As a result of taking a physical inventory count on December 31, 2010, the Samantha Company inventory was determined to be $50, 000.The auditors for Samantha suspected an inventory shortage and used the gross profit method to estimate the ending inventory.The accounting records for the company contained the following information: $\begin{array}{ll} \text { Inventory }(1 / 1 / 10) & \$ 130,000 \\ \text { Purchases }(2010) & 770,000 \\ \text { Sales }(2010) & 1,100,000 \\ \text { Sales returns }(2010) & 100,000 \\ \text { Grossprofit ratio } & 25 \% \text { of sales } \end{array}$ Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2010?

A) $ 75, 000 B) $100, 000 C) $150, 000 D) $250, 000 A) $ 75, 000 B) $100, 000 C) $150, 000 D) $250, 000

Darla's Dazzle Shop uses the lower of average cost or market retail inventory method to determine its ending inventory.The accounting records for the current year for Darla's contained the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\ \text { Beginning inventory } & \$ 19,000 & \$ 27,500 \\ \text { Purchases } & 71,500 & 94,000 \\ \text { Sales } & & 105,000 \\ \text { Net markups } & & 5,167 \\ \text { Net markclowns } & & 3,067 \end{array}$ In addition, the accounting records for Darla's disclosed that freight-in charges were $4, 500 and sales returns were $2, 833.What is the cost-to-retail percentage to be used for ending inventory calculations?

A) 71.4% B) 73.2% C) 75.0% D) 76.9% A) 71.4% B) 73.2% C) 75.0% D) 76.9%

The accountant for Frieda Company did not record a purchase of merchandise on credit or include the items in the ending inventory.Assuming a periodic inventory system, the effect of these omissions on assets, liabilities, and retained earnings would be $\begin{array}{lll}&\text {Asssets }&\text { Liabilities}&\text { Retained Earming}\\\hline I.&\text { Understate } & \text { Understate } & \text { Understate } \\ II.&\text { Understate } & \text { Understate } & \text { No effect } \\ III.&\text { No effect } & \text { Understate } & \text { No effect } \\ IV.&\text { Underetate } & \text { No effect } & \text { ITnderctate } \end{array}$

A) I B) II C) III D) IV A) I B) II C) III D) IV

Given the following information for the Teresa Company: $\begin{array}{lll} \text { Date } & \text { Cost } & \text { Market } \\ \hline \text { December 31, 2010 } & \$ 800 & \$ 800 \\ \text { December 31, 2011 } & 1,000 & 940 \\ \text { December 31, 2012 } & 1,100 & 1,060 \end{array}$ If the allowance method of recording lower of cost or market is in use, which December 31, 2012 entry is not correct?

A) Loss Due to Market Valuation$\quad$$\quad$40 Allowance to Reduce Inventory to Market$\quad$40 B) Allowance to Reduce Inventory to Market$\quad$ 20 Loss Recovery Due to Market Valuation $\quad$$\quad$20 C) $\begin{array}{ll} \text { Inventory } & 1,100 \\ \text { Income Summary } & 1,100 \end{array}$ D) $\begin{array}{cc} \text { Income Summary } & 1,000 \\ \text { Inventory } & 1,000 \end{array}$ A) Loss Due to Market Valuation$\quad$$\quad$40 Allowance to Reduce Inventory to Market$\quad$40 B) Allowance to Reduce Inventory to Market$\quad$ 20 Loss Recovery Due to Market Valuation $\quad$$\quad$20 C) $\begin{array}{ll} \text { Inventory } & 1,100 \\ \text { Income Summary } & 1,100 \end{array}$ D) $\begin{array}{cc} \text { Income Summary } & 1,000 \\ \text { Inventory } & 1,000 \end{array}$

The Alice Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports.Information about Alice's inventory in the second quarter of 2010 is shown below: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\ \text { Beginting inventory } & \$ 255 & \$ 800 \\ \text { Purchases } & 600 & 1,400 \\ \text { Net markips } & & 200 \\ \text { Net markdowns } & & (500) \\ \text { Sales } & & 1,300 \end{array}$ What is the estimated cost of Alice's inventory on June 30, 2010?

A) $270 B) $300 C) $585 D) $600 A) $270 B) $300 C) $585 D) $600

Given the following information for Bonnie Company: $\begin{array}{ll} \text { Freight-in } & \$ 400 \\ \text { Purchases } & 10,050 \\ \text { Sales returns } & 100 \\ \text { Beginning inventory } & 1,750 \\ \text { Sales } & 13,450 \\ \text { Grossprofit on sales } & 20 \% \end{array}$ Calculate ending inventory of Bonnie using the gross profit method.

