FEU MAKATI

FINANCIAL ACCOUNTING THEORY

FIRST PRELIMINARY EXAMINATION
SET A

1. What is the authoritative status of the Framework?

a. The framework has the highest level of authority.
b. In the absence of Standard or an Interpretation that specifically applies to a transaction, the
framework should be followed.
c. In the absence of Standard or an Interpretation that specifically applies to a
transaction, management should consider the applicability of the Framework in
developing and applying an accounting policy that results in information that is
relevant and faithfully represented.
d. The Framework applies only when the FRSC develops new or revised standards
2. What are the qualitative characteristics of the IFRS financial statements?
a. Understandability, relevance, faithful representation, and comparability
b. Uniqueness, relevance, responsibility, and comparability
c. Understandability, relevance, responsibility, and cooperation
d. Democratic principles, relevance, reliability, and cooperation
3. Accounting constraints are factors that affect the balance between the qualitative
characteristics
a. Faithful representation and relevance
b. Understandability and comparability
c. Reliability and understandability
d. Relevance and comparability
4. When should an item that meets the definition of an element be recognized, according to the
Framework?
a. When it is probable that any future economic benefit associated with the item will flow to or
from the entity.
b. When the element has a cost or value that can be measured with reliability.
c. When the entity obtains control of the rights or obligations associated with the item.
d. When it is probable that any future economic benefit associated with the item will
flow to or from the entity and the item has a cost or value that can be measured with
reliability.
5. The following statements relates to materiality, which of the following statements is incorrect?
a. The relevance of information is affected by its nature and materiality.
b. In some cases, the nature of information alone is sufficient to determine its relevance
c. Materiality provides a threshold or cut-off point that is why it is considered as a
primary qualitative characteristic
d. Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements.
6. Under this concept of capital maintenance profit is earned only if the financial (or money)
amount of the net assets at the end of the period exceeds the financial (or money) amount of
net assets at the beginning of the period, after excluding any distribution to, and contributions
from, owners during the period
a. Money capital
b. Operating capital
c. Physical capital
d. Financial capital
7. The physical capital maintenance concept requires the adoption of what measurement basis
a. historical cost
b. replacement cost
c. current cost
d. discounted value
8. Financial capital maintenance concept requires the adoption of what measurement basis
a. historical cost
b. current cost
c. discounted value
d. none
9. The following statements refer to equity which is incorrect?
a. Although equity is defined as a residual, it may be sub-classified in the
balance sheet
b. The creation of reserves is sometimes required by statute or other laws in
order to give the entity and its creditors an added measure of protection from
the effects of losses
c. The amount at which equity is shown in the balance sheet is dependent on
the measurement of assets and liabilities
d. The existence and size of legal, statutory and tax reserves is
information that can be relevant to the decision-making needs of users,
transfer from reserves are expense rather than appropriation of retained
earnings
10. The following statements refer to liabilities which is incorrect?
a. An essential characteristic of a liability is that the entity has a present
obligation
b. If an entity decides as a matter of policy to rectify faults in its products
even when these become apparent after the warranty period has
expired, the amounts that are expected to be expended in respect of
goods already sold are not liabilities.
c. A distinction needs to be drawn between a present obligation and a future
commitment
d. A decision by the management of an entity to acquire assets in the future
does not, of itself, give rise to a present obligation.
11. The settlement of a present obligation usually involves the entity giving up
resources embodying economic benefits in order to satisfy the claim of the other
party. Settlement of a present obligation may occur in which of the following
ways
I. Payment of cash
II. Transfer of other assets
III. Provision of services
IV. Replacement of that obligation with another obligation
V. conversion of the obligation to equity
VI. creditor waiving or forfeiting its rights
a. I, II, IV, V and VI
b. I, II, III, IV, V and VI
c. I, II, V and VI
d. I, II, III and IV
12. What accounting concept justifies the usage of accruals and deferrals?
a. Consistency characteristics
b. Going concern assumption
c. Materiality constraint
d. Monetary unit assumption
13. A cash over or short account
a. Is not generally accepted
b. Is debited when the petty cash fund proves out short
c. Is debited when the petty cash fund proves out over
d. Is a contra account to cash
14. Bank reconciliation
a. Explains the difference between the bank balance and the balance
shown in the depositors records.
