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IIA CIA Exam
Certified Internal Auditor Exam (Page 60 )

Updated On: 12-Jan-2026
Page 60 of 342
PDF with 1702 Questions

The rate of gross profit on Year 2 installment sales is

  1. 20%
  2. 40%
  3. 50%
  4. 80%

Answer(s): A

Explanation:

The rate of gross profit on Year 2 installment sales is 20% [(US $5, 000 of Year 2 installment sales - $4, 000 cost of Year 2 installment sale=, ) - $5, 000 of Year 2 installment sales].
An entity sells goods on an installment basis. The table below includes information about the level of installment sales, the cost of the goods sold on installment, and the cash receipts on installment sales for Year 1 through Year 3. All cash receipt amounts shown are net of any interest charges.



The amount of gross profit to be recognized in Year 1 on Year 1 installment sales is

  1. US $800
  2. US $2, 000
  3. US $3, 200
  4. US $4, 000

Answer(s): A

Explanation:

In Year 1. cash receipts were US $2, 000 from Year 1 installment sales. The gross profit realized is the gross profit on the portion of sales for which payment has been received. This amount equals the Year 1 gross profit percentage multiplied by the cash receipts. or US $800 {[($10.000 - $6, 000) $10, 000] x $2.000}.
An entity sells goods on an installment basis. The table below includes information about the level of installment sales, the cost of the goods sold on installment, and the cash receipts on installment sales for Year 1 through Year 3. All cash receipt amounts shown are net of any interest charges.



The gross profit amount from Year 3 sales to be deferred to future years would be

  1. US $2, 000
  2. US $3.000
  3. US $8, 000
  4. US $10, 000

Answer(s): C

Explanation:

The total gross profit on Year 3 sales is US $10, 000$20, 000 sales ­ $10, 000 cost), and the amount realized is US $2, 000 {[($20, 000 ­ $10, 000) $20, 000] x $4, 000 of Year 3 cash receipts}. Accordingly, the amount deferred is US $8, 00010, 000 ­ $2, 000).



The cost of goods sold under the specific identification method of inventory valuation is

  1. US $1, :
  2. US $1, '. 1
  3. US. $1, 1z.1
  4. US $1.+1 , 1I

Answer(s): D

Explanation:

Of the 800 units sold during the period, the 300 units said on March 15 were purchased on January 12 at a cost of US $2.00 per unit. The remaining 500 units were purchased on May 5 at a cost of US $2.20 per unit. The cost of goods sold under the specific identification method is therefore US $1.700 [(300 units x $2.00) +500 units , , $2.20)].



The ending inventory balance under the first-in. first-outFIFO) method of inventory valuation is

  1. US $3, 050
  2. US $3, 150
  3. US $3, 230
    D US $3.430

Answer(s): B

Explanation:

Under the FIFO method, the 1.700 units of ending inventory are valued at the most recent prices. Ending inventory is assumed to include 1.000 units purchased November 24. 500 units purchased May 5. and 700 units purchased January 12. Hence, the ending inventory is US $3.150 [(1 .000 x $1 65) +500 $2.21') +700 x $2.00)].

Additional Information
· The entity had no opening inventory.
· The Items sold on March 15 were purchased on January 12.
· The items sold on July 3 war purchased on May 5



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