CFA - FSA Book 3 LM 5 & 6
Which of the following statements is least accurate regarding accelerated depreciation methods?
Accelerated depreciation methods depreciate an asset in proportion to its actual use.
Which of the following statements is incorrect?
Both IFRS and U.S. GAAP permit LIFO method
Which of the following costs related to the acquisition of a long-lived asset must generally be expensed in the United States?
Related research and development costs.
Relative to other industry players, which of the following BEST describes a firm reporting high sales growth and high inventory turnover?
The firm is efficient in managing its inventory.
Which of the following statements is most likely to be accurate regarding intangible assets?
Unidentifiable intangible assets have an indefinite life and could not be acquired separately.
A company has just bought a machine and wants to maximize the depreciation expense in the first year; they would consider:
Using an accelerated depreciation method.
Poole Broilers recently revised upward the residual value of a piece of machinery used in its largest factory. The most likely effect on Poole's financial statements is:
higher net income.
Fashion Jewels Inc. sells one of its machines for $1,200,000. The machine has a carrying amount of $1,800,000. The machine was impaired by $500,000 in an earlier year. The gain or loss on the sale of the machine is closest to a:
loss of $600,000.
Trina Hopkinton, an analyst for Corby Optical, is studying the income statement effect of two alternative depreciation methods for a piece of equipment it just purchased. The equipment has four years of useful life. Compared with the straight-line method of depreciation, if the company uses the double-declining balance (DDB) method, its tax payments in year one will be:
lower.
QuarterUnits Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory153045011530450212354203202550043020600Total922,420 Given that Tiara sold 10, 12, 15, and 20 units in the four quarters respectively, answer the following questions: Ending inventory if the company uses LIFO cost flow assumption is closest to:
$1,075
Houston Data Processing is computing the amortization of an intangible asset, acquired January 2011, for the fiscal year ended 31 December 2012. The acquisition cost of the asset is $6,000,000 and the residual value is expected to be $500,000 on 31 December 2014. If the company uses the double-declining method, the amortization expense during fiscal year 2012 is closest to:
$1,500,000
Solid Company had 10,500 units of books on hand at January 1, costing $35 each. The following information relates to purchases in the month of January: January 9: 15,000 @ $32 January 16: 23,000 @ $37 January 27: 18,000 @ $35 The company conducted a physical count on January 31, which showed 20,000 units of books on hand. Assuming FIFO method, what is the cost of goods sold?
$1,624,500
A company using US generally accepted accounting principles (GAAP) is a producer of coffee and provides the following financial data: $ million20152016Inventories (year-end)185205COGS1,5601,750 The company uses FIFO for inventory accounting. Assuming that the major constituent of inventory is coffee, and coffee prices rose by 30% over the period, the COGS under LIFO in 2016 is approximately:
$1,805.5 million.
Eddie is in the business of selling musical instruments. Information concerning his inventory are as follows: GuitarHarpViolinHistorical cost$785,000$802,000$405,000Selling price$1,200,000$1,350,000$1,570,000Estimated cost to complete$310,000$406,000$1,200,000Replacement cost$885,000$800,000$505,000Normal profit margin25%25%10% Assuming Eddie follows IFRS, how much should he report as his work-in-process inventory?
