Question 1

Which of the following statements is false regarding an assumption of inventory cost flow?

Accepted Answer

A) The cost flow assumption need not correspond to the actual physical flow of goods. 
B) The assumption selected may be changed each accounting period. 
C) The FIFO assumption uses the earliest acquired prices to cost the items sold during a period. 
D) The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period. 
A) The cost flow assumption need not correspond to the actual physical flow of goods. 
B) The assumption selected may be changed each accounting period. 
C) The FIFO assumption uses the earliest acquired prices to cost the items sold during a period. 
D) The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period. B

Question 2

Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer.Gomez's sales in its first year must have been

Accepted Answer

A) $540,000. 
B) $660,000. 
C) $180,000. 
D) $600,000. 
A) $540,000. 
B) $660,000. 
C) $180,000. 
D) $600,000. A

Question 3

A major advantage of the retail inventory method is that it

Accepted Answer

A) provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. 
B) hides costs from competitors and customers. 
C) gives a more accurate statement of inventory costs than other methods. 
D) provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies. 
A) provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. 
B) hides costs from competitors and customers. 
C) gives a more accurate statement of inventory costs than other methods. 
D) provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies. D

Question 4

An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00.It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00.Which of the following statements is not true?

Accepted Answer

A) The cost of sales of the following year will be understated. 
B) The current year's income is understated. 
C) The closing inventory of the current year is understated. 
D) Income of the following year will be understated. 
A) The cost of sales of the following year will be understated. 
B) The current year's income is understated. 
C) The closing inventory of the current year is understated. 
D) Income of the following year will be understated.

Question 5

Which of the following is not a reason the retail inventory method is used widely?

Accepted Answer

A) As a control measure in determining inventory shortages 
B) For insurance information 
C) To permit the computation of net income without a physical count of inventory 
D) To defer income tax liability 
A) As a control measure in determining inventory shortages 
B) For insurance information 
C) To permit the computation of net income without a physical count of inventory 
D) To defer income tax liability

Question 6

The inventory turnover ratio is computed by dividing the cost of goods sold by

Accepted Answer

A) beginning inventory. 
B) ending inventory. 
C) average inventory. 
D) number of days in the year. 
A) beginning inventory. 
B) ending inventory. 
C) average inventory. 
D) number of days in the year.

Question 7

Which of the following is true about lower-of-cost-or-market?

Accepted Answer

A) It is inconsistent because losses are recognized but not gains. 
B) It usually understates assets. 
C) It can increase future income. 
D) All of these. 
A) It is inconsistent because losses are recognized but not gains. 
B) It usually understates assets. 
C) It can increase future income. 
D) All of these.

Question 8

Which statement is true about the retail inventory method?

Accepted Answer

A) It may not be used to estimate inventories for interim statements. 
B) It may not be used to estimate inventories for annual statements. 
C) It may not be used by auditors. 
D) None of these. 
A) It may not be used to estimate inventories for interim statements. 
B) It may not be used to estimate inventories for annual statements. 
C) It may not be used by auditors. 
D) None of these.

Question 9

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of

Accepted Answer

A) $279,000 and $410,000. 
B) $279,000 and $396,000. 
C) $279,000 and $390,000. 
D) $273,000 and $390,000. 
A) $279,000 and $410,000. 
B) $279,000 and $396,000. 
C) $279,000 and $390,000. 
D) $273,000 and $390,000.

Question 10

Paul Konerko Company sells product 2005WSC for $20 per unit.The cost of one unit of 2005WSC is $18, and the replacement cost is $17.The estimated cost to dispose of a unit is $4, and the normal profit is 40%.At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?

Accepted Answer

A) $8. 
B) $16. 
C) $17. 
D) $18. 
A) $8. 
B) $16. 
C) $17. 
D) $18.

Question 11

In no case can "market" in the lower-of-cost-or-market rule be more than

Accepted Answer

A) estimated selling price in the ordinary course of business. 
B) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. 
C) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. 
D) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses. 
A) estimated selling price in the ordinary course of business. 
B) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. 
C) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. 
D) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.

Question 12

When calculating the cost ratio for the retail inventory method,

Accepted Answer

A) if it is the conventional method, the beginning inventory is included and markdowns are deducted. 
B) if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. 
C) if it is the LIFO method, the beginning inventory is included and markdowns are not deducted. 
D) if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted. 
A) if it is the conventional method, the beginning inventory is included and markdowns are deducted. 
B) if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. 
C) if it is the LIFO method, the beginning inventory is included and markdowns are not deducted. 
D) if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.

Question 13

Use the following information for questions 
Baker Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2007: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\
\text { Inventory, } 1 / 1 / 07 & \$ 94,000 & \$ 140,000 \
\text { Net purchases } & 378,000 & 562,000 \
\text { Net markups } & & 68,000 \
\text { Net markdowns } & & 30,000 \
\text { Net sales } & & 530,000
\end{array}$
-Assuming that the price index was 105 at December 31, 2007 and 100 at January 1, 2007, what is the cost of Baker's inventory at December 31, 2007 under the dollar-value-LIFO retail method?

