
I. Unlike other inventory cost methods, the average cost approach provides the same
unit cost for items of equal utility.
II. FIFO provides income tax savings during periods of falling prices.

Item 5
I. Inventories are measured at net realizable value (NRV).

II. Inventory write-downs and reversals of write-downs are always recognized in
profit or loss.
Item 6
In a period of rising prices, which inventory cost flow method results in the lowest
income tax liability, all other things being equal?
Both Weighted average and LIFO
Weighted average
FIFO
LIFO
Item 7
What do we mean by inventories?
Inventories are goods purchased for resale in the normal course of business
Inventories are goods purchased for own used and held in a company warehouse
Inventories are goods and services sold to customers in normal business operation
Inventories are goods purchased for resale within the two years it was acquired
Item 8
In perpetual inventory system
the balance of goods is constantly moving
the balance is adjusted at the end of the accounting period
the ending inventory is only updated when the physical inventory is conducted
is suitable for a small business

Item 9
In the first-in, first-out (FIFO) method
the last units acquired are the first units to be sold
the first units acquired are the last units to be sold
the last units acquired are the last units to be sold
the first units acquired are the first units to be sold
Item 10
The inventory evaluation method which does not represent the actual ending
inventory value is
standard cost
first-in, first-out (FIFO)
weighted average
last-in, first-out (LIFO)
Item 11
Cost of goods sold is equal to

Beginning inventory - Purchases + Ending Inventory
Purchases + Beginning inventory - Ending Inventory
Beginning inventory + Sales - Ending Inventory
Ending Inventory + Purchases - Beginning inventory
Item 12
The costs of ending inventory is similar under both periodic and perpetual inventory
system if _________________ method is used.
first-in, first-out (FIFO)
standard cost
weighted average
last-in, first-out (LIFO)
Item 13
If a company is experiencing continuous cost increases for the merchandise that it

purchases, which costing method assumption will result in the least amount of profit
and the least amount of income tax expense?
Weighted Average
FIFO
LIFO
Item 14
Fill in the blanks / identification
Find the ending inventory units when the company is using periodic inventory
system.
ANSWER: _____
Item 15
Find the ending inventory cost when the company is using periodic inventory
system and FIFO method.
ANSWER: _____
Item 16
Find the ending inventory cost when the company is using perpetual inventory
system and FIFO method.
ANSWER: _____
Item 17
Find the cost of goods sold for the transaction on June, 21 when the company is
using perpetual inventory system and FIFO method.
ANSWER: _____
Item 18
Find the ending inventory unit as at June, 21 when the company is using periodic
inventory system.
ANSWER: _____
Item 19
Find the ending inventory costs as at June, 21 when the company is using
periodic inventory system and FIFO method.
ANSWER: _____
Item 20
Find the average costs for the inventory as at June, 16 when the company is
using perpetual inventory system and moving-average method.
Round-off your answer into 2 decimals.
ANSWER: _____
Item 21
Find the average costs per unit when the company is using periodic inventory
system and weighted-average method
Round-off your answer into 2 decimals.
ANSWER: _____
Item 22
PAS 2 requires that the financial statements should disclose…..
the total carrying amount of inventories and classification appropriate to the

enterprise
the accounting policies adopted in measuring inventories, including the cost

formula AND the total carrying amount of inventories and classification appropriate
to the enterprise

formula

formula OR the total carrying amount of inventories and classification appropriate to
the enterprise
Item 23
Perpetual inventory valuation system does not require….
physical count or measurement of inventory
suspension of receipts and issue in the entire factory
maintenance of inventory records
suspension of receipts and issue in the entire factory, maintenance of inventory

records and physical count or measurement of inventory.
Item 24
Which of the following is the same as 'net realisable value' of inventory?
proceeds of sale less all further marketing, selling and distribution costs
average cost
gross selling price
replacement price
Item 25
……… concentrates on the physical linking of the particulars item sold.
FIFO
weighted average
LIFO
Specific Identification Method
Item 26
XYZ Ltd. purchased 550 units of Material A @P 3.10 per unit on 16th August, 600
units @ P 3.50 on 18th August, 750 units @ P3.85 on 26th August and 500 units @ P
3.29 per unit on 2nd September. The company issued 450 units to production on 4th
September @ P3.47 per unit. Discuss the method of inventory valuation followed by
the company.
Specific Identification Method
FIFO
LIFO
weighted average
Item 27
An undervaluation of previous year's opening inventory will…..
none of these
cause previous years net income to be overstated
causes previous years net income to be understated
cause current years net income to be overstated
Item 28
If the sale is P2000 and the rate of profit on cost of goods sold is 25% then the cost of
goods sold is….
1500
2000
1600
700
Item 29
JA Baking purchased $1000 worth of goods at the start of the year. A fire in the
warehouse destroyed $600 worth of the goods. Prepare the journal entry to account for
the goods destroyed.
Dr. Inventory $600 Cr. Impairment loss on inventory $600
Dr. Impairment loss on inventory $600 Cr. Cash at bank $600
Dr. Impairment loss on inventory $400 Cr. Inventory $400
Item 30
Which of the following are possible reasons for impairment of inventory?