$1,957,000
Alpha Mining Co. purchased a machine for crushing rocks for $80,000. The machine has a useful life of 8 years and an estimated salvage value of $8,000. In order to maintain the machine, the company will need to replace one of its component parts every 3 years. This part costs $6,000 and is considered to be a significant component. The amount of depreciation expense the company should recognize in Year 2 if it uses the component method of depreciation is closest to:
$10,250
Alpha Mining Co. purchased a machine for crushing rocks for $80,000. The machine has a useful life of 8 years and an estimated salvage value of $8,000. In order to maintain the machine, the company will need to replace one of its component parts every 3 years. This part costs $6,000 and is considered to be a significant component. Given that the company replaced the part at the end of Year 3, the amount of depreciation expense it should recognize in Year 4 if it does not use the component method is closest to:
$11,000
Sun Corporation is a manufacturer of a single product. The following information relates to its production levels and costs for 2009: Number of units produced = 7.5 million Cost of raw materials = $24 million Direct labor conversion costs = $52 million Production overheads = $18 million Freight-in charges = $3.4 million Storage costs of finished goods = $980,000 Abnormal wastage = $37,000 Given that there is no work-in-progress inventory at the end of the year, the company's capitalized cost per unit of inventory is closest to:
$12.99
At the end of 2008, Mega Constructors purchases a piece of machinery for $1.2 million. The company uses the straight-line method of depreciation and estimates that the machinery will have a useful life of 8 years and zero salvage value at the end of its useful life. At the end of 2010, the company estimates that the expected future cash flows from the machine will amount to $700,000 (present value equals $680,000). It further estimates that the fair value of the machine is $720,000 and selling costs will amount to $25,000. Given that the company uses U.S. GAAP for financial reporting purposes, the amount of impairment loss it will recognize on its income statement is closest to:
$180,000
Rusty Inc. manufactures watches. The following information was obtained from the company's production and cost records last year: Units produced: 10,000 Freight-in to factory: $22,600 Raw materials used: $105,000 Conversion cost: $124,000 Storage cost for finished goods: $8,000 Abnormal wastage: $750 Freight-out to customers: $32,600 What is the cost per unit?
$25.16
Tatum Incorporated manufactures wooden toys. It prepares its financial statements in accordance with IFRS. The CFO notes that in addition to the standard purchase and conversion costs of $2.3 million, the following inventory costs must be allocated either to inventory or expensed in the current period. Costs for climate controlled storage units necessary for specialty wood materials of $160,000; Transportation costs to priority and international customers of $250,000; Taxes and import duties of $275,000. What amount will the CFO most likely expense in the current period rather than include in product costs?
$250,000
Red Inc. uses the LIFO cost flow assumption to value inventory. For the year 2009, it reported the following information in its financial statements: Revenue = $12.5 million Cost of goods sold = $5.1 million Other expenses = $2.5 million Interest expenses = $1.6 million Taxes paid = $0.98 million Beginning inventory = $17.3 million Ending inventory = $13.4 million Beginning LIFO reserve = $0.73 million Ending LIFO reserve = $0.87 million Tax rate = 35% The change in deferred tax liabilities if Red Inc. used the FIFO cost flow assumption would be closest to:
$304,500
QuarterUnits Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory152436012515375222183963182036042022440Total1001,931 Given that Magna sold 12, 24, 24, and 26 units in the four quarters respectively, answer the following questions: Given that the company uses FIFO, ending inventory under the periodic system is closest to:
$308
Drums Inc., following IFRS, sells jewelry. The following pertains to cost information regarding the company's inventory (amounts are per unit): Original purchase cost: $35,000 Normal profit margin: $10,200 Replacement cost: $25,890 Net realizable value: $39,870 The value of inventory per unit Drums will use will be closest to:
$35,000.
QuarterUnits Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory152436012515375222183963182036042022440Total1001,931 Given that Magna sold 12, 24, 24, and 26 units in the four quarters respectively, answer the following questions: Given that the company uses FIFO, ending inventory for the third quarter under the perpetual system is closest to:
$396
Life Corp. incurred the following costs related to its inventory: Purchase price:$3,500Irrecoverable purchase taxes:$750Insurance on shipment:$160Storage costs of inventory:$320 What is the total cost that Life should capitalize to inventory?
$4,410
An analyst is examining the possible impairment of equipment at Mole Valley Knitting, a firm that follows GAAP. She gathers the following information about the equipment: Selling costs$250,000Present value of expected future cash$4,000,000Undiscounted expected future cash$6,000,000Carrying amount$5,500,000 What should the analyst report for the equipment's carrying cost?
$5,500,000.
