Filoteo S. Uy Jr.

Acctg 11- 5:20-7:00

1. Inventories are assets (choose the incorrect one) a. Held for sale in the ordinary course of business. b. In the process of production for sale c. In the form of materials or supplies to be consumed in the production process or in the rendering of services. d. Held for use in the production or supply of goods or services. Answer: D 2. Inventories encompass all of the following, except a. Merchandise purchased by a retailer b. Land and other property not held for sale c. Finished goods produced d. Materials and supplies awaiting use in the production process Answer: B 3. Inventories shall be measured at a. Cost b. Net realizable value c. Lower of cost or fair value less cost to sell d. Lower of cost or net realizable value Answer: D 4. The cost of inventory shall comprise all of the following cost, except a. Cost of purchase b. Cost of conversion c. Other cost incurred in bringing the inventory to its present location and condition d. Abnormal amount of wasted material Answer: D 5. The cost of purchase of inventory does not include a. Purchase price b. Import duties and taxes c. Freight ,handling and other costs directly attributable to the acquisition of goods d. Trade discounts, rebates and other similar items Answer: D

6. The costs of conversion of inventory include all of the following, except a. Costs directly related to the units of production, such as direct labor b. Systematic allocation of fixed production overhead c. Systematic allocation of variable production overhead d. Systematic allocation of administrative overhead Answer : D 7. Which of the following costs of conversion cannot be included in cost of inventory? a. Cost of direct labor b. Factory rent and utilities c. Salaries of sales staff (sales department shares the building with factory) d. Factory overhead based on normal capacity Answer: C 8. Fixed production overheads include all of the following, except a. Indirect materials and indirect labor b. Depreciation of factory building c. Maintenance of factory equipment d. Cost of factory management and administration Answer: A 9. The allocation of fixed factory overhead to the cost of conversion is based on a. Normal capacity of production facilities b. Actual use of the production facilities c. Either the normal capacity or actual use of the production facilities d. Relative sales value method Answer: A 10. Costs that are incurred in bringing the inventories to their present location and condition are capitalized as cost of inventories and these include a. Cost of designing products for specific customers b. Abnormal amount of wasted material, labor and production cost c. Storage cost not necessary in the production process before a further production stage d. Selling cost Answer: A 11. The cost of inventory shall be measured using a. FIFO b. Average method c. LIFO

d. Either FIFO or average method Answer: D

12. Net realizable value is a. Current replacement cost b. Estimated selling price c. Estimated selling price less estimated cost to complete d. Estimated selling price less estimated cost to complete and estimated cost to sell Answer: D 13. Inventories are usually written down to net realizable value a. Item by item b. By classification c. By total d. By segment Answer: A 14. The amount of any write-down of inventory to net realizable value and all losses of inventory shall be a. Recognized as operating expense in the period the write-down or loss occurs b. Recognized as other expense in the period the write-down or loss occurs c. Recognized as component of cost of sales in the period the write-down or loss occurs d. Deferred until the related inventory is sold Answer: C 15. The cost of inventories may not b recoverable under all of the following conditions, except a. The inventories are damaged b. The estimated costs of completion or the estimated costs to sell have increased c. The inventories have become wholly or partially obsolete d. The selling prices have increased Answer: D 16. This costing method is appropriate for inventories that are segregated for a specific project and inventories that are not ordinarily interchangeable a. Specific identification b. Standard cost c. Relative sales price d. Net realizable value

Answer: A 17. The cost of inventory of a service provider include all of the following, except a. Labor and other costs of personnel directly engaged in providing the service b. Compensation of supervisor personnel directly engaged in providing the service c. Attributable overhead incurred in providing the service d. Profit margin factored into the price charged against the customer by the service provider Answer: D 18. The inventory of a service provider may simply be described as a. Work in process b. Unbilled services c. Billed services d. Services inventory Answer: A 19. When agricultural crops have been harvested or mineral ores have been extracted and a sale is assured under a forward contract or government guarantee, such inventories are measured at a. Net realizable value b. Cost c. Standard cost d. Relative sales price Answer: A 20. Commodities of broker-traders are measured at a. Fair value b. Fair value less cost to sell c. Cost d. Net realizable value Answer: B 21. Which of the following should not be taken into account when determining the cost of inventories? a. Storage costs of part-finished goods b. Trade discounts c. Recoverable purchase taxes d. Import duties on shipping of inventory inward Answer : C

22. How should prompt payment discount be dealt with when valuing inventories at the lower of cost and net realizable value? a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost Answer: B 23. How should sales staff commission be dealt with when valuing inventories at the lower of cost and net realizable value? a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost Answer: C 24. How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value a. Added to cost b. Ignored c. Deducted in arriving at NRV d. Deducted from cost Answer: D 25. The following statements relate to inventory. Which statements is true? I. Cost of factory management shall be included in the cost of inventory II. Maintenance expenses for an item of equipment used in the manufacturing process shall be included in the cost of inventory a. I only b. II only c. Both I and II d. Neither I nor II Answer: C 26. Which of the following inventory method reports most closely the current cost of inventory? a. FIFO b. Specific identification c. Weighted average d. LIFO Answer: A

