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Questions and Answers
What amount of gain on the sale of Security X should be reported in the 2024 income statement?
What amount of gain on the sale of Security X should be reported in the 2024 income statement?
Which statement about fair value classifications is true?
Which statement about fair value classifications is true?
What is the carrying amount of Judicious Company's equity investment before the loss was recognized in OCI?
What is the carrying amount of Judicious Company's equity investment before the loss was recognized in OCI?
Upon selling an investment at FVOCI, how is the gain or loss reflected in financial statements?
Upon selling an investment at FVOCI, how is the gain or loss reflected in financial statements?
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Which of the following is a misconception about investment classifications?
Which of the following is a misconception about investment classifications?
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Under which inventory system does the merchandise inventory account continuously disclose the inventory amount on hand?
Under which inventory system does the merchandise inventory account continuously disclose the inventory amount on hand?
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When using a perpetual inventory system, what action is performed for purchases of merchandise?
When using a perpetual inventory system, what action is performed for purchases of merchandise?
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What is one component that is NOT included in total manufacturing costs?
What is one component that is NOT included in total manufacturing costs?
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What amount should be allocated as total cost of Class B lots under the relative sales price method?
What amount should be allocated as total cost of Class B lots under the relative sales price method?
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What type of calculator is permitted during the examination?
What type of calculator is permitted during the examination?
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What item is allowed to be brought into the examination room?
What item is allowed to be brought into the examination room?
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What is the maximum duration allowed to complete the midterm examination?
What is the maximum duration allowed to complete the midterm examination?
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What was the total reported accounts payable for Kew Company on December 31, 2023?
What was the total reported accounts payable for Kew Company on December 31, 2023?
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Which shipping term applies to the goods that were lost in transit while shipping to Kew?
Which shipping term applies to the goods that were lost in transit while shipping to Kew?
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Which method is not widely used for determining the cost of inventory?
Which method is not widely used for determining the cost of inventory?
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What was the invoice amount for goods that Kew returned to the vendor?
What was the invoice amount for goods that Kew returned to the vendor?
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What type of inventory cost method is most likely to be used by a jewelry store?
What type of inventory cost method is most likely to be used by a jewelry store?
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When was the credit memo for the returned goods received and recorded by Kew?
When was the credit memo for the returned goods received and recorded by Kew?
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What was the amount of the claim filed by Kew against the common carrier?
What was the amount of the claim filed by Kew against the common carrier?
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What was the debit balance in accounts payable to Ross for Kew on December 31, 2023?
What was the debit balance in accounts payable to Ross for Kew on December 31, 2023?
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What did Kew Company have to consider for the invoice cost of the goods lost in transit?
What did Kew Company have to consider for the invoice cost of the goods lost in transit?
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What is the total cost of the inventory held by Joyous Company as revealed by the physical count?
What is the total cost of the inventory held by Joyous Company as revealed by the physical count?
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Which merchandise cost was excluded from the total inventory cost at Joyous Company?
Which merchandise cost was excluded from the total inventory cost at Joyous Company?
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What calculation method is used to determine the moving average cost of inventory for January 31?
What calculation method is used to determine the moving average cost of inventory for January 31?
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How much merchandise costing was shipped FOB destination by Joyous Company on December 31, 2023?
How much merchandise costing was shipped FOB destination by Joyous Company on December 31, 2023?
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On which date did Joyous Company ship merchandise that is held by a customer to be received in the following year?
On which date did Joyous Company ship merchandise that is held by a customer to be received in the following year?
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What is the total number of merchandise units Joyous sold on December 10?
What is the total number of merchandise units Joyous sold on December 10?
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Which cost measurement approach is used to report inventory amounts?
Which cost measurement approach is used to report inventory amounts?
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What is the total inventory cost reported by Joyous Company on December 31 after exclusions?
What is the total inventory cost reported by Joyous Company on December 31 after exclusions?
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What was the total cost of merchandise received by Joyous on January 15, 2024?
What was the total cost of merchandise received by Joyous on January 15, 2024?
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What is the remaining inventory reported on December 31, 2023 after accounting for sales and returns?
What is the remaining inventory reported on December 31, 2023 after accounting for sales and returns?
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What should Cherry Company report as chocolate inventory at year-end?
What should Cherry Company report as chocolate inventory at year-end?
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Which statement about the FIFO inventory costing method is correct?
Which statement about the FIFO inventory costing method is correct?
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How is the amount of any writedown of inventory to net realizable value recognized?