QuarterUnits Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory172847612024480218264683252050042023460Total1002,384 Given that the company uses LIFO cost flow assumption and sells 22, 16, 26, and 14 units in the four quarters respectively, answer the following questions: Cost of goods sold for the third quarter under the perpetual system is closest to:
$526
Mars Technologies uses the LIFO cost flow assumption to value inventory. For the year 2009, it reported the following information in its financial statements: Revenue = $850,000 Cost of goods sold = $370,000 Other expenses = $120,000 Interest expenses = $33,000 Taxes paid = $24,000 Beginning inventory = $1,200,000 Ending inventory = $1,310,000 Beginning LIFO reserve = $570,000 Ending LIFO reserve = $720,000 Ending retained earnings = $120,000 Tax rate = 40% Retained earnings if Mars Technologies used the FIFO cost flow assumption would be closest to:
$552,000
The finance department of Dromey Canning is calculating the amortization expense for a franchise, an intangible asset. The department collects the following information on the franchise: Acquisition cost$56,000,000Acquisition date1 January 2008Franchise expiration date31 December 2015 If Dromey chooses the straight-line method, the annual expense will be closest to:
$7,000,000
Star Manufacturers uses the LIFO method for inventory valuation. For the year ended 2009, it reported the following information in its financial statements: Beginning inventory = $57,000 Ending inventory = $78,000 2008 cost of goods sold = $62,000 2009 cost of goods sold = $87,000 Ending LIFO reserve = $7,300 Beginning LIFO reserve = $5,200 Star Manufacturers' ending inventory if it used the FIFO method for inventory valuation would be closest to:
$85,300
The following are excerpts from the annual report for the year ended December 31, 2010 of Jeremy Associates, which is headquartered in the United States. Excerpt from the Consolidated Income StatementFor the Year Ended December 31, 2010 ($ Millions)Note20102009Sales138,97529,649Cost of sales2−15,590−11,860Gross profit423,38517,789Operating expenses5−7,180−5,452Impairment losses9−7,100-Operating profit/loss69,10512,337Interest expense11−1,600−1,225Income before taxes127,50511,112Income tax expense13−1,285−1,864Profit/loss for the financial year from continuing operations146,2209,248Profit/loss for the financial year attributable to:
12.12%
The following information relates to the transactions concerning Houston Corporation in its first year: TransactionUnits23-JanPurchase3,200 @ 6.0027-FebSale2,350 @ 13.003-MarPurchase950 @ 6.5015-AprSale720 @ 13.003-AugPurchase580 @ 8.0020-SepSale390 @ 15.007-OctPurchase1,930 @ 7.5030-NovSale1,890 @ 15.00 Assuming periodic FIFO cost flow assumption, how much is Houston Corporation's gross profit?
39,445
Stamp Inc. has a beginning inventory of 100 units @ $15.00 per unit. The following information further relates to its transactions concerning Houston Corporation in its first year: TransactionUnits2-JanPurchase100 @ 20.008-JanSale115 @ 50.0023-JanPurchase75 @ 25.0029-JanSale130 @ 50.00 Assuming Houston uses the periodic FIFO costing method assumption, what amount should Houston report as cost of goods sold?
4,625
Stamp Inc. has a beginning inventory of 100 units @ $15.00 per unit. The following information further relates to the transactions concerning Houston Corporation in its first year: TransactionUnits2-JanPurchase100 @ 20.008-JanSale115 @ 50.0023-JanPurchase75 @ 25.0029-JanSale130 @ 50.00 Assuming Houston uses the periodic LIFO costing method assumption, what amount should Houston report as cost of goods sold?
4,925
Which of the following is the least likely treatment of an asset under U.S. GAAP?
A loss of $100 is recognized when the fair value of the equipment falls from $250 to $150.
In a period of rising prices and stable inventory quantities, which of the following is most likely?
Activity ratios are lower under FIFO.
All of the following costs are capitalizable to inventory except:
Administrative overhead
Units Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory1524360Quarter 12515375Quarter 22218396Quarter 31820360Quarter 42022440Total1001,931 Magna sold 12, 24, 24, and 26 units in the four quarters respectively. Consider the following statements: Statement 1: Given that the company uses the perpetual system, it would report lower cost of goods sold under the LIFO cost flow assumption for the first quarter than it would under the FIFO cost flow assumption. Statement 2: Given that the company uses the periodic system, it would report lower ending inventory at the end of the year under the FIFO cost flow assumption than it would under the LIFO cost flow assumption. Which of the following is most accurate regarding the two statements?
