INTACC - CHAPTER 10

Question 1

Which of the following should not be taken into account when determining the cost of inventory?

a. Storage costs of part-finished goods
b. Trade discounts
c. Recoverable purchase taxes
d. Import duties on shipping of inventory inward

Answer 1

c. Recoverable purchase taxes

Question 2

The cost of inventory does not include

a. Salaries of factory staff
b. Storage cost necessary in the production process before a further production stage
c. Abnormal amount of wasted materials
d. Irrecoverable purchase taxes

Answer 2

c. Abnormal amount of wasted materials

Question 3

Which of the following costs of conversion cannot be included in cost of inventory?

a. Cost of direct labor
b. Factory rent and utilities
c. Salaries of sales staff
d. Factory overhead based on normal capacity

Answer 3

c. Salaries of sales staff

Question 4

Which of the following should be taken into account when determining the cost of inventory?

a. Storage cost of part-finished goods
b. Abnormal freight in
c. Recoverable purchase tax
d. Interest on inventory loan

Answer 4

a. Storage cost of part-finished goods

Question 5

Costs incurred in bringing the inventory to the present location and condition include

a. Cost of designing product for specific customers

b. Abnormal amount of wasted material

c. Storage cost not necessary in the production process before a further production stage

d. Distribution cost

Answer 5

a. Cost of designing product for specific customers

Question 6

Inventories encompass all of the following, except

a. Merchandise purchased by a retailer
b. Land and other property not held for sale
c. Finished goods produced
d. Materials and supplies for use in production

Answer 6

b. Land and other property not held for sale

Question 7

A property developer must classify properties that it holds for sale in the ordinary course of business as

a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property

Answer 7

a. Inventory

Question 8

Factory supplies to be consumed in the production process are reported as

a. Inventory
b. Property, plant and equipment
c. Investment property
d. Prepaid expenses

Answer 8

a. Inventory

Question 9

Which of the following should not be reported as inventory?

a. Land acquired for resale by a real estate firm

b. Shares and bonds held for resale by a brokerage firm

c. Partialy completed goods held by a manufacturing entity

d. Machinery acquired by a manufacturing entity

Answer 9

d. Machinery acquired by a manufacturing entity

Question 10

When determining the cost of an inventory, which of the following should not be included?

a. Interest on loan obtained to purchase the inventory

b. Commission paid when inventory is purchased

c. Labor cost of the inventory when manufactured

d. Depreciation of plant equipment used in manufacturing

Answer 10

a. Interest on loan obtained to purchase the inventory

Question 11

Why is inventory included in the computation of net income?

a. To determine cost of goods sold
b. To determine sales revenue
c. To determine merchandise returns
d. Inventory does not affect net income

Answer 11

a. To determine cost of goods sold

Question 12

Which 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. Cost of goods sold is recorded with each sale.

d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

Answer 12

c. Cost of goods sold is recorded with each sale.

Question 13

Which is incorrect about the perpetual inventory method?

a. Purchases are recorded as debit to the inventory account.

b. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory.

c. After a physical inventory count, inventory is credited for any missing inventory.

d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances.

Answer 13

d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances.

Question 14

An entry debiting inventory and crediting cost of goods sold would be made when

a. Merchandise is sold under periodic inventory.

b. Merchandise is sold under perpetual inventory.

c. Merchandise is returned under perpetual inventory.

d. Merchandise is returned under periodic inventory.

Answer 14

c. Merchandise is returned under perpetual inventory.

Question 15

In a periodic system, the beginning inventory is

a. Net purchases minus cost of goods sold

b. Net purchases minus ending inventory

c. Goods available for sale minus net purchases

d. Goods available for sale minus cost of goods sold

Answer 15

c. Goods available for sale minus net purchases

Question 16

Theoretically, cash discounts permitted should be

a. Added to other income, whether taken or not

b. Added to other income, only if taken

c. Deducted from inventory, whether taken or not

d. Deducted from inventory, only if taken

Answer 16

c. Deducted from inventory, whether taken or not

Question 17

Which of the following generally would not be separately accounted for in the computation of cost of goods sold?

a. Trade discounts applicable to purchases
b. Cash discounts taken
c. Purchase returns and allowances
d. Cost of transportation for merchandise purchased

Answer 17

a. Trade discounts applicable to purchases

Question 18

The use of purchase discount account implies that the recorded cost of a purchased inventory is

a. Invoice price

b. Invoice price plus any purchase discount lost

c. Invoice price less the purchase discount taken

d. Invoice price less the purchase discount allowable whether taken or not

Answer 18

a. Invoice price

Question 19

The use of a discount lost account implies that cost of a purchased inventory is

a. Invoice price
b. List price
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether or not taken

Answer 19

d. Invoice price less the purchase discount allowable whether or not taken

Question 20

The valuation of inventory on a prime cost basis

a. Would achieve the same results as direct costing

b. Would exclude all overhead from inventory cost

c. Is always achieved when standard costing is adopted

d. Is always achieved when the FIFO is adopted

Answer 20

b. Would exclude all overhead from inventory cost