A) $1, 360 B) $1, 075 C) $1, 440 D) $1, 520 A) $1, 360 B) $1, 075 C) $1, 440 D) $1, 520

Marcus Company uses the lower of cost or market rule in valuing its inventory.The floor constraint for one item in the inventory is $58.20.The following is other information concerning this unit: $\begin{array}{ll} \text { Transpoutation costs } & \$ 4.00 \\ \text { Normal profit margin } & 11.70 \\ \text { Packaging costs } & 4.20 \end{array}$ The net realizable value for this item is

A) $62.20 B) $66.40 C) $69.90 D) $78.10 A) $62.20 B) $66.40 C) $69.90 D) $78.10

As a result of taking a physical inventory count on December 31, 2010, the Lisa Company inventory was determined to be $61, 500.The auditors for Lisa suspected an inventory shortage and used the gross profit method to estimate the ending inventory.The accounting records for the company contained the following information: $\begin{array}{ll} \text { Inventory }(1 / 1 / 10) & \$ 130,000 \\ \text { Purchases }(2010) & 760,000 \\ \text { Sales }(2010) & 1,020,000 \\ \text { Sales returns }(2010) & 60,000 \\ \text { Grossprofit ratio } & 25 \% \text { of sales } \end{array}$ Using the gross profit method, what did the auditors estimate as the amount of the inventory that should have been on hand at December 31, 2010?

A) $240, 000 B) $ 61, 500 C) $125, 000 D) $170, 000 A) $240, 000 B) $ 61, 500 C) $125, 000 D) $170, 000

Carol Music Store uses the average cost retail inventory method to determine its ending inventory.The accounting records for the current year for Carol contained the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\ \text { Purchases } & \$ 108,000 & \$ 137,750 \\ \text { Beginning inventory } & 24,000 & 32,000 \\ \text { Sales } & & 146,250 \\ \text { Net markups } & & 18,819 \\ \text { Net markdowns } & & 6,500 \\ \text { Employee discounts } & & 12,500 \end{array}$ What is the cost-to-retail percentage to be used for ending inventory calculations?

A) 70.0% B) 72.5% C) 74.9% D) 77.8% A) 70.0% B) 72.5% C) 74.9% D) 77.8%

Exam 9: Inventories: Special Valuation Issues

As a result of taking a physical inventory count on December 31, 2010, the Samantha Company inventory was determined to be $50, 000.The auditors for Samantha suspected an inventory shortage and used the gross profit method to estimate the ending inventory.The accounting records for the company contained the following information: Inventory (1/1/10) \ 130,000 Purchases (2010) 770,000 Sales (2010) 1,100,000 Sales returns (2010) 100,000 Grossprofit ratio 25\% of sales Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2010?

(Multiple Choice)

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Question 61

Certain errors are listed below. Required: Indicate the effect the errors will have on cost of goods sold and accounts payable.Use +, -, and 0.

(Essay)

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Question 62

Darla's Dazzle Shop uses the lower of average cost or market retail inventory method to determine its ending inventory.The accounting records for the current year for Darla's contained the following information: Cost Retail Beginning inventory \ 19,000 \ 27,500 Purchases 71,500 94,000 Sales 105,000 Net markups 5,167 Net markclowns 3,067 In addition, the accounting records for Darla's disclosed that freight-in charges were $4, 500 and sales returns were $2, 833.What is the cost-to-retail percentage to be used for ending inventory calculations?

(Multiple Choice)

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Question 63

The application of the lower of cost or market rule to inventory valuation is an example of

(Multiple Choice)

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Question 64

Which of the following variations of the retail inventory method would generally result in the lowest cost-to-retail ratio in a period of rising prices?

(Multiple Choice)

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Question 65

Which of the following general assumptions underlie the retail inventory method?

(Multiple Choice)

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Question 66

Which one of the following inventories may not be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory?

(Multiple Choice)

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Question 67

At the beginning of 2010, the Nancy Company had an inventory valued at $34, 375 at cost ($50, 000 at retail).During the year, Nancy purchased inventory for $50, 000 ($70, 000 at retail), and made markdowns of $7, 500.Nancy's sales in 2010 were $62, 500.What is Nancy's estimated ending inventory at FIFO cost using the retail inventory method?

