Chapter 8 Valuation of Inventories

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CHAPTER 8
VALUATION OF INVENTORIES: A COST-BASIS APPROACH
IFRS questions are available at the end of this chapter.

TRUE-FALSE—Conceptual
Answer
T F F F T T F T F T T F F T T F F T F T

No.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Description
Work-in-process inventory. Merchandising and manufacturing inventory accounts. Perpetual inventory system. Determining when title passes. Inventory errors. Overstatement of purchases and ending inventory. Period vs. product costs. Reporting Purchase Discounts Lost. Cost flow assumption. FIFO periodic vs. perpetual system. Purchase commitments. Using LIFO for reporting purposes. LIFO liquidation. LIFO liquidations. Dollar-value LIFO Dollar-value LIFO method. LIFO-FIFO comparison. LIFO conformity rule. Selection of inventory method. Appropriateness of LIFO.

MULTIPLE CHOICE—Conceptual
Answer
c b b a c a d b b c d b a

No.
21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

Description
Identify manufacturer inventory similar to merchandise inventory. Classification of raw materials. Accounts included in inventory. Reason inventories are included in net income computation. Characteristic of perpetual inventory system. Reporting consignment inventory in balance sheet. Reporting goods in transit purchased f.o.b. destination. Effect of inventory error on net income. Effect of goods in transit on the current ratio. Description of consigned inventory. Entries under perpetual inventory system. Classification of goods in transit. Classification of goods in transit.

8-2

Test Bank for Intermediate Accounting, Thirteenth Edition

MULTIPLE CHOICE—Conceptual (cont.)
Answer
d d a b c b b d b a a d b c d d a b d b d a a c a d b a b a b a b a b c d d c b c a d c d d a

No.
34. 35. 36. 37. S 38. P 39. P 40. S 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. S 59. P 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. S 80.

Description
Identify inventory ownership. Identify a product financing arrangement. Identify ownership under product financing arrangement. Classification of goods on consignment. Valuation of inventories. Classification of beginning inventory. Effect of beginning inventory overstated. Effect of understating purchases. Effect of recording merchandise on consignment. Effect of ending inventory overvaluation. Effect of inventory errors on income. Effect of understating purchases and ending inventory. Effect of beginning inventory overstatement. Identification of a product cost. Identification of a period cost. Method used to record cash discounts. Identification of inventory costs. Identification of product costs. Determine product costs. Interest capitalization in manufacturing inventory. Determine cost of purchased inventory, using net method. Determine cost of purchased inventory, using gross method. Recording inventory purchases at gross or net amounts. Recording inventory purchases at gross or net amounts. Nature of trade discounts. Identifying inventoriable costs. Method approximating current cost. Average cost inventory valuation. Weighted-average inventory method. Nature of FIFO valuation of inventory. Flow of costs in a manufacturing situation. FIFO and decreasing prices. FIFO and increasing prices. FIFO and increasing prices. FIFO and LIFO inventory assumptions. LIFO and increasing prices. Knowledge of inventory valuation methods. Periodic and perpetual inventory methods. Appropriateness of specific identification method. FIFO and rising prices. LIFO and falling prices. LIFO reserve definition. LIFO reserve account classification. Identify LIFO liquidation. Obtaining price index under dollar-value LIFO. Description of LIFO layer. Dollar-value LIFO method.

Valuation of Inventories: A Cost-Basis Approach

8-3

MULTIPLE CHOICE—Conceptual (cont.)
Answer
a d c
P S

No.
S

Description
Identifying advantages of LIFO. LIFO for tax purposes and...
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