Both statements are correct.
Which of the following statements is most likely regarding the effects of capitalization on a company's financial statements?
Capitalization reduces the company's reported total asset turnover.
A company who buys a patent and a copyright from another party should:
Capitalize the cost of both purchases.
An analyst obtains the following information about the assets of two companies, both of which follow U.S. GAAP for financial reporting purposes. Alpha Inc. owns a piece of equipment that has a carrying value of $5,200. The company estimates that the total expected future cash flows from this piece of equipment would amount to $4,200 (present value equals $3,800). The company estimates that the fair value of the asset is $5,000 and selling costs would amount to $500. Beta Inc. owns a piece of equipment that has a carrying value of $6,600. The company estimates that the total expected future cash flows from this piece of equipment would amount to $6,700 (present value equals $6,400). The company estimates that the fair value of the asset is $6,300 and selling costs would amount to $400. The impairment loss will most likely reduce Alpha Inc.'s:
Carrying value of the equipment to $5,000.
The decision to use perpetual versus periodic accounting methods for inventory is most likely to change the cost of sales using which method?
LIFO.
In periods of falling prices, a company that prepares financial statements as per IFRS reports a lower cost of goods sold than it would have reported using FIFO valuation method. It can be safely assumed that the company is least likely using:
Last-in, first-out.
If software development costs incurred in the current period exceed amortization of prior periods' capitalized development costs, net income for the current period would most likely be:
Lower under expensing.
How do interest on an inventory loan, production warehousing costs, and maintenance of production equipment affect the cost of inventory, respectively?
No effect, increase, increase
The owner of SummerFun Shops is concerned she will not have enough supply to fill the upcoming summer demand until her next shipment of inventory. Which of the following ratios is the owner most likely to use to determine if she will have enough inventory?
Number of days of inventory on hand.
On the eve of October 31, 2018, the inventory stored in the warehouse of Rivers Company was flooded and damaged. The company's books, before the flood, disclosed the following: January 1 Inventory Balance: P15,600 Net Purchases since the beginning of the year: P176,090 COGS since the beginning of the year: P120,000 Inventory costed at P10,800 was undamaged. Damaged inventory had a net realizable value of P300. How much should be reported as inventory loss as a result of the flood?
P60,590
Pineapple Company incurred the following costs during the current year (amounts in Php). Troubleshooting in connection with breakdowns during commercial production: 450,000 Modification for the formulation of a chemical product: 405,000 Design of tools, jigs, molds, and dies involving new technology: 510,000 Seasonal or other periodic design changes to existing products: 645,000 Laboratory research aimed at discovery of new technology: 555,000 Under IFRS, how much should be reported as research and development expense in profit or loss in the current year?
Php 1,470,000
Bicycle Inc. acquired Unicycle Inc. As a result of this, Bicycle reported the following intangible assets: Franchise, expiring in 8 years, renewable indefinitely at minimal cost: Php 8,700,000 Patent, expiring in 12 years: Php 3,600,000 Trademark, expected to be sold at the end of 20 years for Php 80,000: Php 800,000 Goodwill: Php 467,000 Assuming the company uses straight-line amortization, compute the total carrying value of Bicycle's intangible assets reported on the balance sheet as of the end of year 1.
Php 13,231,000.00
Frankenstein Company, following the IFRS, owns machinery. Information related to this asset is as follows: Original cost: Php 2,000,000 Accumulated depreciation: Php 200,000 Expected future cash flows: Php 1,800,000 Fair value: Php 1,600,000 Value in use: Php 1,570,000 Costs to sell: Php 70,000 Assuming Frankenstein Company will continue to use the equipment, what should be reported as impairment loss?
