QUESTION 25-14 Multiple choice (PAS 2)

1. The cost of purchase of inventory does not include

A. Purchase price
B. Import duties and irrecoverable taxes
C. Freight, handling and other directly attributable cost
D. Trade discounts, rebated and other similar items
2. The cost of conversion include all, except
A. Direct labor
B. Systematic allocation of fixed production overhead
C. Systematic allocation of variable production overhead
D. Systematic allocation of administrative overhead
3. The allocation of fixed factory overhead is based on
A. Normal capacity of the production facilities
B. Actual use of the production facilities
C. Either the normal capacity or actual use
D. Relative sales value method
4. How should unallocated fixed overhead be treated?
A. Allocated to finished goods and costs of goods sold.
B. Allocated to raw materials, goods in process and finished goods.
C. Recognized as an expense in the period incurred.
D. Allocated to cost of goods sold.
5. Variable production overhead is allocated to each unit of production on the basis of
A. Normal capacity of the production facilities
B. Actual use of the production facilities
C. Either the normal capacity or actual use
D. Neither the normal capacity nor the actual use

QUESTION 25-15 Multiple choice (IFRS)

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
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.
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 staffs
D. Factory overhead based on normal capacity
 4. Which if 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 in inventory loan
5. Cost 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.
6. Inventories encompasses 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
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
8. Factory supplies to be consumed in the production process are reported as
A. Inventory
B. Property, plant and equipment
C. Investment property
D. Intangible asset
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. Partially completed goods held by manufacturing entity
D. Machinery acquired by a manufacturing entity
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 costs of the inventory when manufactured
D. Depreciation of property equipment used in manufacturing

QUESTION 25-16 Multiple choice (AICPA Adapted)

1. Theoretically, cash discount 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
 2. Which of the following generally would not be separately accounted for in the computation of
costs 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
3. The used 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
4. 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 taken or not
5. 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 costs
C. Is always achieved when standard costing is adopted
D. Is always achieved when the FIFO is adopted

QUESTION 25-17 Multiple choice (IAA)

1. Which term represents the deduction from the invoice price of purchased goods granted for
early payment?
A. Sales discount
B. Purchased discount
C. Trade discount
D. Purchase return and allowances
2. A discount given to a customer for purchasing a large volume of merchandise is typically refferd
to as
A. Trade discount
B. Quantity discount
C. Size discount
D. Cash discount
3. The purchase is recorded as a credit to account payable
A. As if the discount is to be taken, if using the gross method
B. Without regard for the discount, if using the net method
C. As if the discount is to be taken, if using the net method
D. As if the discount is to be taken, using either the gross or net method
4. When recording accounts payable, a purchase discount is recorded
A. If using the net method
B. If using the gross method, but only if the payment is made during the discount period
 C. If using the net method, provided the payment is made during the discount period4
D. If using the gross method, but the purchase discount is reduced by any purchase discount
loss
5. Using the gross method, purchase discount lost is
A. Included in purchases
B. Added to accounts payable
C. Included in interest expense
D. Deducted from interest income

QUESTION 25-18 Multiple choice (IAA)

1. Why is inventory included in the computation of net income?

A. To determine the cost of goods sold
B. To determine sales revenue
C. To determine merchandise returns
D. Inventory is not included in the computation of net income
2. Which of the following is a characteristics of perpetual inventory system?
A. Inventory purchases are debited to a purchases account
B. Inventory records are not kept for every item
C. Cost of good sold is recorded with each sale
D. Cost of good sold is determined as the amount of purchases less the change in inventory
3. Which of the following 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 good 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.
4. An entry debiting inventory and crediting cost of goods sold would be made when
A. Merchandise is sold and the periodic inventory method is used.
B. Merchandise is sold and the perpetual inventory method is used
C. Merchandise is returned and the perpetual inventory method is used.
D. Merchandise is returned and the periodic inventory method is used.
5. Which is not acceptable for valuation of inventory?
A. Historical cost
B. Current replacement cost
C. Prime cost
D. Estimated selling price less cost of disposal
6. In a periodic system, the beginning inventory is
A. Net purchases minus cost of goods sold
B. Net purchases minus ending inventory
C. Total goods available for sale minus net purchases
D. Total goods available for sale minus cost of goods sold
7. Entities must allocate the cost of all goods available for sale between
A. The cost goods on hand at the beginning and the cost of goods purchased during the period
B. The cost of goods on hand at the end and the cost of the goods purchased during the period
 C. The income statement and the statement of financial position
D. All of the choices are correct
8. An exception to the general rule that cost should be charged to expense in the period incurred is
A. Factory overhead cost incurred on a product manufactured but not sold during the current
period
B. Interest cost for financing of inventories that are routinely manufactured
C. General and administrative fixed cost incurred in connection with the purchase of inventory
D. Sales commission and salary incurred in connection with the sale of inventory

QUESTION 25-19 Multiple choice (IAA)

1. What is consigned inventory?

A. Goods that are shipped and title transfers to the consignee.
B. Goods that are sold but payment is not required until the goods are sold.
C. Goods that are shipped but title remains with the consignor.
D. Goods that have been segregated for shipment to a customer.
2. Goods on consignment are included in inventory of
A. The consignor but not the consignee
B. Both the consignor and the consignee
C. The consignee but not the consignor
D. Neither the consignor nor the consignee
3. How is a significant amount of consignment inventory reported?
A. Reported separately by the consignor.
B. Combined with other inventory of the consignor
C. Reported separately by the consignee
D. Combined with other inventory of the consignee
4. Freight and other handling charges incurred in the transfer of goods from the consignor to
consignee are
A. Expense on the part of the consignor
B. Expense on the part of the consignee
C. Inventoriable by the consignor
D. Inventoriable by the consignee
5. Measurement of inventory requires the determination of all the following, except
A. The cost to be included in inventory.
B. The physical goods to be included in inventory.
C. The cost of goods held on consignment.
D. The cost flow assumption.

QUESTION 25-20 Multiple choice (IAA)

1. Sales where the goods are delivered only when the buyer makes final payment are called
A. Bill and hold sales
B. Sales subject to installation or inspection.
C. Consignment sales
D. Layaway sales
2. Sales in which the buyer is not yet ready to take delivery but does take title are known as
 A. Barter sales
B. Bill and hold sales
C. Layaway sales
D. Sales with buyback
3. When activities involve production through natural growth or aging of biological assets, revenue
is recognized as the plant or living animal grows. This is known as what approach?
A. Completion of production basis
B. Fair value approach
C. Accretion approach
D. Cost recovery or zero profit approach
4. For which of the following products is it appropriate to recognize revenue at the completion of
production even though no sale has been made?
A. Automobile
B. Large appliance
C. Residential unit
D. Precious metal