b. Is the process of transferring money in or out of a bank account.
c. Requires that every transaction which will result in a cash payment be
verified, approved and recorded before a bank check is prepared.
d. Is an analysis that reflects the bank transactions made by a depositor.
15. When preparing a bank reconciliation, bank credits are
a. Added to the bank statement balance
b. Deducted from the bank statement balance
c. Deducted from the balance per book
d. Added to the balance per book
16. If the deposit is legally restricted as to withdrawal, the compensating balance
related to a long-term loan is shown as
a. Cash
b. Other assets
c. Long-term investment
d. Current liability
17. Cash on hand and in bank on the balance sheet should exclude
a. Hong Kong dollars deposited in a foreign currency depository unit account.
b. Checks drawn before the balance sheet date but held for later delivery to
creditors.
c. Time deposits.
d. Cash reserved for the acquisition of fixed assets.
18. If petty cashier pays 450 for a transportation out of an imprest petty cash, the
journal entry should include
a. Credit to cash for 450
b. Credit to petty cash for 450
c. Debit to transportation and credit to petty cash for 450
d. No journal entry is made
19. Usually, if the petty cash fund is not reimbursed just prior to year-end and an
appropriate adjusting entry is not made
a. The petty cash account should be returned to the cashier.
b. Expenses will be understated and cash will be overstated.
c. A complete audit is necessary.
d. Expenses will be overstated and cash will be understated.
20. What is the adjusting entry for a customer NSF check?
a. Debit accounts receivable and credit cash
b. Debit cash and credit accounts receivable
c. Debit service charge and credit cash
d. No adjustment in necessary
21. Which of method of estimating doubtful accounts fairly presents the net
realizable value of accounts receivable?
a. Percentage of sales method
b. Aging of accounts receivable method.
c. Percent of accounts receivable method
d. Direct write off method
22. Which of the following is true when accounts receivable are factored without
recourse?
a. The factor assumes the risks of uncollectibility and absorbs any credit
losses in collecting the receivable
b. The transaction may be accounted for either as a secured borrowing or as a
sale depending upon the substance of the transaction
c. The financing cost (interest expense) should be recognized ratably over the
collection period of the receivable
d. The receivables are used as collateral for a promissory note issued to the
factor by the owner of the receivables
23. A troubled debt restructuring will generally result in a
a. Loss by the debtor and a gain by the creditor
b. Loss by both the debtor and the creditor
c. Gain by both the debtor and creditor
d. Gain by the debtor and a loss by the creditor
24. Receivables denominated in a foreign currency should be
a. Translated to local currency using the exchange rate at balance sheet
date
b. Translated to local currency using the exchange rate when the balance sheet
is issued
c. Translated to local currency using the exchange rate at the time the
receivables arise
d. Shown at face value of the foreign currency
25. Installments receivable arising from sales of inventories should be classified as
a. Current assets
b. Noncurrent assets
c. Current assets; however, the amount not realizable within one year
should be disclosed, if material
d. None of these
26. Receivables from subsidiaries and affiliates, if significant should be classified as
a. Intangible assets
b. Current assets
c. Noncurrent assets
d. Either as noncurrent or current depending on the expectation of
realizing them within one year or over one year
27. Credit balances in accounts receivable should be classified as
a. Assets
b. Noncurrent liability
c. Deduction from accounts receivable
d. Current liability
28. When a specific customers account receivable is written off as uncollectible,
what will be the effect on net income under each of the following methods of
recognizing bad debt expense?
Allowance Direct write-off
a. None None
b. Decrease None
c. Decrease Decrease
d. None Decrease
29. Notes receivable discounted with recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability
30. Which type of factoring pertains to a set up where the factor withholds a
predetermined amount as a protection against customer returns and allowances
and other adjustments?
a. Casual factoring
b. Factoring as a continuing agreement
c. Notification basis
d. Non-notification basis
31. When discounting of notes do not result to derecognition of the receivable but
result to recognized a liability instead, this type is referred to as
a. Discounting without recourse
b. Discounting with recourse; a conditional sale
c. Discounting with recourse; secured borrowing
d. Casual discounting
32. If the note discounted is made by the party discounting it, which type of liability
exists?
a. None
b. Primarily liability to the note
c. Contingent liability
d. Either b or c
33. The inventories of a service provider may simply be described as
a. Billed receivables
b. Deferred costs
c. Unbilled receivables
d. Work in progress
34. The cost of inventories that are not ordinarily interchangeable and goods or
services produced and segregated for specific projects should be assigned by
