FR Test bank 7

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17 The amount assigned to cost of sales versus inventory value is least likely impacted by which of the following? A) Inventory valuation method. B) Increasing prices. C) Type of good.

C) Type of good.

48 Which of the following is least likely to be a financial statement disclosure required by IFRS concerning inventory? A) The carrying amount of inventory at fair value plus costs to sell. B) The carrying amount in classifications of inventory such as work in progress, finished goods, etc. C) The circumstances that led to the reversal of a write down of inventories.

A) The carrying amount of inventory at fair value plus costs to sell.

The purchase price of inventories will most likely increase due to which of the following? A) Transport and handling costs. B) Trade discounts. C) Rebates.

A) Transport and handling costs.

39 Nathan Scott is an accountant at Dan Motors Limited. The company prepares its accounts in accordance with IFRS. The inventory cost at year end is USD 29,000, while the estimated selling price is USD34,000. If the costs necessary to make the inventory worthy of being sold are USD6,000 the inventory recorded will be closest to: A) USD28,000. B) USD29,000. C) USD34,000.

A) USD28,000.

29 Amerco Inc. uses the LIFO method and Britco Ltd. uses the FIFO method. During periods of falling prices, compared to the cost of replacing of the inventory, the cost of goods sold reported by: A) Britco is too high. B) Amerco is too high. C) Amerco is too low.

A) Britco is too high.

35 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, which of the following ratios computed as of 31 December 2015 would most likely have been lower? A) Cash ratio. B) Current ratio. C) Gross profit margin.

A) Cash ratio.

50 A company decides to change its inventory method from FIFO to the weighted average cost method. If the inventory prices are decreasing during this period, which of the following financial ratios will most likely decrease as a result of this change? A) Debt-to-equity. B) Current. C) Number of days in inventory.

A) Debt-to-equity.

1 A company values its ending inventory using the costs of its recent purchases. Which of the following inventory valuation methods is the company most likely using ? A) FIFO B) LIFO C) Specific Identification

A) FIFO

1 In an environment of rising inventory unit costs, which of the following methods is most likely to report the highest amount of ending inventory? A) FIFO B) LIFO. C) Weighted average cost.

A) FIFO

24 A company switches from periodic inventory system to perpetual inventory system. The cost of sales and ending inventory will be the same if the company has been following which of these inventory valuation methods ? A) FIFO B) LIFO C) Weighted average cost

A) FIFO

27 Company ABC operates in an environment of declining prices. Its reported profits will tend to be the lowest if it accounts for inventory using the: A) FIFO method. B) LIFO method. C) weighted average cost method.

A) FIFO method.

Anc Corp. reports under IFRS. Which of the following inventory valuation methods is the company least likely to use? A) LIFO B) Specific Identification C) Weighted average cost

A) LIFO

19 Which of the following methods requires a separate purchases account? A) Periodic inventory system. B) Perpetual inventory system. C) Specific identification valuation method.

A) Periodic inventory system.

22 Which inventory valuation method records purchases and sales of goods in inventory as they occur? A) Perpetual inventory system. B) Periodic inventory system. C) Specific identification method.

A) Perpetual inventory system.

41 Which of the following statements is most accurate? A) Reversal of a write-down limited to the amount of original write-down is permitted under US GAAP. B) Reversal of a write-down is permitted only under IFRS and limited to the amount of original write-down. C) Reversal of a write-down is permitted under both IFRS and US GAAP but the amount of reversal varies for both standards.

A) Reversal of a write-down limited to the amount of original write-down is permitted under US GAAP.

33 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, its reported net income for the year ended 31 December 2015 would have been higher by an amount closet to: A) USD3 million. B) USD3.8 million. C) USD15.5 million.

A) USD3 million.

1 Swan Brothers Limited uses weighted average cost as the inventory valuation method. The following table shows their purchases and sales for the first two quarters of cotton bales. What is the cost of ending inventory? A) USD33,060. B) USD36,250. C)USD39,750.

A) USD33,060.

42 A kitchen appliance store prepares its financial statements in accordance with IFRS. The store has 500 mixer- grinders in its inventory. Each unit is sold at a price of USD150. The store paid on an average of USD140 per unit to the manufacturer of the appliance. Sale of appliances has been slow in recent months. The store estimates it can sell each mixer-grinder for USD130 if it announces a sale for a limited period along with free shipping at the cost of USD5 per mixer-grinder. The manufacturer has also lowered the price to USD100 because of the low demand. The total carrying amount of the 500 mixer-grinders on the store's balance sheet would be closest to: A) USD62,500. B) USD65,000. C) USD70,000.

A) USD62,500.

51 A high inventory turnover ratio and low number of days of inventory on hand indicates: A) effective inventory management. B) inadequate amount of inventory. C) obsolete inventory.

A) effective inventory management.

37 LIFO liquidation is most likely to occur when the number of units sold in a year: A) is higher than the number of units produced. B) is lower than the number of units produced. C) is equal to the number of units produced.

A) is higher than the number of units produced.

38 If inventory unit costs have generally risen from year to year, a LIFO liquidation will most likely: A) produce an inventory related increase in gross profits. B) produce an inventory related decrease in gross profits. C) have no impact on gross profits.

A) produce an inventory related increase in gross profits.

A company incurs the followings costs related to its inventory during the year: The amount charged to inventory cost (in millions) is closest to: A) ¥264,000. B) ¥266,000. C) ¥273,000.

A) ¥264,000.

Kevin Corporation Limited prepares its financial statements in accordance with IFRS. The inventory related costs incurred during the year include the following: The total inventory cost recorded is closest to: A) USD102,000. B) USD106,000. C) USD112,000.

B) USD106,000.

Which of the following is least likely to reduce the purchase price of inventories? A) Rebates. B) Tax related duties. C) Trade discounts.

B) Tax related duties.

43 Following information is available for a manufacturing company: Cost of ending inventory computed using FIFO USD2.5 million Net realizable value USD2.3 million Current replacement cost USD2.1 million If the company uses IFRS instead of U.S. GAAP its cost of goods sold (USD millions) is most likely: A) the same. B) 0.2 lower. C) 0.2 higher.

B) 0.2 lower.

A company manufactures copper wires and prepares its financial statements in accordance with IFRS. During its latest full fiscal year, the company recorded the following data: The total costs included in inventory (in €) for the year are closest to: A) 205,000. B) 211,000. C) 216,000

B) 211,000

26 A company decides to change its inventory method from FIFO to the weighted average cost method. Assuming that the change happens during a period of rising inventory costs, which of the following will most likely increase as a result of this change? A) Current ratio. B) Debt-to-equity. C) Number of days in inventory.

B) Debt-to-equity.

44 Reversal of prior-year inventory write-downs are most likely permitted under: A) U.S. GAAP only. B) IFRS only. C) U.S. GAAP and IFRS.

B) IFRS only.

14 Which of the following inventory valuation methods is not permitted under IFRS? A) FIFO. B) LIFO. C) Weighted average cost.

B) LIFO.

Goods that are not ordinarily interchangeable and are likely to be segregated are most likely valued using the: A) First in first out method. B) Specific identification method. C) Weighted average cost method.

B) Specific identification method.

34 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, its retained earnings as of 31 December 2015 would have been higher by an amount closest to: A) USD11.7 million. B) USD12.4 million. C) USD15.5 million.

B) USD12.4 million.

32 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, the amount of cost of goods sold reported by it for the year ended 31 December 2015 would have been closest to: A) USD205.6 million. B) USD217.3 million. C) USD224.9 million.

B) USD217.3 million.

25 The information on a company's inventory is given below: Using a periodic inventory system and the weighted average method, the ending inventory value is closest to: A) USD22,633. B) USD23,023. C) USD23,800.

B) USD23,023.

13 Calvin Clients Limited reports its inventory and cost of goods sold using the LIFO valuation method. The following table shows the details of purchases and sales for the year 2010. Assume that in each month, the purchases happen at the start of the month and sales happen at the end of the month. What is the cost of goods sold for the company? A) USD19,625 B) USD29,850 C) USD37,850

B) USD29,850

16 Jackson Enterprises uses the FIFO inventory valuation method. The company bought 400 generators at a price of USD300 each on January 5, 2012. 300 of these generators were sold off at a price of USD450 each by the end of March, 2012. On April 10, 2012, 250 more generators were bought at a price of USD325 each. By May 31, 2012, 225 generators were further sold off at a price of USD500 each. What would be the inventory value on June 1, 2012 for the company? A) USD38,125 B) USD40,625 C) USD62,500

B) USD40,625

46 A company which prepares its financial statements using IFRS wrote down its inventory value by €40,000 in 2011. In 2012, prices increased and the same inventory was worth €50,000 more than its value at the end of 2011. Which of the following statements is most accurate? In 2012, the company's cost of sales: A) was unaffected. B) decreased by €40,000. C) decreased by €50,000.

B) decreased by €40,000.

36 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, its debt to equity ratio computed as of 31 December 2015 would have: A) increased. B) decreased. C) remained unchanged.

B) decreased.

21 Selected data from IMC Company that uses the FIFO inventory method is provided below: Units USD/Unit Total (USD) Opening inventory 2,000 10.0 20,000 Purchase 500 10.5 5,250 Sales 1,100 15.0 16,500 Purchase 600 11.0 6,600 Sales 1,200 15.0 18,000 Ending inventory 800 If IMC used a perpetual system versus a periodic inventory system, the gross margin would most likely be: A) lower. B) the same. C) higher.

B) the same.

18 A firm which prepares its financial statements according to U.S. GAAP and uses a periodic inventory system had the following transactions during the year: The cost of sales (in '000s) is closest to: A) USD4,550 using FIFO. B) USD4,435 using LIFO. C) USD4,342 using weighted average.

C) USD4,342 using weighted average.

47 Which of the following is most likely to be a financial statement disclosure required by IFRS concerning inventory? A) The accounting policies used to measure inventory must be provided, but disclosure of the cost formula is optional. B) The disclosure of accounting policies used to measure inventory is optional, but the cost formula must be provided. C) The accounting policies used to measure inventory and the cost formula must be disclosed.

C) The accounting policies used to measure inventory and the cost formula must be disclosed.

30 Analyst 1: Under US GAAP, companies that use the LIFO method must disclose in their financial notes the amount of LIFO reserve. Analyst 2: LIFO reserve can be used to adjust reported LIFO inventory and cost of goods sold balances to the FIFO method for comparison purposes. A) Analyst 1 is correct. B) Analyst 2 is correct. C) Both analysts are correct.

C) Both analysts are correct.

52 The ratio least likely used to measure the efficiency of inventory management is: A) Days of inventory on hand. B) Gross profit margin. C) Cash ratio.

C) Cash ratio.

Which of the following costs is least likely to be included in inventory? A) Cost of raw materials. B) Cost of transporting finished goods to showroom. C) Cost of storing finished goods.

C) Cost of storing finished goods.

28 Which ratio is most likely higher for a company using LIFO method to account for inventory, during a period of rising prices, when compared against a company using FIFO method? A) Current ratio. B) Gross margin. C) Inventory turnover.

C) Inventory turnover.

15 Which of the following is most likely to have the greatest impact on the amount of reported cost of sales and inventory? A) Changes in selling price. B) Nature of product. C) Inventory valuation method.

C) Inventory valuation method.

54 Which of the following is most likely to be an indicator of highly effective inventory management? A) Low inventory turnover ratio. B) Low gross profit margin. C) Low number of days of inventory on hand.

C) Low number of days of inventory on hand.

40 Under US GAAP, inventory is measured at: A) Lower of cost or market where market value must be greater than net realizable value. B) Net realizable value. C) Lower of cost or market where market value is bound by the limits: NRV, NRV minus normal profit margin.

C) Lower of cost or market where market value is bound by the limits: NRV, NRV minus normal profit margin.

53 Which of the following ratios is least likely to be used to evaluate the efficiency or effectiveness of inventory management ? A) Days of inventory on hand. B) Gross profit margin. C) Quick ratio.

C) Quick ratio.

49 Which ratio is most likely higher for a company using FIFO method to account for inventory, during a period of rising prices, when compared against a company using weighted average cost method? A) Debt-to-equity ratio. B) Inventory turnover. C) Return on sales.

C) Return on sales.

45 Which of the following is least likely correct about the measurement of inventory value under U.S.GAAP? A) Inventory is measured at the lower of cost or market value. B) The lower limit of the market value is net realizable value minus a normal profit margin. C) Reversal of write downs are permitted under U.S. GAAP and prohibited under IFRS.

C) Reversal of write downs are permitted under U.S. GAAP and prohibited under IFRS.

31 An equity research analyst is studying the effect of Company XYZ's use of the LIFO method to account for its inventory. For this purpose, the analyst gathers the following information. The analyst also finds the following information in the notes to the financial statements. The LIFO reserves as of 31 December 2014 and 2015 are USD11.7 million and USD15.5 million respectively, and The effective income tax rate applicable to the company for 2015 and earlier periods is 20 percent. If company XYZ had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2015 would have been closet to: A) USD46.5 million. B) USD65.8 million. C) USD77.5 million.

C) USD77.5 million.

20 If a company uses a perpetual inventory system, the inventory method that best matches the actual historical cost of the inventory sold with their physical flow is: A) FIFO. B) LIFO. C) specific identification.

C) specific identification.

In order to match the actual historical cost of the inventory items to their physical flow, the inventory valuation method that most likely achieves this objective is: A) FIFO. B) LIFO. C) specific identification.

C) specific identification.

23 Given below is the information of a company that uses the FIFO inventory method: Opening inventory of 1000 units at USD12/unit Purchase of 200 units at USD12.8/unit Sale of 600 units at USD14/unit Purchase of 200 units at USD13/unit Sale of 600 units at USD14/unit If the company used a perpetual system versus a periodic inventory system, the gross margin would most likely be: A) higher. B) lower. C) the same.

C) the same.


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