When developing forecasts, analysts should most likely :

A . develop possibilities relying exclusively on the results of fi nancial analysis.

B . use the results of fi nancial analysis, analysis of other information, and judgment.

C . aim to develop extremely precise forecasts using the results of fi nancial analysis.

1. Inventory cost is least likely to include:
A. production-related storage costs.
B. costs incurred as a result of normal waste of materials.
C. transportation costs of shipping inventory to customers.
2. Mustard Seed PLC adheres to IFRS. It recently purchased inventory for €100 million and spent €5 million for storage prior to selling the goods. Th e amount it charged to inventory expense (€ millions) was closest to:
A. €95.
B. €100.
C. €105.
3. Carrying inventory at a value above its historical cost would most likely be permitted if:
A. the inventory was held by a producer of agricultural products.
B. financial statements were prepared using U.S. GAAP.
C. the change resulted from a reversal of a previous write-down.
4. Eric’s Used Bookstore prepares its financial statements in accordance with IFRS. Inventory was purchased for £1 million and later marked down to £550,000. One of the books, however, was later discovered to be a rare collectible item, and the inventory is now worth an estimated £3 million. Th e inventory is most likely reported on the balance sheet at:
A. £550,000.
B. £1,000,000.
C. £3,000,000.
5. Fernando’s Pasta purchased inventory and later wrote it down. Th e current net realizable value is higher than the value when written down. Fernando’s inventory balance will most likely be:
A. higher if it complies with IFRS.
B. higher if it complies with U.S. GAAP.
C. the same under U.S. GAAP and IFRS.

6. Cinnamon Corp. started business in 2007 and uses the weighted average cost method.
During 2007, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2008, it purchased another 50,000 units at €11 each and sold 45,000 units for €22 each. Its 2008 cost of sales (€ thousands) was closest to:
A. €490.
B. €491.
C. €495.
7. Zimt AG started business in 2007 and uses the FIFO method. During 2007, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2008, it purchased another 50,000 units at €11 each and sold 45,000 units for €22 each. Its 2008 ending inventory balance (€ thousands) was closest to:
A. €105.
B. €109.
C. €110.
8. Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices, the cost of sales reported by:
A. Zimt is too low.
B. Nutmeg is too low.
C. Nutmeg is too high.
9. Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices the ending inventory balance reported by:
A. Zimt is too high.
B. Nutmeg is too low.
C. Nutmeg is too high.
10. Like many technology companies, TechnoTools operates in an environment of declining prices. Its reported profits will tend to be highest if it accounts for inventory using the:
A. FIFO method.
B. LIFO method.
C. weighted average cost method.
11. Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be:
A. lower.
B. higher.
C. dependent upon the interaction with accounts payable.
12. Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt’s reported 2007:
A. current ratio was too high.
B. gross margin was too high.
C. inventory turnover was too high.

13. Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the results the company would have reported if the write-down had never occurred, Zimt’s reported 2008:
A. profit was overstated.
B. cash flow from operations was overstated.
C. year-end inventory balance was overstated.
14. Compared to a company that uses the FIFO method, during periods of rising prices a company that uses the LIFO method will most likely appear more:
A. liquid.
B. efficient.
C. profitable.
15. Nutmeg Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most likely be:
A. lower than it would be if the company used the FIFO method.
B. higher than it would be if the company used the FIFO method.
C. about the same as it would be if the company used the FIFO method.
16. Compared to using the FIFO method to account for inventory, during periods of rising prices, a company using the LIFO method is most likely to report higher:
A. net income.
B. cost of sales.
C. income taxes.
17. Carey Company adheres to U.S. GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that:
A. Carey has reversed an inventory write-down.
B. Jonathan has reversed an inventory write-down.
C. Jonathan and Carey both use the FIFO inventory accounting method.