using
a. Specific identification
b. Average method
c. LIFO
d. FIFO
35. Which costs may be capitalized as cost of inventories?
a. Storage costs
b. Selling costs
c. Foreign exchange differences which arises directly on the recent acquisition
of inventories invoiced in a foreign currency.
d. Normal shrinkage and scrap incurred for the manufacture of a product
in ending inventory.
36. Theoretically, cash discounts permitted on purchased raw materials should be
a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, only if taken
d. Deducted from inventory, whether taken or not
37. The credit balance that arises when a net loss in a purchase commitment is
recognized should be
a. Subtracted from ending inventory
b. Presented as an appropriation of retained earnings
c. Presented as a current liability
d. Presented in the income statement
38. Net realizable value is
a. estimated selling price in the ordinary course of business
b. estimated selling price in the ordinary course of business less the estimated
costs of completion in the case of finished goods and estimated costs
necessary to make the sale in the case of work in process
c. estimated selling price in the ordinary course of business less the estimated
costs of completion and estimated costs necessary to make the sale.
d. is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arms length transaction.
39. The weighted average inventory costing method is particularly suitable to
inventory where:
a. dissimilar products are stored in separate locations;
b. homogeneous products are mixed together.
c. the entity carries stocks of raw materials, work-in-progress and finished
goods;
d. goods have distinct use-by dates and the goods produced first must be sold
earliest;
40. When an inventory costing formula is changed, the change is required to be
applied:
a. retrospectively and the adjustment taken through the opening balance
of accumulated profits;
b. retrospectively and the adjustment recognised as an extraordinary gain or
loss.
c. prospectively and the adjustment taken through the current profit or loss;
d. prospectively and the current period adjustment recognised directly in equity;
41. Net realisable value of inventories may fall below cost for a number of reasons
including:
I. Product obsolescence.
II. Physical deterioration of inventories.
III. An increase in the expected replacement costs of the inventory,
IV. An increase in the estimated costs of completion.
a. I, II and IV only;
b. I, III and IV only;
c. II, III and IV only;
d. All of the above
42. Which of the following items are comprised (added or deducted) in the cost of
inventories according to IAS 2, Inventories?
I. Storage costs for work in progress
II. Fixed administration overheads
III. Trade discount
 IV. Storage costs relating to finished goods
V. Fixed production overheads
a. I, II and V only
b. I and V only
c. I, III and V only
d. all of the above
43. Complete the following statement When measuring fixed production overheads,
if an entity has abnormally high production in excess of normal capacity, it is
necessary to:
a. Expense unallocated overheads in the period
b. Increase the amount of overheads allocated to each unit of production
c. Reduce the rate of overhead absorption in order to avoid carrying the
inventory at more than actual cost
d. Allocated to units produced on the basis of actual use of the production
facilities
44. An entry debiting inventory and crediting cost of goods sold would be made
when
a. Merchandise is sold and the perpetual inventory method is used
b. Merchandise is sold and the periodic inventory method is used
c. Merchandise is returned and the periodic inventory method is used
d. Merchandise is returned and the perpetual inventory method is used
45. Major space parts and standby equipment which are expected to be used over a
period of more than one year should be classified as
a. Inventory
b. Supplies
c. Expenses
d. Property, plant and equipment
46. When an item of property, plant and equipment is acquired by issuing debt
securities, which is the best basis for establishing the historical cost of the
acquired asset?
a. Face value of the bonds issued
b. Fair value of the asset received
c. Historical cost of the asset received
d. Fair value of the bond issued
47. Under IAS 16 Property, Plant and Equipment, an entity may choose to measure
assets using the revaluation model. If this model is chosen, revaluation
increments are recognized:
a. in profit or loss of the period in which the revaluation is undertaken;
b. as a deferred credit in the balance sheet;
c. directly in equity;
d. as an increase in the balance of the relevant accumulated depreciation
account.
48. The cost of land does not include
a. Costs of grading, filling, draining, and clearing
b. Costs of improvements with limited lives
c. Special assessments
d. All of the above form part of land cost
49. A change in the estimated useful life of a building
a. Is not allowed by generally accepted accounting principles
b. Affects the depreciation on the building beginning with the year of the
change
c. Must be handled as a retroactive adjustment to all accounts affected, back to
the year of the acquisition of the building
d. Creates a new account to be recognized on the income statement reflecting
the difference in net income up to the beginning of the year of the change