Php 230,000
On July 1, 2014, Crow Company purchased a Php4,800,000 tract of land for a warehouse site. Additional costs incurred in relation to the said asset were as follows: Cost of razing old building: Php 236,000 Legal fees for purchase contract: Php 178,000 Title guarantee insurance: Php 89,000 Cost of constructing warehouse: Php 2,790,000 Architect fee: Php 180,000 The amount to be reported as Land should be:
Php 5,303,000
Which of the following is the least accurate treatment under US GAAP?
Research and development costs are capitalized.
Under IFRS the treatment of research and development costs, when they arise from internal spending, is:
Research costs are normally expensed and development costs can be capitalized.
If a firm decides to capitalize rather than expense the cost of assets this will mean: Return on AssetsLong Term Return on AssetsA.Less volatileLowerB.Less volatileHigherC.More volatileLower
Row A
Global Traders purchases a piece of equipment for $1.5 million and incurs the following expenses: Freight charges = $250,000 Installation charges = $25,000 Cost of training machine maintenance staff = $12,000 Cost of strengthening the factory floor = $5,500 Cost of painting factory walls = $7,000 The amounts capitalized and expensed by the company are closest to: Balance Sheet ($)Income Statement ($)A1,775,00024,500B1,780,50019,000C1,792,5007,000
Row B
Supernova Inc., a truck manufacturing company, changes its inventory valuation method from FIFO to LIFO due to a decrease in the price of the raw materials by 10% for the past two years. Which of the following is the most likely impact of this decision? HighLowA.Cost of goods soldReturn on equityB.Net incomeInventory turnoverC.Inventory turnoverCurrent ratio
Row B
Top Radios Inc. provided the following data regarding its radio purchases and sales over last year: January 1Beginning inventory of 1,000 radios at a cost of $300 eachMarch 1Purchase of 1,000 radios at a cost of $320 eachJuly 1Purchase of 500 radios at a cost of $325 eachDecember 31Ending inventory of 1,200 radios The reported value of inventory using LIFO (periodic method) and FIFO respectively at December 31 was: LIFOFIFOA.$364,000$375,600B.$364,000$386,500C.$386,500$364,000
Row B
Which of the following is the most likely impact on the cash flows of a company? TransactionImpact on cash flowA.Increase in depreciation.Decrease in cash flow from investing.B.Decrease in accounts payable.Decrease in cash flow from operations.C.Increase in accounts receivable.Decrease in cash flow from financing.
Row B
XYZ Corp is a mining company. During the year 2008, it wrote down its inventory by $20,500 to $400,000. In 2009, the fair value of its inventory rose to $450,000. The value of inventory recognized by XYZ at the end of 2009 under IFRS and U.S. GAAP is closest to: IFRSU.S. GAAPA.$420,500$400,000B.$450,000$450,000C.$450,000$420,500
Row B
A company purchased an asset at the end of 2008. Its purchase price and the fair values at the end of 2009 and 2010 are given below: AssetPurchase Price ($)Fair value at the end of 2009 ($)Fair Value at the End of 2010 ($)A37,50041,10035,400 Given that the company follows the revaluation model to report the asset, answer the following questions: The revaluation-related entry on the company's income statement and revaluation surplus at the end of 2009 is closest to: Income Statement ($)Revaluation Surplus ($)A041,100B−5,7003,600C03,600
Row C
Magnus Corp is planning to expand the company's overseas operations. It starts construction of a factory in Elantica and obtains a loan of $25 million at an interest rate of 7.5%. The company's directors estimate that the factory will be completed in 5 years. During the construction period, the company invests the borrowed funds in money market instruments and earns $135,000. The amount of interest cost that would be capitalized under U.S. GAAP and IFRS is closest to: U.S. GAAP($)IFRS ($)A937,500924,000B1,875,0001,740,000C9,375,0009,240,000
Row C
The following information relates to Jaunt Products Inc. for the year ended 2012: Cost of raw materials$ 8,000,000Direct labor costs11,000,000Production overhead costs3,000,000Selling costs500,000Import taxes800,000Abnormal costs150,000Finished goods storage costs400,000 Jaunt Products does not have any work-in-progress inventory at the year-end. What costs should be included in inventory as per IFRS and U.S. GAAP? IFRSU.S.GAAPA.$23,300,000$22,800,000B.$22,000,000$22,000,000C.$22,800,000$22,800,000
Row C
Given stable inventory quantities and falling prices, use of FIFO will most likely:
Understate profits.