(Multiple Choice)

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Question 68

The accountant for Shelley Company made the following errors related to purchases of merchandise and ending inventory in 2010: A $\$ 1,200$ purchase of merchandise on credit was not recorded or included in ending inventory. A $\$ 1,180$ purchase of merchandise on credit was recorded, but it was inadvertently omitted from the ench-of-year physical inventory count. Assuming a periodic inventory system, Shelley Company's 2010 net income will be

(Multiple Choice)

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Question 69

The accountant for Frieda Company did not record a purchase of merchandise on credit or include the items in the ending inventory.Assuming a periodic inventory system, the effect of these omissions on assets, liabilities, and retained earnings would be Asssets Liabilities Retained Earming I. Understate Understate Understate II. Understate Understate No effect III. No effect Understate No effect IV. Underetate No effect ITnderctate

(Multiple Choice)

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Question 70

Given the following information for the Teresa Company: Date Cost Market December 31, 2010 \ 800 \ 800 December 31, 2011 1,000 940 December 31, 2012 1,100 1,060 If the allowance method of recording lower of cost or market is in use, which December 31, 2012 entry is not correct?

(Multiple Choice)

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Question 71

The Alice Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports.Information about Alice's inventory in the second quarter of 2010 is shown below: Cost Retail Beginting inventory \ 255 \ 800 Purchases 600 1,400 Net markips 200 Net markdowns (500) Sales 1,300 What is the estimated cost of Alice's inventory on June 30, 2010?

(Multiple Choice)

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Question 72

Given the following information for Bonnie Company: Freight-in \ 400 Purchases 10,050 Sales returns 100 Beginning inventory 1,750 Sales 13,450 Grossprofit on sales 20\% Calculate ending inventory of Bonnie using the gross profit method.

(Multiple Choice)

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Question 73

Describe the differences in the application of lower of the cost or market consideration between U.S.GAAP and IFRS.

(Essay)

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Question 74

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

(Multiple Choice)

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Question 75

Marcus Company uses the lower of cost or market rule in valuing its inventory.The floor constraint for one item in the inventory is $58.20.The following is other information concerning this unit: Transpoutation costs \ 4.00 Normal profit margin 11.70 Packaging costs 4.20 The net realizable value for this item is

(Multiple Choice)

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Question 76

Which one of the following statements is true with regard to the lower of cost or market rule?

(Multiple Choice)

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Question 77

As a result of taking a physical inventory count on December 31, 2010, the Lisa Company inventory was determined to be $61, 500.The auditors for Lisa suspected an inventory shortage and used the gross profit method to estimate the ending inventory.The accounting records for the company contained the following information: Inventory (1/1/10) \ 130,000 Purchases (2010) 760,000 Sales (2010) 1,020,000 Sales returns (2010) 60,000 Grossprofit ratio 25\% of sales Using the gross profit method, what did the auditors estimate as the amount of the inventory that should have been on hand at December 31, 2010?

(Multiple Choice)

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Question 78

Carol Music Store uses the average cost retail inventory method to determine its ending inventory.The accounting records for the current year for Carol contained the following information: Cost Retail Purchases \ 108,000 \ 137,750 Beginning inventory 24,000 32,000 Sales 146,250 Net markups 18,819 Net markdowns 6,500 Employee discounts 12,500 What is the cost-to-retail percentage to be used for ending inventory calculations?

(Multiple Choice)

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Question 79

The Beta Company uses the retail inventory method for valuation of its inventory.If an item had a cost of $45, was originally marked to sell at $60, was later priced at $55, and finally was priced at $63, the final price change is a

(Multiple Choice)

4.7/5

(78)

Question 80

Certain errors are listed below. Required: Indicate the effect the errors will have on cost of goods sold and accounts payable.Use +, -, and 0.

The application of the lower of cost or market rule to inventory valuation is an example of

Which of the following variations of the retail inventory method would generally result in the lowest cost-to-retail ratio in a period of rising prices?

Which of the following general assumptions underlie the retail inventory method?

Which one of the following inventories may not be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory?

Given the following information for the Teresa Company: Date Cost Market December 31, 2010 \ 800 \ 800 December 31, 2011 1,000 940 December 31, 2012 1,100 1,060 If the allowance method of recording lower of cost or market is in use, which December 31, 2012 entry is not correct?

Given the following information for Bonnie Company: Freight-in \ 400 Purchases 10,050 Sales returns 100 Beginning inventory 1,750 Sales 13,450 Grossprofit on sales 20\% Calculate ending inventory of Bonnie using the gross profit method.

Describe the differences in the application of lower of the cost or market consideration between U.S.GAAP and IFRS.

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

Which one of the following statements is true with regard to the lower of cost or market rule?

The Beta Company uses the retail inventory method for valuation of its inventory.If an item had a cost of $45, was originally marked to sell at $60, was later priced at $55, and finally was priced at $63, the final price change is a

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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