Question

1.

Adjusting entries are needed

Select one:

a.  only under the cash basis of accounting.

b. only under a perpetual inventory system

c. only under IFRS

d.  to produce relevant financial information for users.

e. to update accounts at the beginning of the accounting period.

2.

Walmarts sells $6,250 of goods on account in the current year and collects $3,250 of this. It incurs $4,200 in expenses on account during the current year and pays $2,600 of them. Walmart would report what amount of net income under the cash and accrual bases of accounting, respectively?

Select one:

a.  $3,250 on the cash basis and $4,200 on the accrual basis

b. $3,000 on the cash basis and $1,600 on the accrual basis

c. $650 on the cash basis and $2,050 on the accrual basis

d.  $2,050 on the cash basis and $3,000 on the accrual basis

e. Impossible to answer unless we know if the company is also using a perpetual inventory system.

3.

Inventory that originally cost $11,200 was written down to its net realizable value of $9,400 at the end of 2021. At the end of 2022, the net realizable value is determined to be $11,700. At what amount should the inventory be reported on the December 31, 2022 statement of financial position?

Select one:

a. $9,700

b.  $11,700

c.  $11,200

d. This question cannot be solved without knowing whether the company uses specific identification, FIFO, or average cost

e. $9,400

4.

For 2022, Superplus Inc. reported $48,000 beginning inventory and $52,000 ending inventory. Sales were $320,000 and gross profit was $110,000 for the same period. Based on these figures, days in inventory for 2022 was

Select one:

a. Unable to determine without more information.

b. 57 days.

c.  87 days.

d. 59 days.

e.  83 days.

5.

Griffin Inc. started the year with $1,000 of supplies on hand. It purchased supplies costing $4,250 on March 15 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $2,100 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

Select one:

a. debit Supplies Expense, $2,100; credit Supplies, $2,100.

b.  debit Supplies, $5,250; credit Supplies Expense, $4,250, Credit Accounts Payable $1,000

(d) debit Supplies, $2,100; credit Supplies Expense, $2,100.

c. It depends upon whether the company was following IFRS or ASPE

d.  debit Supplies, $4,250; credit Supplies Expense, $4,250.

e. debit Supplies Expense, $3,150; credit Supplies, $3,150.

Answer 1

1 option e is the correct answer. Adjustment entries are required to adjust the account before the preparation of the financial statements at the end of the year.

2.correct option is c . In cash system of accounting we record only those transaction which includes dealing in cash where as in accural system of accounting we record all the transaction whether cash is actual paid Or received Or not. As per cash basis (3250-2600) answer is 650. Whereas as per accural basis (6250-4200) answer is 2050.

3 As per IAS 2 inventory should be valued at the lower of cost Or net realisable value. So the correct answer is option e( 9400 Or 11700 which ever is less) 9400.

4. To calculate days in inventory

We have to first calculate inventory turnover ratio which is equal to

Cost of goods sold /average inventory

In this question cost of goods sold is equal to Sales less Gross profit (320000-110000) = 210000

And Average inventory is equal to opening plus closing divided by 2. (48000+52000) /2 = 50000

Therefore Inventory turnover ratio is 210000/50000= 4.2 times.

Inventory is days is equal to 365/ inventory turnover ratio = 365 / 4.2 = 87 days.