FAR 2D

Question 1

A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change?

Answer 1

Ending Inventory will decrease Net Income will decrease

Question 2

Estimates of price-level changes for specific inventories are required for which inventory method?

Answer 2

Dollar-value LIFO

Question 3

The retail inventory method includes …

Answer 3

beginning inventory and net purchases at both cost and retail

Question 4

How does the retail inventory method establish the lower-of-cost-or-market valuation for ending inventory?

Answer 4

By excluding net markdowns from the cost-to-retail ratio.

Question 5

If ending inventory for 20x5 is understated because certain items were missed in the count, then:

Answer 5

Net income for 20x5 will be understated and CGS for 20x6 will be understated.

Question 6

Bren Co.’s beginning inventory at January 1, 2005 was understated by $26,000, and its ending inventory was overstated by $52,000. As a result, Bren’s cost of goods sold for 2005 was:

Answer 6

Understated by $78,000. The effect of the beginning-inventory error is to understate cost of goods sold $26,000. The effect of the ending-inventory error is to understate cost of goods sold $52,000. The total effect then is to understate cost of goods sold $78,000.

Question 7

When an inventory overstatement in year one counterbalances in year two, this means:

Answer 7

A prior period adjustment is recorded if the error is discovered in year two.

Question 8

Losses on purchase commitments are recorded at the end of the current year when:

Answer 8

The contractual cost of the inventory in an irrevocable purchase contract exceeds the current cost.

Question 9

A corporation entered into a purchase commitment to buy inventory. At the end of the accounting period, the current market value of the inventory was less than the fixed purchase price, by a material amount. What accounting treatment is appropriate?

Answer 9

Describe the nature of the contract in a note to the financial statements, recognize a loss in the Income Statement, and recognize a liability for the accrued loss.

Question 10

IFRS requires that inventory be reported at the lower of

Answer 10

cost or net realizable value

Question 11

Net Realizable Value calculation is the

Answer 11

Selling price less the cost to complete or dispose