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Exam 8: Valuation of Inventories: a Cost-Basis Approach

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Question 81

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Which of the following is not considered an advantage of LIFO when prices are rising?

A) The inventory will be overstated.
B) The more recent costs are matched against current revenues.
C) There will be a deferral of income tax.
D) A company's future reported earnings will not be affected substantially by future price declines.

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Question 82

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Under IFRS, an entity should initially recognize inventory when

A) it has control of the inventory
B) it expects it to provide future economic benefits
C) the cost of the inventory can be reliably measured
D) All of these choices are correct

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Question 83

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Use the following information for questions 125 through 127. Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2013. Its inventory at that date was $550,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows: -What is the cost of the ending inventory at December 31, 2015 under dollar-value LIFO?

In the double-extension method, the value of the units in inventory is extended at:

With respect to accounting for inventories, which of the following is a difference that exists for IFRS, as opposed to U.S. GAAP?

Accounting for purchase discounts. Otto Corp. purchased merchandise during 2014 on credit for $500,000; terms 2/10, n/30. All of the gross liability except $80,000 was paid within the discount period. The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2014, 90% of the merchandise had been sold and 10% remained in inventory. The company uses a periodic system. Instructions (a) Assuming that the net method is used for recording purchases, prepare the entries for the purchase and two subsequent payments. (b) What dollar amounts should be reported for the final inventory and cost of goods sold under the (1) net method; (2) gross method? Assume that there was no beginning inventory.

The cost flow assumption adopted must be consistent with the physical movement of the goods.

Use the following information for questions 92 through 94. Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014 contained errors as follows: -Assume that the proper correcting entries were made at December 31, 2014. By how much will 2015 income before taxes be overstated or understated?

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

Which of the following statements is true about specific-goods pooled LIFO approach?

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

Use the following information for questions 35 and 36. During 2014 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2015. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2015 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. -On whose books should the cost of the inventory appear at the December 31, 2014 balance sheet date?

Under IFRS, inventories are classified as

Bell Inc. took a physical inventory at the end of the year and determined that $830,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped F.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

Both merchandising and manufacturing companies normally have multiple inventory accounts.

All of the following costs should be charged against revenue in the period in which costs are incurred except for

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

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

The accountant for the Pryor Sales Company is preparing the income statement for 2014 and the balance sheet at December 31, 2014. Pryor uses the periodic inventory system. The January 1, 2014 merchandise inventory balance will appear