27. Which inventory cost flow assumption would consistently result in the highest income in a period of sustained inflation? a. FIFO b. LIFO c. Weighed average d. Specific identification Answer: A 28. In a period of falling prices, the use of which inventory cost flow method would typically result in the highest cost of goods sold? a. FIFO b. LIFO c. Weighted average d. Specific identification Answer: A 29. Which inventory pricing method best approximates specific identification in the most manufacturing situations? a. Activity-based costing b. FIFO c. Average method d. LIFO Answer : B 30. In a period of rising prices, the inventory cost allocation method that tends to result in the lowest reported net income is a. LIFO b. FIFO c. Moving average d. Weighted average Answer: A 31. The specific identification method of inventory costing a. Eliminates all opportunity for profit manipulation b. Matches the flow of recorded costs with the physical flow of goods c. Can be used only with a perpetual inventory system d. Is a violation of GAAP Answer: B

32. The costing of inventory must be deferred until the end of the accounting period under which of the following method of inventory valuations? a. Moving average b. Weighted average c. LIFEO Perpetual d. FIFO Perpetual Answer: B 33. What is the method of accounting for inventories in which the cost of goods sold is recorded each time a sale is made? a. Professional inventory system b. Periodic inventory system c. Perpetual inventory system d. Planned inventory system Answer: C 34. An entity returned merchandise purchased on account, under a perpetual inventory system, the account credited in the journal entry to record the return is a. Purchases b. Purchase returns and allowances c. Inventory d. Accounts Payable Answer: C 35. Freight and other handling costs incurred in the transfer of goods from the consignor to consignee are a. Expense on the part of consignor b. Expense on the part of consignee c. Inventoriable by consignor d. Inventoriable by consignee Answer: C 36. During periods of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system would a. Not be permitted b. Result in a higher ending inventory than a periodic inventory c. Result in the same ending inventory as a periodic inventory d. Result in a lower ending inventory than a periodic inventory system Answer: C

37. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a. Trade discount b. Quantity discount c. Size discount d. Cash discount Answer: A 38. Which of the following terms represents the deduction from the invoice price of purchased goods granted by suppliers for early payment? a. Sales discount b. Purchase discount c. Trade discount d. Purchase return and allowances Answer: B 39. When determining the unit cost of an inventory item, which of the following should not be included a. Interest on loan obtained to purchase an item b. Commission paid when purchased c. Labor cost of the item when manufactured d. Depreciation of plant equipment used in manufacturing the item Answer A 40. Theoretically, cash discounts permitted on purchased raw materials should be a. Added to other income, whether taken or not b. Added to other income, only if taken c. Deducted from inventory, whether taken or not d. Deducted from inventory, only if taken Answer : C 41. When using the periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold? a. Trade discounts applicable to purchase during the period b. Cash discounts taken during the period c. Purchase returns and allowances of merchandise during the period d. Cost of transportation in for merchandise purchased during the period Answer: A 42. The use of a discount lost account implies that cost of a purchased inventory item is the

a. b. c. d.

Invoice price of an item List price of the item Invoice price less the purchase discount taken on the item Invoice price less the purchase discount allowable whether or not taken on the item

Answer: D 43. The valuation of inventory on a prime cost basis a. Would achieve the same results as direct costing b. Would exclude all overhead from reported inventory cost c. Is always achieved when standard costing is adopted d. Is always achieved when the LIFO cost flow assumption is adopted. Answer: B 44. Which of the following is not an acceptable basis for valuation of inventory in published financial statements? a. Historical cost b. Current replacement cost c. Prime cost d. Current selling price less cost of disposal Answer: C 45. When a portion of inventory has been pledged as security on a loan a. The value of the portion pledged should be subtracted from a debt b. An equal amount of retained earnings should be appropriated c. The fact should be disclosed but the amount of current assets should not be affected d. The cost of the pledged inventory should be transferred from the current to non-current assets. Answer C 46. The credit balance that arises when a net loss on a purchase commitment is recognized shall be a. Presented as a current liability b. Subtracted from ending inventory c. Presented as an appropriation of retained earnings d. Presented in the income statement Answer: A 47. An entitys inventory cost in its financial position was lower using FIFO than LIFO. Assuming no beginning inventory, what direction did the cost of purchases move during the period? a. Up b. Down

c. Steady d. Cannot be determined Answer: B 48. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed under the FIFO method exceeds cost of goods sold under the LIFO method? a. Prices decreased b. Prices remained unchanged c. Prices increased d. Price trend cannot be determined from information given Answer: A 49. When the current years ending inventory is overstated a. The current years cost of goods sold is overstated b. The current years total assets are understated c. The current years net income is overstated d. The next years income is overstated Answer: C 50. An overstatement of ending inventory in the current period would result in income of the next period being a. Overstated b. Understated c. Correctly stated d. The answer cannot be determined from the information given Answer: B