50. If the exchange transaction lacks commercial substance, the acquired item of
property, plant and equipment is measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Carrying amount of asset given plus cash payment
d. Carrying amount of asset received plus cash payment
51. The cost of an item of property, plant and equipment acquired in exchange for a
nonmonetary asset or a combination of monetary and nonmonetary asset is
measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Book value of asset given plus cash payment
d. Book value of asset received plus cash payment
52. Which is incorrect concerning self-constructed asset?
a. The cost of self-constructed asset is determined using the same principles as
for an acquired asset.
b. Any internal profits from construction are eliminated in arriving at the cost of
self- constructed asset.
c. The cost of abnormal amounts of wasted material, labor or other
resources incurred in the production of a self- constructed asset is
included in the cost of asset.
d. The cost of normal amounts of wasted material, labor or other resources
incurred in the production of a self-constructed asset is included in the cost of
the asset.
53. When payment for an item of property, plant and equipment is deferred beyond
normal credit terms, its cost is the
a. Installment price
b. Invoice price
c. Cash price equivalent
d. List price
54. If an asset is acquired on credit or by installment, the difference between the
total payments and cash price, if any, should be
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the credit period
55. The cost of a nonmonetary asset acquired in exchange for another nonmonetary
asset and the exchange has commercial substance is usually recorded at
a. the fair value of the asset given up, and a gain or loss is recognized.
b. the fair value of the asset given up, and a gain but not a loss may be
recognized.
c. the fair value of the asset received if it is equally reliable as the fair value of
the asset given up.
d. either the fair value of the asset given up or the asset received, whichever
one results in the largest gain (smallest loss) to the company.
56. When a plant asset is acquired by issuance of common stock, the cost of the
plant asset is properly measured by the
a. par value of the stock.
b. market value of the stock.
c. stated value of the stock.
d. book value of the stock.
57. Major spare parts and standby equipment which are expected to be used over a
period of more than one year should be classified as
a. Inventory
b. Property, plant and equipment
c. Supplies
d. Expenses
58. The cost of an item of property, plant and equipment acquired in exchange for a
nonmonetary asset or a combination of monetary and nonmonetary asset is
measured at
a. Book value of asset given plus cash payment
b. Fair value of asset given plus cash payment
c. Fair value of asset received plus cash payment
d. Book value of asset received plus cash payment
59. The cost of option to buy the acquired land is
a. an outright expense
b. capitalized as cost of the building
c. capitalized as cost of the land
d. amortized over the life of the
60. Which statement is incorrect regarding recognition of PPE?
a. Items of PPE should be recognized as assets when it is probable that the
future economic benefits associated with the asset will flow to the enterprise
and the cost of the asset can be measured reliably.
b. Recognition principle is applied to all property, plant, and equipment costs at
the time they are incurred.
c. PPE costs include costs incurred initially to acquire or construct an item of
property, plant and equipment and costs incurred subsequently to add to,
replace part of, or service it.
d. If the cost model is used, each part of an item of property, plant, and
equipment with a cost that is significant in relation to the total cost of
the item need not be depreciated separately.
61. Which of the following statements is not correct?
a. Insurance coverage during building is part of the cost.
b. Sidewalks, fence and pavements if part of the building blueprint is included in
the building account.
c. If there are claims for damages during construction and there was no
insurance taken, the claims for damages are part of building cost.
d. Building fixtures, if permanent is considered part of the building.
62. If land and building are acquired at a single cost
a. shall be allocated to land if FMV of land is greater than the buildings.
b. shall be allocated to building if FMV of building is greater than the lands
c. if the building is not usable, the entire cost is allocated to land.
d. Whether the building is usable or not, the entire cost is allocated between
land and building on the basis of relative fair market value
63. Which is correct concerning depreciation of PPE?
a. The depreciation method used should not reflect the pattern in which the
asset's economic benefits are consumed by the enterprise.
b. The depreciation method should be reviewed at least annually and, if the
pattern of consumption of benefits has changed, the depreciation method
should be changed retrospectively as a change in policy.
c. Depreciation should be charged to the income statement, unless it is
included in the carrying amount of another asset.
d. Depreciation begins when the asset is available for use and continues until
the asset is derecognized and became idle.

