Multiple Choice Questions
l. A company incurred the following costs related to the production of inventory in the current year:
Cost of materials ……………………………………………. $100,000
Cost of direct labor …………………………………………. 60,000
Allocation of variable overhead costs ………………………. 30,000
Allocation of fixed overhead costs
(based on normal production levels) ………………………... 25,000
Storage costs (after production, prior to sale) ………………. 2,000
Selling costs ………………………………………………… 8,000
The cost of materials included abnormal waste of $10,000. What is the cost of inventory in the current year?
a. $190,000.
b. $205,000.
c. $215,000.
d. $217,000.
2. A company determined the following values for its inventory as of the end of its fiscal year:
Historical cost …………………………………………………. $50,000
Current replacement cost ………………………………………. 35,000
Net realizable value ……………………………………………. 45,000
Net realizable value less a normal profit margin ………………. 40,000
Fair value ………………………………………………………. 48,000
What amount should the company report for inventory on its balance sheet?
a. $35,000.
b. $40,000.
c. $45,000.
d. $48,000.
3. When an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?
a. When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.
b. When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs may be selectively revalued.
c. Revaluations of property, plant, and equipment must be made at least every three years.
d. Increases in an asset's carrying value as a result of the first revaluation must be recognized in net income.
4. An asset is considered to be impaired when its carrying amount is greater than its
a. Net selling price.
b. Value in use.
c. Undiscounted future cash flows.
d. Recoverable amount.
5. Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if
a. The useful life of the intangible asset can be reliably determined.
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset has a finite life.