June 2025 Chapter 6

Question 1

During periods of inflation ending inventory and income tax payable using LIFO be higher or lower than FIFO?

Answer 1

LIFO would be lower in Income tax payable and ending inventory

Question 2

How is inventories measured using the FIFO method?

Answer 2

lower of cost or NRV

basically the cost of inventory or NRV which ever is lower

Question 3

How is inventories measured using the LIFO method?

Answer 3

Usually under the lower of cost or market value

Market value maximum is NRV or Minimum is NRV minus profit

Question 4

Election of FV option (FVO) for financial assets

Answer 4

results in recognition of unrealized gains and losses in earnings of business entity

Question 5

When comprehensive income an unrealized holding loss on an investment in AFS reclasssfication?

Answer 5

the entry is unrealized loss should be credited to the OCI account

Question 6

Periodic LIFO COGS?

Answer 6

Under the periodic LIFO COGS is calc using the costs of the most recent inventory purchase first until the total quantity sold is reached

Question 7

Weighted AVG COGS?

Answer 7

Calc by determining AVG cost per unit of all inventory and mutiplying it by the number units sold

Question 8

Moving AVG COGS?

Answer 8

Moving AVG method the COGS is calc using the AVG cost per unit and recalculated each time a new purchase is made

Question 9

LIFO during inflation what happens to COGS and ending inventory?

Answer 9

LIFO would have a high COGS due to it selling it’s most expensive items first due to inflation

Inventory would be lower due to the lower cost. The lower cost item wouldn’t be touch due to the LIFO method

Net income and gross profit will be lower

Taxes will be lower as well

Question 10

FIFO during inflation what happens to COGS and ending inventory?

Answer 10

FIFO COGS will be lower due to being able to sell the cheapest cost first

Ending inventory value it will produce higher because it sold the recent and priciest product first

End result the Net income and gross profit will be higher and taxes will be higher as well

Question 11

Explain how to CALC weighted AVG method, COGS?

Answer 11

To calc the COGS using the weighted AVG method we need to total the units and costs.

Once we obtain that we need total we need to divide the units total by the cost total to get a AVG cost price

Next we multiply the AVG cost price by the amounts of units sold we get the Moving AVG COGS

Question 13

What happens to ENDING INVENTORY when it’s overstated?

Answer 13

Meaning inventory is too high which in result will cause a decrease in COGS and an increase in net income

Question 14

When there is a inventory error does it reserve the next year?

Answer 14

Yes let’s say if ending inventory is overstated this year which will cause the BEGIN inventory for next year to increase

Question 15

What happens to ENDING INVENTORY when it’s understated?

Answer 15

When this happens ending inventory is too low this will cause COGS to go UP and net income to go DOWN

Question 16

What is a way to remember the ending inventory overstated/understated?

Answer 16

COGS moves the opposite of ending inventory and net income moves with COGS

Question 17

Is a change in assurance warranty a change in estimate or retrospective?

Answer 17

change in estimate

Question 18

What will happen when beginning inventory is understated and ending inventory is overstated to COGS?

Answer 18

COGS is understated

Question 19

What happens when a entity is going to purchase equipment and on the contract it’s 10,000 then it drop to 7000?

Answer 19

they would need to record the loss and record a liability

Question 20

In FOB shipping point what happens if the ending inventory is not included for FOB shipping point by the buyer to assets and retained earnings?

Answer 20

both are understated

Question 21

The transaction price that should be adjusted for the effect of the time value of money

Answer 21

selling price of the product and the consideration promised in the contract may indicate that the financing component is significant

Question 22

When an entity changes from cash basis of accounting to accrual basis of accounting. How is this change reported on the financial statement?

Answer 22

as a prior period adjustment resulting from the correction of an error

Question 23

How to report the discontinued operations and material unusual or infrequently occurring items that occur at midyear initially reported?

Answer 23

reported on the interim financial statements

Question 24

Weighted AVG for inventory cost flow method is applicable to which inventory systems?

Answer 24

periodic Yes
Perpetual No

Question 25

Other comprehensive income an unrealized holding loss as an investment in AFS reclassification adjustment should be included?

Answer 25

The unrealized loss should be credited to OCI income account

Question 26

In periodic inventory that uses weighted average cost flow method, the beginning inventory

Answer 26

Total goods available for sale minus the net purchase

Question 27

What are typical costs added to PP&E?

Answer 27

Purchase Price Legal fees Demolition costs Site preparations

Question 28

The revenue recognition from contracts with customers standard

Answer 28

single principle based and it eliminates most current industry specific guidance

Question 29

When the consignment goods are sold the freight costs should be included in

Answer 29

Accounts Receivable

Question 30

When calculating capitalized interest what are the key point you need to remember when completing the problem?

Answer 30

While using the weighted AVG cost of accumulated construction expenditures we need to remember to the dates when the project was in progress and when it ended

Question 31

Subsequent events that affecting the realization of assets oridinarily will require recognition in the financial statements such events typically represent

Answer 31

Issue that already existed on the balance sheet date

Question 32

When there is a payment that needs to be made to the supplier at year end what exchange rate would we use?

Answer 32

Exchange rate at the year end