INTACC FINALS Flashcards
are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventories
is one that buys goods which are altered or converted into another form before they are made available for sale.
manufacturing concern
The term ______ is generally applied to goods held by a trading concern.
merchandise inventory
Inventories encompass
goods purchased and held for resale
are completed products which are ready for sale.
Finished goods
have been assigned their full share of manufacturing costs.
Finished goods
frequently raw materials are restricted to materials that will be ______ in the production of other goods and which can be traced directly to the end product of the production process.
physically incorporated
are similar to raw materials but their relationship to the end product is indirect.
Factory or manufacturing supplies
Factory or manufacturing supplies may be referred to as
indirect materials
The phrase _____ is a legal language which means the point of time at which ownership changes.
“passing of title”
is a method of marketing goods in which the owner called the consignor transfers physical possession of certain goods to an agent called the consignee who sells them on the owner’s behalf.
consignment
is the person who delivers goods to the consignee for sale.
consignor
the person or company to whom goods or documents are officially sent or delivered
consignee
Under _______, ownership of goods purchased is transferred only upon receipt of the goods by the buyer at the point of destination
FOB destination or FOB buyer
Thus, under _____, the goods in transit are still the property of the seller.
FOB destination
Thus, under FOB destination, the ___ shall legally be responsible for freight charges and other expenses up to the point of destination
seller
Under _____ ownership is transferred upon shipment of the goods and therefore, the goods in transit are the property of the buyer
FOB shipping point or FOB seller,
FOB shipping point, the __ shall legally be responsible for freight charges and other expenses from the point of shipment to the point of destination.
buyer
In practice, during an accounting period, the accountant normally records purchases when goods are ____ and sales when goods are ____, regardless of the precise moment atbwhich title passed
received
shipped
means that the freight charge on the goods shipped is not yet paid. The common carrier shall collect the same from the buyer.
Freight collect
the freight charge is actually paid by the ____ if the term is freight collect.
buyer
means that the freight charge on the goods shipped is already paid by the seller.
Freight prepaid
The terms “freight collect” and “freight prepaid” determine the party who actually paid the freight charge but not the party who is supposed to ,_____ the freight charge.
legally pay
The terms “FOB destination” and “FOB shipping point” determine ____ of the goods in transit and the party who is supposed to pay the freight charge and other expenses from the point of shipment to the point of destination.
ownership
A seller who ships ___ must bear all expenses and risk involved in delivering the goods to the dock next to or alongside the vessel on which the goods are to be shipped.
FAS or free alongside
FAS - The ___ bears the cost of loading and shipment and thus, title passes to the ___ when the carrier takes possession of the goods.
buyer
Under this shipping contract, the buyer agrees to pay in a lump sum the cost of the goods, insurance cost and freight charge.
CIF or Cost, insurance and freight
The shipping contract may be modified as CF which means that the buyer agrees to pay in a lump sum the ____________ only.
cost of the goods and freight charge
CIF - the ___ must pay for the cost of loading. Thus, title and risk of loss shall pass to the buyer upon delivery of the goods to the carrier.
seller
A seller who delivers the goods ex-ship bears all expenses and risk of loss until the goods are ____ at which time title and risk of loss shall pass to the buyer.
Ex-ship
unloaded
When a promissory note matures and is not paid, it is said to be
dishonored
dishonored notes receivable should be removed from the notes receivable account and transferred to
accounts receivable
The amount debited to accounts receivable should include the _____ ____ ____
face amount, interest and other charges.
is an unconditional promise in writing made by one person to another, signed by the maker. engaging to pay on demand or at a fixed determinable future time a sum certain in money to order or to bearer.
negotiable promissory note
are claims supported by formal promises to pay usually in the form of notes.
Notes receivable
is a written contract in which one person, known as the maker, promises to pay another person, known as the payee, a definite sum of money.
promissory note
receivables arising from sale of goods or services in the normal course of business (e. accounts receivable and notes receivable).
trade receivables
notes receivable shall be measured initially at
present value
is the sum of all future cash flows discounted using the prevailing market rate of interest for similar notes.
present value
prevailing market rate of interest is actually the
effective interest rate
short-term notes receivable shall be measured at
face amount
The initial measurement of long-term notes will depend on whether the notes are
interest-bearing or noninterest bearing.
are measured at face amount which is actually the present value upon issuance.