18. Th e costs least likely to be included by the CFO as inventory are:
A. storage costs for the chocolate liquor.
B. excise taxes paid to the government of Brazil for the cacao beans.
C. storage costs for chocolate and purchased finished goods awaiting shipment to customers.
19. What is the most likely justification for Century Chocolate’s choice of inventory valuation method for its finished goods?
A. It is the preferred method under IFRS.
B. It allocates the same per unit cost to both cost of sales and inventory.
C. Ending inventory reflects the cost of goods purchased most recently.
20. In Kern’s comparative ratio analysis, the 2009 inventory turnover ratio for Century Chocolate is closest to:
A. 5.07.
B. 5.42.
C. 5.55.
21. Th e most accurate statement regarding Annan’s reasoning for requiring Kern to select a competitor that reports under IFRS for comparative purposes is that under U.S. GAAP:
A. fair values are used to value inventory.
B. the LIFO method is permitted to value inventory.
C. the specific identification method is permitted to value inventory.
22. Annan’s statement regarding the perpetual and periodic inventory systems is most significant when which of the following costing systems is used?
A. LIFO.
B. FIFO.
C. Specific identification.
23. Using the inventory record for purchased lemon drops shown in Exhibit D, the cost of sales for 2009 will be closest to:
A. CHF 3,550.
B. CHF 4,550.
C. CHF 4,850.
24. Ignoring any tax eff ect, the 2009 net realizable value reassessment for the black licorice jelly beans will most likely result in:
A. an increase in gross profit of CHF 9,256.
B. an increase in gross profit of CHF 11,670.
C. no impact on cost of sales because under IFRS, write-downs cannot be reversed 25. If the trend noted in the ICCO report continues and Century Chocolate plans to maintain constant or increasing inventory quantities, the most likely impact on Century Chocolate’s financial statements related to its raw materials inventory will be:
A. a cost of sales that more closely reflects current replacement values.
B. a higher allocation of the total cost of goods available for sale to cost of sales.
C. a higher allocation of the total cost of goods available for sale to ending inventory 26. If Karp had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2009 would have been closest to:
A. $465 million.
B. $658 million.
C. $775 million.
27. If Karp had used FIFO instead of LIFO, the amount of cost of goods sold reported by Karp for the year ended 31 December 2009 would have been closest to:
A. $2,056 million.
B. $2,173 million.
C. $2,249 million.
28. If Karp had used FIFO instead of LIFO, its reported net income for the year ended 31 December 2009 would have been higher by an amount closest to:
A. $30 million.
B. $38 million.
C. $155 million.
29. If Karp had used FIFO instead of LIFO, Karp’s retained earnings as of 31 December 2009 would have been higher by an amount closest to:
A. $117 million.
B. $124 million.
C. $155 million.
30. If Karp had used FIFO instead of LIFO, which of the following ratios computed as of 31 December 2009 would most likely have been lower?
A. cash ratio B. current ratio C. gross profit margin 31. If Karp had used FIFO instead of LIFO, its debt to equity ratio computed as of 31 December 2009 would have:
A. increased.
B. decreased.
C. remained unchanged.

32. Crux’s inventory turnover ratio computed as of 31 December 2009, after the adjustments suggested by Groff , is closest to:
A. 5.67.
B. 5.83.
C. 6.13.
33. Rolby’s net profit margin for the year ended 31 December 2009, after the adjustments suggested by Groff , is closest to:
A. 6.01%.
B. 6.20%.
C. 6.28%.
34. Compared with its unadjusted debt-to-equity ratio, Mikko’s debt-to-equity ratio as of 31 December 2009, after the adjustments suggested by Groff , is:
A. lower.
B. higher.
C. the same.
35. Th e best answer to Borghi’s Question 1 is:
A. Crux’s.
B. Rolby’s.
C. Mikko’s.
36. Th e best answer to Borghi’s Question 2 is:
A. stable.
B. inflationary.
C. deflationary.
37. Th e best answer to Borghi’s Question 3 is:
A. Activity ratios.
B. Solvency ratios.
C. Profitability ratios.

38. Th e MD&A indicated that the prices of raw material, other production materials, and parts increased. Based on the inventory valuation methods described in Note 2, which inventory classification would least accurately reflect current prices?
A. Raw materials B. Finished goods C. Work in process 39. Th e 2008 inventory value as reported on the 2009 consolidated balance sheet if the company had used the FIFO inventory valuation method instead of the LIFO inventory valuation method for a portion of its inventory would be closest to:
A. ¥104,698 million.
B. ¥506,125 million.
C. ¥618,692 million.
40. What is the least likely reason why ZP may need to change its accounting policies regarding inventory at some point after 2009?
A. Th e U.S. SEC is likely to require companies to use the same inventory valuation method for all inventories.
B. Th e U.S. SEC is likely to prohibit the use of one of the methods ZP currently uses for inventory valuation.
C. One of the inventory valuation methods used for U.S. tax purposes may be repealed as an acceptable method.
41. If ZP had prepared its financial statement in accordance with IFRS, the inventory turnover ratio (using average inventory) for 2009 would be:
A. lower.
B. higher.
C. the same.
42. Inventory levels decreased from 2008 to 2009 for all of the following reasons except:
A. LIFO liquidation.
B. sales volume decreased.
C. fluctuations in foreign currency translation rates.
43. Which observation is most likely a result of looking only at the information reported in Note 9?
A. Increased competition has led to lower unit sales.
B. Th ere have been significant price increases in supplies.
C. Management expects a further downturn in sales during 2010.
44. Note 2 indicates that, “Inventories valued on the LIFO basis totaled ¥94,578 million and ¥50,037 million at 31 December 2008 and 2009, respectively.” Based on this, the LIFO reserve should most likely:
A. increase.
B. decrease.
C. remain the same.
45. Th e Industry and Business Risk excerpt states that, “Increased competition may lead to lower unit sales and excess production capacity and excess inventory. Th is may result in a further downward price pressure.” Th e downward price pressure could lead to inventory that is valued above current market prices or net realizable value. Any write-downs of inventory are least likely to have a significant eff ect on the inventory valued using:
A. weighted average cost.
B. first-in, first-out (FIFO).
C. last-in, first-out (LIFO).