(i) Inventories damaged by fire
(ii) Theft of inventories
(iii) Inventories obsolescence
(iv) Inventories with very little demand
All of the above
(i), (ii) and (iii)
(ii), (iii) and (iv)
(i) and (ii)
Item 31
JA Baking purchased $2 500 worth of goods at the start of the year. However, due to
low demand, the net realisable value of the goods were only $2 000 at the end of year.
Prepare the journal entry for the expense incurred.
Dr. Inventory $2 500 Cr. Impairment loss on inventory $2 500
Dr. Impairment loss on inventory $2 000 Cr. Inventory $2 000
Dr. Inventory $4 500 Cr. Impairment loss on inventory $4 500
Item 32
Which of the following costs are included in the cost of inventories?
Abnormal material usage
Transport costs for raw materials
Storage costs relating to finished goods
Administrative and general overhead
Item 33
How should trade discounts be dealt with when valuing inventories at the lower of
cost and net realisable value (NRV) according to PAS 2?
Added to cost
Deducted in arriving at NRV

Ignored
Deducted from cost
Item 34
The Coronet Company has a cost card in relation to an item of goods manufactured as
follows:
Materials 70
Storage costs of finished goods 18
Delivery to customers (Freight out) 4
Non-recoverable purchase taxes 6
According to PAS 2, at what figure should the item be valued in inventory?
ANSWER: _____
Item 35
Inventories are assets (choose the incorrect one)
Held for sale in the ordinary course of business.
In the process of production for sale.
Held for use in the production or supply of goods or services.
In the form of materials or supplies to be consumed in the production process or

in the rendering of services.

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Mother Class Intermediate Accounting 1

Both statements are incorrect.

Both statements are correct.

Only the 2nd statement is correct.

Only the 1st statement is correct.

Both statements are incorrect.

Only the 2nd statement is correct.

Only the 1st statement is correct.

I. Specific identification as an inventory method matches the flow of recorded costs to

Both statements are correct.

Only the 2nd statement is correct.

Only the 1st statement is correct.

Both statements are incorrect.

Both statements are incorrect.

Both statements are correct.

Only the 2nd statement is correct.

I. Inventories are measured at net realizable value (NRV).

Both statements are correct.

Only the 2nd statement is correct.

Both statements are incorrect.

Only the 1st statement is correct.

Both Weighted average and LIFO

What do we mean by inventories?

In perpetual inventory system

the balance of goods is constantly moving

the balance is adjusted at the end of the accounting period

is suitable for a small business

In the first-in, first-out (FIFO) method

the last units acquired are the first units to be sold

the first units acquired are the last units to be sold

the last units acquired are the last units to be sold

the first units acquired are the first units to be sold

first-in, first-out (FIFO)

last-in, first-out (LIFO)

Cost of goods sold is equal to

Purchases + Beginning inventory - Ending Inventory

Beginning inventory + Sales - Ending Inventory

Ending Inventory + Purchases - Beginning inventory

first-in, first-out (FIFO)

last-in, first-out (LIFO)

If a company is experiencing continuous cost increases for the merchandise that it

Round-off your answer into 2 decimals.

PAS 2 requires that the financial statements should disclose…..

the total carrying amount of inventories and classification appropriate to the

the accounting policies adopted in measuring inventories, including the cost

the accounting policies adopted in measuring inventories, including the cost

the accounting policies adopted in measuring inventories, including the cost

Perpetual inventory valuation system does not require….

physical count or measurement of inventory

suspension of receipts and issue in the entire factory

maintenance of inventory records

suspension of receipts and issue in the entire factory, maintenance of inventory

Which of the following is the same as 'net realisable value' of inventory?

gross selling price

……… concentrates on the physical linking of the particulars item sold.

Specific Identification Method

Specific Identification Method

An undervaluation of previous year's opening inventory will…..

cause previous years net income to be overstated

causes previous years net income to be understated

cause current years net income to be overstated

Dr. Impairment loss on inventory $600 Cr. Cash at bank $600

Dr. Impairment loss on inventory $400 Cr. Inventory $400