How is the amount of any writedown of inventory to net realizable value recognized?
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Based on past data, what is the estimated cost of inventory on March 31 for Avarice Company?
Based on past data, what is the estimated cost of inventory on March 31 for Avarice Company?
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In a scenario with a 40% gross profit margin, what should Avarice Company recognize as cost of goods sold based on net sales?
In a scenario with a 40% gross profit margin, what should Avarice Company recognize as cost of goods sold based on net sales?
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If the replacement cost of Cherry Company's inventory is less than the cost, how is the inventory value impacted?
If the replacement cost of Cherry Company's inventory is less than the cost, how is the inventory value impacted?
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Which figure represents the most recent replacement cost of chocolate inventory for Cherry Company?
Which figure represents the most recent replacement cost of chocolate inventory for Cherry Company?
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What is the impact of a FIFO method during periods of inflation?
What is the impact of a FIFO method during periods of inflation?
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What is the result when a company's selling price and cost of goods sold are similar to prior years?
What is the result when a company's selling price and cost of goods sold are similar to prior years?
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Study Notes
Intermediate Accounting 1 - Midterm Exam
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Inventories - Preliminary Considerations
- Periodic inventory system continually shows inventory levels.
- Perpetual inventory system debits Merchandise Inventory for purchases.
- Manufacturing costs include direct materials, direct labor, and factory overhead. Direct materials purchased is NOT the same as direct materials used, in manufacturing.
- Inventory examples include merchandise sold, condominium units being sold by a real estate developer, and vegetables sold by a market vendor. Equipment and land sold (by a given business) are not considered inventory.
- A company's sales transaction (FOB shipping point) includes the customer's prepaid delivery costs (P50,000).
- Trade discounts (20% and 10%) reduce the list price of merchandise sold; Net Amount due = 70%× P1,000,000 = P700,000; Trade discount and payment terms(5/10;n/30) discount = P4 discount =700,000 (0.05) = 35,000; Discount amount received = P735,000−35,000 = P700,000; Total Amount = P 700,000 + P50,000 = P750,000
- A customer receives a discount if they pay within 10 days. This will affect the overall amount to be received.
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Inventories - Inclusions and Exclusions
- Merchandise purchased FOB shipping point is not included in the year-end inventory if it hasn't arrived.
- Consignment inventory (held by another party) is not included in the year-end inventory.
- Merchandise returned by customers is included.
- Goods shipped FOB destination are included in the buyer's inventory.
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Inventories - Cost Flow Assumptions
- FIFO (First-In, First-Out) assigns the most recent costs to the cost of goods sold.
- LIFO (Last-In, First-Out) is another costing method.
- Weighted-average cost is a method for determining an average cost.
- Specific Identification is an inventory costing method. This is a method that is based on specific items.
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Inventories - Subsequent Measurement
- Inventories are measured at the lower of cost or net realizable value (LCNRV)
- Losses of inventory due to writedowns or obsolescence are recognized as an operating expense or as a component of the cost of sales in the period the writedown or loss occurs.
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Inventories - Cost Flow Assumptions
- FIFO and LIFO are inventory costing methods.
- Companies may use specific identification or weighted-average methods as well.
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Inventories - Gross Profit and Retail Methods
- The gross profit method uses past gross profit percentages to estimate inventory
- Retail inventory method uses the cost ratio to determine ending inventory values. A cost ratio is a ratio of cost to retail prices.
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Inventories - Investment in Equity Securities
- Investments in equity securities can be classified at fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVTOCI), or held-to-maturity (HTM).
- Investment cost is determined by the current market value of the shares held.
- Transaction costs are expensed or capitalized depending on the classification of the security.
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Inventories - Investment in Debt Securities
- Debt securities and investment costs are accounted for under amortized cost or FVTPL.
- Effective interest method is used to allocate the total interest expense over the life of the bonds.
- Debt securities include bonds and notes.
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Dividends, Share Splits, and Share Rights
- Cash dividends and property dividends are recognized correctly.
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Additional notes:
- Various accounting methods and their implications for inventory valuation.
- Identifying inventory items included or excluded for year-end inventory.
- Calculating inventory using various costing methods (FIFO, weighted average, LIFO).
- Determining whether to use gross profit method, retail inventory method, or specific identification.
- Understanding the financial reporting implications of investments.
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Description
Test your knowledge on key concepts in Intermediate Accounting, focusing on inventory systems, manufacturing costs, and sales transactions. This midterm exam covers important calculations and principles that are essential for understanding inventory management and trade discounts.
