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Free CFA-Level-I Exam Braindumps (page: 491)

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Under a periodic inventory system, how is COGS determined?

  1. the cost of ending inventory is subtracted from costs of goods available for sale
  2. cost of goods sold is accumulated as sales are made
  3. ending inventory is counted and subtracted from beginning inventory
  4. none of these answers

Answer(s): A

Explanation:

Under the periodic inventory system, only the ending inventory is counted and priced. Cost of goods sold is determined by deducting the cost of the ending inventory from the cost of goods available for sale.



The accrual basis of accounting:

  1. is used only for taxes reporting purposes.
  2. recognizes the development of assets and liabilities externally.
  3. does not pertain to revenue recognition-only expense recognition.
  4. begins with the cash basis of accounting and proceeds to make the necessary adjustments.
  5. allocates many transactions that produce cash flows to time periods other than those in which the cash flows occur.

Answer(s): E

Explanation:

Accrual accounting principles are the decision rules that state when to recognize the revenue and expense consequences of cash flows and other events.



The following account is affected when recording a return of inventory to the vendor under a perpetual inventory system.

  1. purchase returns and allowances
  2. accounts receivable
  3. cash
  4. merchandise inventory

Answer(s): D

Explanation:

When inventory is purchased, Merchandise Inventory is debited, and credited when returned. The periodic system records purchases in an account called Purchases and returns are booked to Purchases Returns and Allowances.



Which of the following would not be reported as an extraordinary item?

  1. gain or loss on sale of fixed assets
  2. gain or loss from passing of a new law
  3. gain or loss from early retirement of debt
  4. uninsured loss from a flood

Answer(s): A

Explanation:

An item must be both unusual and infrequent (and material in amount) to be classified as extraordinary.






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