Answered: 1. Inventory should be stated at (a)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Inventory should be stated at (a) Lower of cost and fair value. (b) Lower of cost and net realizable value. (c) Lower of cost and nominal value. (d) Lower of cost and net selling price. 2. 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 (sales department shares the building with factory supervisor). (d) Factory overheads based on normal capacity. 3. Inventories are assets (a) Used in the production or supply of goods and services for administrative purposes. (b) Held for sale in the ordinary course of business. (c) Held for long-term capital appreciation. (d) In the process of production for such sale. (e) In the form of materials or supplies to be consumed in the production process or the rendering of services. (f) Choices b and d. (g) Choices b, d, and e. 4. The cost of inventory should not include (a) Purchase price. (b) Import duties and other taxes. (c) Abnormal amounts of wasted materials. (d) Administrative overhead. (e) Fixed and variable production overhead. (f) Selling costs. (g) Choices c, d, and f. 5. ABC LLC manufactures and sells paper envelopes. The stock of envelopes was included in the closing inventory as of December 31, 2005, at a cost of GHS50 each per pack. During the final audit, the auditors noted that the subsequent sale price for the inventory at January 15, 2006, was GHS40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has created damages to the paper and the glue. Accordingly, in the following week, ABC LLC spent a total of GHS15 per pack for repairing and reapplying glue to the envelopes. The net realizable value and inventory write-down (loss) amount to (a) GHS40 and GHS10 respectively. (b) GHS45 and GHS10 respectively. (c) GHS25 and GHS25 respectively. (d) GHS35 and GHS25 respectively. (e) GHS30 and GHS15 respectively.

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