Question 1

Which statement is not true about the gross profit method of inventory valuation?

Accepted Answer

A)  It may be used to estimate inventories for interim statements. 
B)  It may be used to estimate inventories for annual statements. 
C)  It may be used by auditors. 
D)  None of these answers are correct. 
A)  It may be used to estimate inventories for interim statements. 
B)  It may be used to estimate inventories for annual statements. 
C)  It may be used by auditors. 
D)  None of these answers are correct. B

Question 2

During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $1.5 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.2 million. What is the journal entry at the end of the current fiscal year?

Accepted Answer

A)  Debit Unrealized Holding Gain or Loss for $300,000 and credit Estimated Liability on Purchase Commitment for $300,000. 
B)  Debit Estimated liability on Purchase Commitments for $300,000 and credit Unrealized Holding Gain or Loss for $300,000. 
C)  Debit Unrealized Holding Gain or Loss for $1,200,000 and credit Estimated Liability on Purchase Commitments for $1,200,000. 
D)  No journal entry is required. 
A)  Debit Unrealized Holding Gain or Loss for $300,000 and credit Estimated Liability on Purchase Commitment for $300,000. 
B)  Debit Estimated liability on Purchase Commitments for $300,000 and credit Unrealized Holding Gain or Loss for $300,000. 
C)  Debit Unrealized Holding Gain or Loss for $1,200,000 and credit Estimated Liability on Purchase Commitments for $1,200,000. 
D)  No journal entry is required. A

Question 3

Lexington Company sells product 1976NLC for $60 per unit. The cost of one unit of 1976NLC is $54, and the replacement cost is $52. The estimated cost to dispose of a unit is $12, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?

Accepted Answer

A)  $24. 
B)  $48. 
C)  $52. 
D)  $54. 
A)  $24. 
B)  $48. 
C)  $52. 
D)  $54. B

Question 4

Lower-of-cost-or-market as it applies to inventory is best described as the

Accepted Answer

A)  drop of future utility below its original cost. 
B)  method of determining cost of goods sold. 
C)  assumption to determine inventory flow. 
D)  change in inventory value to market value. 
A)  drop of future utility below its original cost. 
B)  method of determining cost of goods sold. 
C)  assumption to determine inventory flow. 
D)  change in inventory value to market value.

Question 5

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.

Question 6

The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?

Accepted Answer

A)  25%. 
B)  20%. 
C)  33%. 
D)  Not enough information is provided to determine. 
A)  25%. 
B)  20%. 
C)  33%. 
D)  Not enough information is provided to determine.

Question 7

Lower-of-cost-or-market.
Determine the proper unit inventory price in the following independent cases by applying the lower of cost or market rule. Circle your choice.

Accepted Answer

Case 1 $ 8.00 Case 4

Question 8

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Accepted Answer

A) True 
 B)False

Question 9

Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and

Accepted Answer

A)  the ending inventory is determined by a physical inventory count. 
B)  a normal profit is not anticipated. 
C)  there is a controlled market with a quoted price applicable to all quantities. 
D)  the internal revenue service is assured that the practice is not used only to distort reported net income. 
A)  the ending inventory is determined by a physical inventory count. 
B)  a normal profit is not anticipated. 
C)  there is a controlled market with a quoted price applicable to all quantities. 
D)  the internal revenue service is assured that the practice is not used only to distort reported net income.

Question 10

Gross profit method.
An inventory taken the morning after a large theft discloses $60,000 of goods on hand as of March 12. The following additional data is available from the books:   Past records indicate that sales are made at 50% above cost.

Instructions
Estimate the inventory of goods on hand at the close of business on March 11 by the gross profit method and determine the amount of the theft loss. Show appropriate titles for all amounts in your presentation.

Accepted Answer

The answer of Gross profit method.
An inventory taken the morning...

Question 11

Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

Accepted Answer

A)  During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO. 
B)  During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO. 
C)  During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to U.S.GAAP and LIFO. 
D)  During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO. 
A)  During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO. 
B)  During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO. 
C)  During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to U.S.GAAP and LIFO. 
D)  During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO.

Question 12

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Accepted Answer

A) True 
 B)False

Question 13

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

Accepted Answer

A)  when it is below the net realizable value less the normal profit margin. 
B)  when it is below the net realizable value and above the net realizable value less the normal profit margin. 
C)  when it is above the net realizable value. 
D)  regardless of net realizable value. 
A)  when it is below the net realizable value less the normal profit margin. 
B)  when it is below the net realizable value and above the net realizable value less the normal profit margin. 
C)  when it is above the net realizable value. 
D)  regardless of net realizable value.

