Practice Exercise #5-3

D

Inventories are assets that are:

A. Held for sale in the ordinary course of business

B. In the process of production for sale

c. In the form of materials and supplies to be consumed in the production

process or in the rendering of services

D. All of these

D

Which of the following accounts is not reported in inventory?

A. Raw materials

B. Equipment

C. Finished goods

D. Supplies

C

Which of the following is a characteristic of a perpetual inventory system?

A. Inventory purchases are debited to a purchases account.

B. Inventory records are not kept for every item.

C. The cost of goods sold is recorded with each sale.

D. The cost of goods sold is equal to the amount of purchases less the change in inventory.

C

Inventories should be measured at which of the following?

A. Cost

B. Net realizable value

C. Lower of cost and market

D. Lower of cost and net realizable value

D

The cost of purchase of inventories includes the following, except:

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

D

In periods of rising prices, the inventory valuation procedure that results in the highest net income is:

A. The lower of cost and net realizable value method

B. The net method

C. The average cost method

D. The FIFO method

D

Which of the following would not be reported as inventory?

A. Cars acquired for resale by a car dealer

B. Stocks and bonds held for resale by a brokerage firm

C. Partially completed goods held by a manufacturing company

D. Computers acquired by a trading company for office use

B

Which of the following describes the flow of product costs through the inventory accounts of a manufacturer?

A. Raw materials, work-in-progress, factory overhead, finished goods

B. Raw materials, work-in-progress, finished goods

C. Raw materials, direct labor, factory overhead, finished goods

D. Raw materials, direct labor, factory overhead

D

The use of purchase discounts lost account implies that the recorded cost of the purchased inventory item is its:

A. Invoice price

B. Invoice price plus the purchase discount not taken

C. Invoice price less the purchase discount taken

D. Invoice price less the purchase discount available

A

If goods shipped FOB destination are in transit at the end of the year, they should be included in the inventory balance of which of the following?

A. Seller

B. Freight company

C. Buyer

D. Buyer and seller

A

Merchandise shipped FOB shipping point on the last day of the year should ordinarily be included in which of the following?

A. The buyer's inventory balance

B. The seller's inventory balance

C. Freight company

D. Both the buyer's and the seller's inventory balances

C

Goods in transit at year-end shipped FOB shipping point were appropriately recorded in the purchases account but were incorrectly excluded from the ending inventory. What effect will this omission have on a company’s assets and liabilities at year-end?

A. No effect, understated

B. No effect, overstated

C. Understated, no effect

D. Overstated, no effect

D

A firm using the perpetual inventory method returned defective merchandise costing P2,000 to one of its suppliers. This transaction will include a debit to which of the following?

A. Accounts receivable

B. Merchandise inventory

C. Purchase returns and allowances

D. Accounts payable

D

Cost of goods sold is equal to:

A. Ending inventory + net purchases - beginning inventory

B. Beginning inventory - net purchases + ending inventory

C. Beginning inventory + net sales - ending inventory

D. Beginning inventory + net purchases - ending inventory

B

Net realizable value can be defined as the:

A. Selling price

B. Selling price less costs to complete and sell

C. Selling price plus costs to complete and sell

D. Acquisition cost plus costs to complete and sell