Fly High Corporation has exchanged one of its machines for another long-lived asset. The asset acquired is least likely recorded at the:
book value of the asset acquired.
Under IFRS, if an item is acquired in a business combination and cannot be recognized as a tangible or identifiable intangible asset, it is most likely:
goodwill.
Under U.S. GAAP, an asset's carrying amount is considered recoverable if the carrying amount:
is less than the undiscounted expected future cash flows.
If a company uses the FIFO inventory valuation method, as opposed to the LIFO method, during a period of falling prices, it will most likely have lower:
number of days of inventory.
Under GAAP, firms are least likely to disclose:
reversals of impairment losses.
If a firm owns investment property, it is least likely that:
the firm can use the cost model but not the fair value model under IFRS.
If a company owns investment property and uses the cost model, then:
under IFRS, treatment of this investment property is identical to the cost model for plant, property and equipment.
With respect to inventory, U.S. GAAP rules do not allow the:
value of assets to be written up.
The following information relates to Rhea Supply Inc.: 20142013Revenue$1,200,000$1,150,000Gross profit420,000460,300Net profit250,000235,000Average inventory60,000 units62,700 units Based solely on the given information, it is least likely that Rhea Supply:
was holding slow-moving or obsolete inventory in 2014.
BCI Limited adheres to IFRS. The company has inventory at a cost of €18.5 million; however, the net realizable value of the inventory based on recent market transactions is €19.5 million. The current replacement cost of the inventory is €19.3 million. BCI limited is an agricultural company, what amount is it most likely to record for inventory?
€19.5
Which of the following statements is most accurate? Under IFRS:
A reversal in the write-down of inventory values is permitted.
A company purchases an asset and then at the next valuation date finds the fair value has increased. Under the revaluation model for the reporting of long-lived assets the company will report the gain as:
A revaluation surplus.
The following information pertains to Argyl Exports' (AE) first year of operations: AE purchased widgets for resale on a quarterly basis; the cost of the widgets steadily declined throughout the year; sales occurred each month of the year; price per unit remained stable; at the end of each quarter there was always a remaining inventory balance. Which of the following will most likely be higher if Argyl uses the LIFO method and a perpetual inventory system, rather than a periodic inventory system?
Cost of sales.
Companies A, B, and C are new entrants in the same industry competing against one another. Details of their purchases and inventory valuation methods are listed below. Units Purchased QuarterlyInventory Valuation Method UsedCompany A30,000FIFOCompany B10,000Weighted average cost methodCompany C16,000LIFO If industry supply prices steadily increased throughout the year, which company will most likely calculate the same value for ending inventory whether they use a periodic or perpetual inventory system?
Company A.
Under US GAAP, capitalized interest cost:
Decreases cash flow from investing activities
Amortization of an intangible asset most likely:
Decreases retained earnings.
Away Inc. is operating in a period of rapidly changing prices. Which inventory method provides the most useful measure of balance sheet?
FIFO method
In which of the following inventory valuation methods will cost of sales and ending inventory be the same, irrespective of whether the perpetual or periodic inventory accounting system is used?
First-in, first-out (FIFO).
A pharmaceutical company that grows through an active acquisition policy, compared to a company that has grown organically, will usually report:
Higher amortization expenses.
If a firm decides to capitalize rather than expense the cost of assets this will lead to:
Higher cash flow from operations.
QuarterUnits Held/PurchasedUnit Cost ($)Total Cost ($)Opening Inventory152436012515375222183963182036042022440Total1001,931 Given that Magna sold 12, 24, 24, and 26 units in the four quarters respectively, answer the following questions: Given that the company uses the perpetual system and FIFO, which of the following statements is most accurate? The company would report:
Higher cost of goods sold for the year than it would report under the LIFO cost flow assumption.
A company that expenses a cost least likely reports:
Higher return on equity in the first year compared to a company that capitalizes the cost.
Top Radios Inc. provided the following data regarding its radio purchases and sales over last year. January 1Beginning inventory of 1,000 radios at a cost of $300 eachMarch 1Purchase of 1,000 radios at a cost of $320 eachJuly 1Purchase of 500 radios at a cost of $325 eachDecember 31Ending inventory of 1,200 radios The COGS for Top Radios Inc. was:
Higher under LIFO than using the weighted-average cost method.
Which of the following is true concerning the revaluation model?
IFRS allows the use of the cost model for some classes of assets and the revaluation model for others.
A US company changes from reporting inventory under LIFO to reporting under FIFO and inventory balances recorded on the balance sheet increase significantly. Which of the following statements is most accurate?
Inventory balances are closer to current value.
How many of the following statements are incorrect about the effects of changing inventory assumption under U.S. GAAP? Statement 1: When a firm changes to LIFO from another cost-flow method, the change is applied prospectively with no adjustments to prior periods. Statement 2: In most cases, a change in inventory method entails retrospective changes in the financial statements. Statement 3: A change in inventory method entails an adjustment to the beginning balance of retained earnings of the current year bearing the cumulative effect of the stated change.
One
Given stable inventory quantities and falling prices, use of LIFO will least likely:
Overstate net income.
Serious Company conducted its year-end physical inventory count which resulted to an amount of P1,820,000. Further information is as follows: Merchandise costing P456,000, shipped to Serious Company FOB shipping point by Italy Company on December 31, 2015, was scheduled to arrive on January 6, 2016. Merchandise costing P260,000 was sent out on consignment to Spain Company on December 22, 2015. Seventy-five percent of all the goods sent out remain unsold at December 31, 2015. A cost of P20,000 was incurred in delivering the goods to Spain Company. The goods sent out were marked to sell at P450,000 Merchandise costing P45,000 was shipped by Serious Company FOB location to London Company on December 27, 2015. London Company was scheduled to receive the merchandise on January 3, 2016. Merchandise costing P60,000 included in the count was identified as goods under consignment from Portugal Company. How much should Serious report as inventory on its year-end 2015 balance sheet?
P2,471,000
Buckle Company is considering different depreciation methods that could be applied to its factory equipment. Depreciation expenses for five years using different methods are presented below: YearStraight-LineDouble-DecliningSum-of-the-Years' Digit170,000160,000116,667270,00096,00093,333370,00057,60070,000470,00034,56046,667570,0001,84023,333 How much is the cost of the machine?
P400,000
Impressed Inc. sold a piece of equipment on January 1, 2016 for P1,200,000. The equipment was purchased on January 1, 2013, for P1,500,000. The equipment was depreciated using the straight-line method over 10 years, with a salvage value of P300,000. How much should be reported as the gain/ loss on sale of the equipment?
P60,000 gain
Assuming a period of inflationary environment, which of the following ratios is least likely to be lower under the LIFO method in comparison to the FIFO method?
Solvency ratios.
Which of the following statements concerning patents in the United States is most accurate?
The acquisition costs of buying patents from outside entities can be capitalized.
Which of the following disclosures relating to inventories is least likely required under US GAAP?
The amount of reversal recognized on any previous write-down.
Under US generally accepted accounting principles (GAAP), impairment of an asset must be recognized in a firm's accounts when:
The carrying value of the asset is higher than the expected future cash flows from the use of the asset plus its disposal value.
The average age of Manufacturers Corporation's machinery is lower than other companies in the same industry. Which of the following is the least likely to explain this?
The company has just made major write-downs of impaired assets.
In a period of falling prices and stable inventory quantities, which of the following is least likely?
The debt-to-equity ratio is higher under LIFO.
Alpha Mining Co. purchased a machine for crushing rocks for $80,000. The machine has a useful life of 8 years and an estimated salvage value of $8,000. In order to maintain the machine, the company will need to replace one of its component parts every 3 years. This part costs $6,000 and is considered to be a significant component. Given that the part is replaced every 3 years for $6,000, total depreciation expense over the 8-year period if the company does not use the component method will most likely be:
The same as if the company uses the component method.