64. Which is incorrect concerning residual value of PPE?

 a. Depreciation is not recognized if the fair value of the asset exceeds its
carrying amount, even if the assets residual value does not exceed its
carrying amount.
b. The residual value of an asset is the estimated amount an entity would
currently obtain from disposal of the asset, after deducting the estimated
costs of disposal, if the asset were already of the age and in the condition
expected at the end of its useful life.
c. The residual value and the useful life of an asset should be reviewed at least
at each financial year-end and, if expectations differ from previous estimates,
any change is accounted for prospectively as a change in estimate.
d. The residual value of an asset may increase to an amount equal to or greater
than the assets carrying amount.
65. The term "depreciable cost," or "depreciable base," as it is used in accounting,
refers to
a. the acquisition cost of the asset.
b. the cost of the asset less the related depreciation recorded to date.
c. the total amount to be charged (debited) to expense over an asset's
useful life.
d. the estimated market value of the asset at the end of its useful life.
66. Use of the double-declining balance method
a. results in a decreasing charge to depreciation expense.
b. means salvage value is not deducted in computing the depreciation base.
c. means the book value should not be reduced below salvage value.
d. all of these.
67. Use of the sum-of-the-years'-digits method
a. results in salvage value being ignored.
b. means the book value should not be reduced below salvage value.
c. means the denominator is the years remaining at the beginning of the year.
d. all of these.
68. A graph is set up with "yearly depreciation expense" on the vertical axis and
"time" on the horizontal axis. Assuming linear relationships, how would the
graphs for straight-line and sum-of-the-years'-digits depreciation, respectively,
be drawn?
a. Horizontally and sloping down to the right
b. Horizontally and sloping up to the right
c. Vertically and sloping down to the right
d. Vertically and sloping up to the right
69. A change in estimate should
a. result in restatement of prior period statements.
b. be handled in current and future periods.
c. be handled in future periods only.
d. be handled retroactively.
70. When a company purchases land with a building on it and immediately tears
down the building so that the land can be used for the construction of a new
building, the costs incurred to tear down the building should be
a. amortized over the estimated time period between the tearing down of the
building and the completion of the plant.
b. expensed as incurred.
c. added to the cost of the new building
d. added to the cost of the land.

71. What is a compensating balance?

a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
 d. Minimum deposits required to be maintained in connection with a
borrowing arrangement.
72. Under which section of the statement of financial position is "cash restricted for
plant expansion" reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Equity.
73. A cash equivalent is a short-term, highly liquid investment that is readily
convertible into known amounts of cash and
a. is acceptable as a means to pay current liabilities.
b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of interest at
the date of liquidation.
d. is so near its maturity that it presents insignificant risk of changes in
interest rates.
74. Which of the following should be recorded in Accounts Receivable?
a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these.
75. When a customer purchases merchandise inventory from a business
organization, she may be given a discount which is designed to induce prompt
payment. Such a discount is called a(n)
a. trade discount.
b. nominal discount.
c. enhancement discount.
d. cash discount.
76. Of the approaches to record cash discounts related to accounts receivable,
which is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.
77. Why is the allowance method preferred over the direct write-off method of
accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to
do.
d. Improved matching of bad debt expense with revenue.
78. Which of the following concepts relates to using the allowance method in
accounting for accounts receivable?
a. Bad debt expense is an estimate that is based on historical and
prospective information.
b. Bad debt expense is based on the actual amounts determined to be
uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the
receivables aging.
d. Bad debt expense is management's determination of which accounts will
be sent to the attorney for collection.