Question 14

Which of the following accounts is credited in the loss method of writing-down of inventory to its market value?

Accepted Answer

A)  Inventory 
B)  Loss Due to Decline of Inventory to market 
C)  Cost of Goods Sold 
D)  Allowance to Reduce Inventory to Market 
A)  Inventory 
B)  Loss Due to Decline of Inventory to market 
C)  Cost of Goods Sold 
D)  Allowance to Reduce Inventory to Market

Question 15

Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $125, a replacement cost of $117, a net realizable value of $133, and a normal profit margin of $17. What is the final lower-of-cost-or-market inventory value for Acer Top?

Accepted Answer

A)  $116. 
B)  $125. 
C)  $117. 
D)  $133. 
A)  $116. 
B)  $125. 
C)  $117. 
D)  $133.

Question 16

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.

Accepted Answer

A) True 
 B)False

Question 17

Gross profit method.
On December 31, 2014 Felt Company's inventory burned. Sales and purchases for the year had been $1,500,000 and $980,000, respectively. The beginning inventory (Jan. 1, 2014) was $170,000; in the past Felt's gross profit has averaged 40% of selling price.

Instructions
Compute the estimated cost of inventory burned, and give entries as of December 31, 2014 to close merchandise accounts.

Accepted Answer

The answer of Gross profit method.
On December 31, 2014 Felt...

Question 18

On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $2,040,000. From January 1 through the time of the fire, the company made purchases of $495,000 and had sales of $1,080,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?

Accepted Answer

A)  $2,040,000. 
B)  $2,019,000. 
C)  $1,455,000. 
D)  $1,887,000. 
A)  $2,040,000. 
B)  $2,019,000. 
C)  $1,455,000. 
D)  $1,887,000.

Question 19

Lower-of-cost-or-market

Accepted Answer

A)  is most conservative if applied to the total inventory. 
B)  is most conservative if applied to major categories of inventory. 
C)  is most conservative if applied to individual items of inventory. 
D)  must be applied to major categories for taxes. 
A)  is most conservative if applied to the total inventory. 
B)  is most conservative if applied to major categories of inventory. 
C)  is most conservative if applied to individual items of inventory. 
D)  must be applied to major categories for taxes.

Question 20

What condition is not necessary in order to use the retail method to provide inventory results?

Accepted Answer

A)  Retailer keeps a record of the total costs of products sold for the period. 
B)  Retailer keeps a record of the total costs and retail value of goods purchased. 
C)  Retailer keeps a record of the total costs and retail value of goods available for sale. 
D)  Retailer keeps a record of sales for the period. 
A)  Retailer keeps a record of the total costs of products sold for the period. 
B)  Retailer keeps a record of the total costs and retail value of goods purchased. 
C)  Retailer keeps a record of the total costs and retail value of goods available for sale. 
D)  Retailer keeps a record of sales for the period.

Which statement is not true about the gross profit method of inventory valuation?

Lower-of-cost-or-market as it applies to inventory is best described as the

A major advantage of the retail inventory method is that it

The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?

Lower-of-cost-or-market. Determine the proper unit inventory price in the following independent cases by applying the lower of cost or market rule. Circle your choice.

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and

Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

Which of the following accounts is credited in the loss method of writing-down of inventory to its market value?

Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $125, a replacement cost of $117, a net realizable value of $133, and a normal profit margin of $17. What is the final lower-of-cost-or-market inventory value for Acer Top?

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.

Lower-of-cost-or-market

What condition is not necessary in order to use the retail method to provide inventory results?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

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

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters

Exam 9: Inventories: Additional Valuation Issues

Which statement is not true about the gross profit method of inventory valuation?

Lower-of-cost-or-market as it applies to inventory is best described as the

A major advantage of the retail inventory method is that it

The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?

Lower-of-cost-or-market. Determine the proper unit inventory price in the following independent cases by applying the lower of cost or market rule. Circle your choice.

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and

Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

Which of the following accounts is credited in the loss method of writing-down of inventory to its market value?

Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $125, a replacement cost of $117, a net realizable value of $133, and a normal profit margin of $17. What is the final lower-of-cost-or-market inventory value for Acer Top?

In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.

Lower-of-cost-or-market

What condition is not necessary in order to use the retail method to provide inventory results?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

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

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters