MUHASEBE I - Deneme Sınavı - 11

Average Cost Method is an inventory costing method based on the weighted average cost per unit of inventory that is calculated after each purchase. Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available.

The materiality concept states that a company must perform strictly proper accounting only for significant items.2 Information is significant (material in accounting terms) when it would cause someone to change a decision. The most important point about this concept is to understand what is significant or material.

The correct answer is B.

Inventory Turnover Ratio measures number of times a company sells average level of merchandise inventory during a period.

The correct answer is B.

Turnover Ratio = Cost of Goods Sold divided by Average Merchandise Inventory

The correct answer is A.

Days’ Sales in Inventory = 365 days divided by inventory turnover

The correct answer is A.

Last-In, First-Out (LIFO) Method Last-in, First-out (LIFO) is just the opposite of FIFO. Under the last-in, first-out (LIFO) method, ending inventory comes from the oldest costs (beginning inventory and earliest purchases) of the period.

The correct answer is E.

First-In, First-Out (FIFO) Method The First-In, First-Out (FIFO) method assumes that the earliest goods purchased arethe first to besold. Under the first-in, first-out (FIFO) method, the cost of goods sold is based on the oldest purchases – that is, the first units to come in are assumed to be the first units to go out of the warehouse (sold). FIFO costing is consistent with the physical movement of inventory (for most companies). That is, under the FIFO inventory costing method, companies sell their oldest inventory first.

The correct answer is D.

Specific Identification Method is an inventory costing method based on the specific cost of particular units of inventory.

The correct answer is C.

Ending inventory = Unit cost x Number of units on hand

The correct answer is C.

Conservatism in accounting means being careful in reporting items in the financial statements. Conservatism follows these ideas:

Anticipate no gains, but provide for all probable losses.

If in doubt, record an asset the lowest reasonable amount and reliability at the highest reasonable amount.

When there is a question, record an expense rather than an asset.

When you are faced with a decision between two possible options, you must choose the option that undervalues, rather than overvalues, your business The purpose of conservatism is to report realistic figures and never exaggerate assets or net income.

The correct answer is C.

Perpetual Inventory System is a system of tracking and recording inventory and costs of goods sold on a continual basis, so current inventory balance can be calculated on real time basis, and the accounting system can display the current inventory balance at any point in time.

The correct answer is B.

Inventories are assets;

I. Held for sale in the ordinary course of business;

II. Use in the process of production for such sale

III. In the form of materials or supplies to be consumed in the production process or in
the rendering of the services. The correct choice is E.

A manufacturing company produces goods and usually sells them to merchandising firms. Although the products they produce may differ, manufacturers normally have
three inventory accounts in their financial statements: raw materials, work in process, and finished goods. Raw Materials Inventory reports the cost of goods and materials on hand which will be used in production. Work in Process Inventory reports the cost of goods, materials and other components of manufacturing process used for the inventory which are still in production process, in other words unfinished at the time
financial statements are prepared. Finished Goods Inventory reports the cost of goods, materials and other components of manufacturing process used for the inventory produced and available for sale.The correct choice is E.

In accordance with the consistency principle holds that companies should use the same accounting methods and procedures in each accounting period, so that the information provided will help investors and creditors to compare a company’s financial statements from one period to the next. The correct choice is A.

The disclosure principle holds that a company should report enough information for financial statement users to understand methods and procedures used for each component of the financial statements to make wise decisions about the company
by providing additional information.

A company must perform strictly proper accounting only for items that are significant
to the business’s financial situation according to the materiality concept requirements. The correct choice is C.

A business should report the least favorable figures in the financial statements when
two or more possible options are presented according to the conservatism concept
requirements. The correct choice is D.

Perpetual Inventory System achieves better control over the inventory by recording the following information:

• Units purchased and cost amounts
• Units sold and sales and cost amounts
• The quantity of merchandise inventory on hand and its cost. The correct choice is E.

In the specific identification method, the company knows exactly which item was sold and exactly what the item cost. So, specific Identification Method is an inventory
costing method based on the specific cost of particular units of inventory. The correct choice is A.

Average Cost Method is an inventory costing method based on the weighted
average cost per unit of inventory that is calculated after each purchase. Weighted
average cost per unit is determined by dividing the cost of goods available for
sale by the number of units available. The correct choice is B.