Accepted Answer

A) $133,690. 
B) $138,915. 
C) $140,305. 
D) $131,800. 
A) $133,690. 
B) $138,915. 
C) $140,305. 
D) $131,800.

Question 14

DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.

Accepted Answer

A) In 2007, DT should recognize a a loss of $5,000. 
B) a loss of $400. 
C) no gain or loss. 
D) a gain of $400. 
A) In 2007, DT should recognize a a loss of $5,000. 
B) a loss of $400. 
C) no gain or loss. 
D) a gain of $400.

Question 15

Inventory may be recorded at net realizable value if

Accepted Answer

A) there is a controlled market with a quoted price. 
B) there are no significant costs of disposal. 
C) the inventory consists of precious metals or agricultural products. 
D) all of these. 
A) there is a controlled market with a quoted price. 
B) there are no significant costs of disposal. 
C) the inventory consists of precious metals or agricultural products. 
D) all of these.

Question 16

For 2007, cost of goods available for sale for Vale Corporation was $900,000.The gross profit rate was 20%.Sales for the year were $800,000.What was the amount of the ending inventory?

Accepted Answer

A) $0. 
B) $260,000. 
C) $180,000. 
D) $160,000. 
A) $0. 
B) $260,000. 
C) $180,000. 
D) $160,000.

Question 17

Eaton Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the computation of the inventory at July 31, 2007, are as follows: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\
\text { Inventory, 2/1/07 } & \$ 200,000 & \$ 250,000 \
\text { Purchases } & 1,000,000 & 1,575,000 \
\text { Markups, net } & & 175,000 \
\text { Sales } & & 1,750,000 \
\text { Estimated normal shoplifting losses } & & 20,000 \
\text { Markdowns, net } & & 110,000
\end{array}$ Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is

Accepted Answer

A) $72,000. 
B) $84,000. 
C) $96,000. 
D) $120,000. 
A) $72,000. 
B) $84,000. 
C) $96,000. 
D) $120,000.

Question 18

Which of the following is not required when using the retail inventory method?

Accepted Answer

A) All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price. 
B) A record of the total cost and retail value of goods purchased. 
C) A record of the total cost and retail value of the goods available for sale. 
D) Total sales for the period. 
A) All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price. 
B) A record of the total cost and retail value of goods purchased. 
C) A record of the total cost and retail value of the goods available for sale. 
D) Total sales for the period.

Question 19

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-If the ending inventory is to be valued at approximately lower of average cost or market, the calculation of the cost ratio should be based on cost and retail of

Accepted Answer

A) $300,000 and $430,000. 
B) $300,000 and $428,000. 
C) $373,000 and $550,000. 
D) $378,000 and $552,000. 
A) $300,000 and $430,000. 
B) $300,000 and $428,000. 
C) $373,000 and $550,000. 
D) $378,000 and $552,000.

Question 20

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Accepted Answer

A) selling price will be less than their replacement cost. 
B) replacement cost will be more than their net realizable value. 
C) cost will be less than their replacement cost. 
D) future utility will be less than their cost. 
A) selling price will be less than their replacement cost. 
B) replacement cost will be more than their net realizable value. 
C) cost will be less than their replacement cost. 
D) future utility will be less than their cost.

Which of the following statements is false regarding an assumption of inventory cost flow?

Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer.Gomez's sales in its first year must have been

A major advantage of the retail inventory method is that it

Which of the following is not a reason the retail inventory method is used widely?

The inventory turnover ratio is computed by dividing the cost of goods sold by

Which of the following is true about lower-of-cost-or-market?

Which statement is true about the retail inventory method?

In no case can "market" in the lower-of-cost-or-market rule be more than

When calculating the cost ratio for the retail inventory method,

DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.

Inventory may be recorded at net realizable value if

For 2007, cost of goods available for sale for Vale Corporation was $900,000.The gross profit rate was 20%.Sales for the year were $800,000.What was the amount of the ending inventory?

Which of the following is not required when using the retail inventory method?

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

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Exam 9: Inventories: Additional Valuation Issues

Which of the following statements is false regarding an assumption of inventory cost flow?

Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer.Gomez's sales in its first year must have been

A major advantage of the retail inventory method is that it

Which of the following is not a reason the retail inventory method is used widely?

The inventory turnover ratio is computed by dividing the cost of goods sold by

Which of the following is true about lower-of-cost-or-market?

Which statement is true about the retail inventory method?

In no case can "market" in the lower-of-cost-or-market rule be more than

When calculating the cost ratio for the retail inventory method,

DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.

Inventory may be recorded at net realizable value if

For 2007, cost of goods available for sale for Vale Corporation was $900,000.The gross profit rate was 20%.Sales for the year were $800,000.What was the amount of the ending inventory?

Which of the following is not required when using the retail inventory method?

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Filters