Interest-bearing long-term notes
are measured at present value which is the discounted value of the future cash flows using the effective interest rate.
Noninterest-bearing long-term notes
term ______ is a misnomer because all notes implicitly contain interest.
“noninterest-bearing”
All notes implicitly contain interest
True
Subsequent to initial recognition, long-term notes receivable shall be measured at ______ using the effective interest method.
amortized cost
What is imputed interest?
a. Interest based on the stated interest rate
b. Interest based on the implicit interest rate
c. Interest based on the average interest rate .
d. Interest based on the bank prime interest
B
Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
Substance over form
Receivables not measured initially at their transaction price are measured initially at
a. Fair value
b. Fair value less costs to sell
c. Fair value minus transaction costs that are directly attributable to the acquisition of the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of the financial asset
Which statement is correct regarding Receivables?
a. They refer to amounts due from individuals and other events
b. They are claims expected to be collected in cash
c. They are financial assets representing contractual rights to receive cash
d. All of these
D
An SME may usetechniques for measuring cost of inventories if the results approximate cost,Accepted techniques include all of the following, EXCEPT
a.Standard cost
b.Retail method
c.Most recent purchase price
d. Gross profit method
d. Gross profit method
Inventories must be measured by an SME at;
a. Cost
b. The lower of cost and estimated selling price less cost to complete and dispose
c. The lower of cost and fair value less cost to complete and dispose
d. The most recent purchase price
b. The lower of cost and estimated selling price less cost to complete and dispose
The cost of inventory is the sum of
a. Cost of purchase and cost of conversion.
b. Direct cost, indirect cost and other cost.
c. Cost of purchased, cost of conversion and other cost incurred in bringing the inventory to the present location and condition.
d. Cost of conversion and other cost incurred in bringing the inventory to the present conditionand location
c. Cost of purchased, cost of conversion and other cost incurred in bringing the inventory to the present location and condition.
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 material.
d.vIrrecoverable purchase taxes
c. Abnormal amount of wasted material.
entity must assign the cost ofinventories by
a.The LIFO cost Formula
b. Specific identification of individual costs for inventories that are not ordinarilyinterchangeable and, for inventories that are not ordinarily interchangeable, the FIFO or the weighted average cost formula.
c. Specific identification of individual costs for inventories that are ordinarily interchangeable,and for inventories that are not ordinarily interchangeable, the FIFO or the weighted averagecost formula.
d. The FIFO cost formula
B
Under PFRS for SMEs, f the estimated selling price less cost to complete and sell is lower thancost of inventory, the write down is recognized
Impairment loss
Generally, which inventory costing method approximates must closely the current cost for eachof the following?
COGS
Ending Inventory
COGS - LIFO
EI - FIFO
PAS 2(inventories) applies to all inventories, except
a. Work in progress arising under construction contracts, including directly related servicecontracts
b. Financial instruments
c. Biological assets related to agricultural activity and agricultural produce at the point of harvest
d. All of the above
D
PAS 2 does not apply to the measurement of inventories held by
a.Producers of agricultural and forest products, and agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realizable value inaccordance with well-established practice in those industries.
b. Commodity broker-traders who measure their inventories at fair value less costs to self
Both A and B
Which of the following is
not a common disclosure for inventories?
a. Inventory composition
b. Inventory costing methods employed
c. Inventory financing arrangements
d. Inventory location
d. Inventory location
The following may be included in the cost of inventories,
except
a. Administrative overheads
b. Storage costs
c. Wasted materials, labor and other production costs
d. Selling cost
D. Selling Cost
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. The interest receivable account would show a balance on
a. July 1 but not December 31
b. December 31 but not July 1
c. July 1 and December 31
d. Neither July 1 nor December 31
B
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. When the note receivable was recorded on July 1, which of the following was debited?