79. Under the allowance method of recognizing uncollectible accounts, the entry to
write off an uncollectible account
a. increases the allowance for uncollectible accounts.
b. has no effect on the allowance for uncollectible accounts.
c. has no effect on net income.
d. decreases net income.
80. Which of the following is a method to generate cash from accounts receivable?
Assignment Factoring
a. Yes No
b. Yes Yes
c. No Yes
d. No No
81. Which of the following 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.
82. How is a significant amount of consignment inventory reported in the statement
of financial position?
a. The inventory is reported separately on the consignor's statement of
financial position.
b. The inventory is combined with other inventory on the consignor's
statement of financial position.
c. The inventory is reported separately on the consignee's statement of
financial position.
d. The inventory is combined with other inventory on the consignee's
statement of financial position.
83. Where should goods in transit that were recently purchased f.o.b. destination be
included on the statement of financial position?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the statement of financial position.
84. If a company uses the periodic inventory system, what is the impact on net
income of including goods in transit f.o.b. shipping point in purchases, but not
ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on net income.
85. If a company uses the periodic inventory system, what is the impact on the
current ratio of including goods in transit f.o.b. shipping point in purchases, but
not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on the current ratio.
86. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
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 shipper.
d. Goods that have been segregated for shipment to a customer.
87. Which of the following items should be included in a company's inventory at the
statement of financial position date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for
at his or her convenience.
d. None of these.

88. The failure to record a purchase of merchandise on account even though the
goods are properly included in the physical inventory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and liabilities and an
overstatement of assets.
 d. an understatement of liabilities and an overstatement of equity
89. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the place of
business of the buyer.
b. costs that are directly connected with the converting of goods to a salable
condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
90. How should the following costs affect a retailer's inventory valuation?
Freight-in Interest on Inventory Loan
a. Increase No effect
b. Increase Increase
c. No effect Increase
d. No effect No effect
91. During periods of rising prices, a perpetual inventory system would result in the
same dollar amount of ending inventory as a periodic inventory system under
which of the following inventory cost flow methods?
FIFO Average
a. Yes No
b. Yes Yes
c. No Yes
d. No No
92. Pau Co. was formed on January 2, 2015, to sell a single product. Over a two-
year period, Pau's acquisition costs have increased steadily. Physical quantities
held in inventory were equal to three months' sales at December 31, 2015, and
zero at December 31, 2016. Assuming the periodic inventory system, the
inventory cost method which reports the highest amount of each of the following
is
Inventory Cost of Sales
December 31, 2015 2016
a. Average FIFO
b. Average Average
c. FIFO FIFO
d. FIFO Average
93. LCNRV of inventory
a. is always either the net realizable value or its cost.
b. should always be equal to net realizable value.
c. may sometimes be less than net realizable value.
d. should always be equal to net realizable value less costs to complete
94. Net realizable value is
a. fair value plus estimated costs to complete and make a sale.
b. selling price.
c. selling price plus estimated costs to complete and make a sale.
d. selling price less estimated costs to complete and make a sale.
95. What is the effect of freight-in on the cost-retail ratio when using the conventional
retail method?
a. Increases the cost-retail ratio.
b. No effect on the cost-retail ratio.
c. Depends on the amount of the net markups.
d. Decreases the cost-retail ratio.

96. What is the effect of net markups on the cost-retail ratio when using the
conventional retail method?
a. Increases the cost-retail ratio.
b. No effect on the cost-retail ratio.
c. Depends on the amount of the net markdowns.
 d. Decreases the cost-retail ratio.
97. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
98. Which of the following is included in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs
99. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the place of
business of the buyer.
b. costs that are directly connected with the converting of goods to a salable
condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
100. The use of a Discounts Lost account implies that the recorded cost of a
purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or
not.