a. Interest receivable
b. Unearned discount on note receivable
c. Interest receivable and unearned discount on note receivable
d. Neither interest receivable nor unearned discount on note receivable
D
On October 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on September 30 of next year. The interest receivable on December 31 of the current year would consist of an amount representing
a. Three months of accrued interest income
b. Nine months of accrued interest income
c. Twelve months of accrued interest income
d. The excess on October 1 of the present value of the note receivable over the face amount
A
On July 1 of the current year, an entity obtained a two-year 8% note receivable for services rendered. At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of interest are due on the date of maturity. Interest receivable on December 31 of the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note c. 5% of the present value of the note
d, 4% of the present value of the
B
An entity uses the installment method to recognize revenue from installment sales. Customers pay the installment notes in 24 equal monthly amounts which include 12% interest. What is the carrying amount of the installment notes receivable six months after the sale?
a. 75% of the original sales price.
b. Less than 75% of the original sales price.
c. The present value of the remaining monthly payments discounted at 12%.
d. Less than the present value of the remaining monthly payments discounted at 12%.
C
On August 15, an entity sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?
a. Unearned discount
b. Interest receivable
c. Prepaid interest
d. Interest revenue
B
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on June 30 of next year. On December 31 of the current year, the entity should report in the statement of financial position
a. A deferred credit for interest applicable to next year
b. No interest receivable
c. Interest receivable for the entire amount of the interest due on June 30 of next year
d. Interest receivable for the interest accruing in the current year
D
The _____ calls for the physical counting of goods on hand at the end of the accounting period to determine quantities.
periodic system
This approach gives actual or physical inventory.
Periodic system
Under the periodic system, the ______ is computed only at the end of reporting period by deducting the physical inventory from the cost of goods available for sale
cost of goods sold
The periodic inventory procedure is generally used when the individual inventory items have _____, such as groceries, hardware and auto parts.
small peso investment
The perpetual system requires the maintenance of records called ___ that usually offer a running summary of the inventory inflow and outflow.
stock cards
In an ideal perpetual system, the stock cards are kept to reflect and control both
units and costs.
_____ are deductions from the list or catalog price in order to arrive at the invoice price which is the amount actually charged to the buyer. Thus, ____ are not recorded.
trade discounts
____ are deductions from the invoice price when payment is made within the discount period. ______ are recorded as purchase discount by the buyer and sales discount by the seller.
Cash discounts
The purpose of ____ is to encourage prompt payment.
cash discounts
Purchases and accounts payable are recorded at gross amount of invoice.
Gross method
Purchases and accounts payable are recorded at net amount of the invoice.
Net method
The cost measured under the ___ represents the cash equivalent price on the date of payment and therefore the theoretically correct historical cost.
net method
Theoretically correct historical cost
Net method
However, in practice, most entities record purchases at ___ invoice amount.
gross
the gross method violates the _____ because discounts are recorded only when taken or when cash is paid rather than when purchases that give rise to the discounts are made.
matching principle
Despite its theoretical shortcomings, the gross method is supported on
practical grounds
cost of inventory shall comprise _____________________incurred in bringing the inventory to the present location and condition.
cost of purchase, cost of conversion and directly attributable cost
The _____ comprises the purchase price, import duty, irrecoverable tax, freight, handling and other cost directly attributable to the acquisition.
cost of purchase
Trade discounts, rebates and other similar items are deducted in determining the
cost of purchase
The cost of purchase shall not include _______ which arise directly from the acquisition of inventory involving a foreign currency.
foreign exchange differences
includes cost directly related to the units of production such as direct labor.
cost of conversion
The cost of conversion also includes a systematic allocation of ________ incurred in converting materials into finished goods.
fixed and variable production overhead
is the indirect cost of production that remains relatively constant regardless of the volume of production.
Fixed production overhead
is the indirect cost of production that varies directly with the volume of production.
Variable production overhead
includes indirect labor and indirect materials.
Variable production overhead
Abnormal amount of wasted material, storage cost, administrative overhead and distribution or selling cost are recognized as expense when
incurred
storage cost related to goods in process or part-finished goods should be included in
cost of inventory
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
b. Trade discounts
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
c. Abnormal amount of wasted
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
c
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
A
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
A
Factory supplies to be consumed in the production process
Inventories
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
A
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
C
