Exhibit 9-1 Waring Inc.uses the lower of cost or market rule in valuing its inventory.One unit has a ceiling constraint of $42.50.The following is other information concerning this unit: $\begin{array}{ll} \text { Estimated transportation costs for delivery } & \$ 3.20 \\ \text { Normal profit margin } & 5.50 \\ \text { Packaging costs prior to delivery } & 2.20 \end{array}$ - Refer to Exhibit 9-1.The floor constraint of this unit must be

A) $39.30 B) $37.00 C) $34.80 D) $31.60 A) $39.30 B) $37.00 C) $34.80 D) $31.60

Exhibit 9-2 The Jenny Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule.The allowance method is used in applying the lower of cost or market rule.The company adjusts and closes its books annually on December 31.Below are the cost and market values of the company's year-end inventories for a three-year period: $\begin{array}{lll} \text { Date } &\text { Cost }& \text { Market } \\ \hline \text { December 31, 2010 } &\$ 70,000 & \$ 70,000 \\ \text { December 31, 2011 } & 56,000 & 46,000 \\ \text { December 31, 2012 } & 64,000 & 58,000 \end{array}$ -Refer to Exhibit 9-2.Which of the following journal entries would be correct as of December 31, 2011, to apply the lower of cost or market rule to the valuation of inventory?

A) $\begin{array}{ll} \text { Inventory } & 46,000 \\ \quad \text { Income Summary } & 46,000 \end{array}$ B) Loss Due to Market Valuation $ \quad 10,000 $ Allowance to Reduce Inventory to Market $ \quad 10,000 $ C) $\begin{array}{lc} \text { Cost of Goods Sold } & 10,000 \\ \text { Inventory } & 10,000 \end{array}$ D) Cost of Goods Sold $ \quad 10,000 $ Allowance to Reduce Inventory to Market $ \quad 10,000 $ A) $\begin{array}{ll} \text { Inventory } & 46,000 \\ \quad \text { Income Summary } & 46,000 \end{array}$ B) Loss Due to Market Valuation $ \quad 10,000 $ Allowance to Reduce Inventory to Market $ \quad 10,000 $ C) $\begin{array}{lc} \text { Cost of Goods Sold } & 10,000 \\ \text { Inventory } & 10,000 \end{array}$ D) Cost of Goods Sold $ \quad 10,000 $ Allowance to Reduce Inventory to Market $ \quad 10,000 $

Madeline Sports uses the dollar-value LIFO retail method.The price index on January 1, 2010, was 100, and on that date the inventory was $20, 000 (retail)and $14, 000 (cost).Additional information follows: $\begin{array}{lll}&2010&2011\\ \text { Purchases, retail } & \$ 160,000 & \$ 204,000 \\ \text { Purchases, cost } & 115,200 & 150,960 \\ \text { Sales } & 160,416 & 202,160 \\ \text { Price index Dec. 31. } & 102 & 103 \end{array}$ What is the cost of the December 31, 2011, inventory (to the nearest dollar)?

A) $14, 610 B) $14, 638 C) $14, 660 D) $15, 854 A) $14, 610 B) $14, 638 C) $14, 660 D) $15, 854

The Susan Retail Shop uses the FIFO retail inventory method to determine its ending inventory.The accounting records for the current year for Susan contained the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\ \text { Purchases } & \$ 225,000 & \$ 362,250 \\ \text { Beginning inventory } & 55,000 & 73,000 \\ \text { Sales } & & 385,750 \\ \text { Net markups } & & 32,500 \\ \text { Net markdowns } & & 19,750 \\ \text { Employee discounts } & & 12,500 \end{array}$ What is the cost-to-retail percentage to be used for ending inventory calculations?

A) 57.0% B) 60.0% C) 62.1% D) 62.5% A) 57.0% B) 60.0% C) 62.1% D) 62.5%

Debra's Card Shop uses the average cost retail inventory method to determine the ending inventory.Debra's accounting records for 2010 contained the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\ \text { Purchases } & \$ 216,000 & \$ 317,500 \\ \text { Sales } & & 350,000 \\ \text { Beginning inventory } & 64,000 & 78,500 \\ \text { Net markups } & & 12,000 \\ \text { Net markclowns } & & 8,000 \end{array}$ In addition, sales returns for 2010 were $28, 000, and employee discounts taken were $6, 000.What is the cost of the ending inventory at December 31, 2010?

A) $21, 000 B) $35, 000 C) $50, 400 D) $54, 600 A) $21, 000 B) $35, 000 C) $50, 400 D) $54, 600

The Sara Company's inventory was partially destroyed on July 4, 2010, when its warehouse caught on fire early in the morning.Inventory that had a cost of $8, 000 was saved.The accounting records, which were located in a fireproof vault, contained the following information: $\begin{array}{ll} \text { Sales }(1 / 1 / 10 \text { through } 7 / 3 / 10) & \$ 260,000 \\ \text { Purchases }(1 / 1 / 10 \text { through } 7 / 3 / 10) & 190,000 \\ \text { Inventory }(1 / 1 / 10) & 40,000\\\text { Grossprofit ratio }&30 \% \text { of cost} \end{array}$ Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?

A) $40, 000 B) $30, 000 C) $25, 000 D) $22, 000 A) $40, 000 B) $30, 000 C) $25, 000 D) $22, 000

The accountant for the Iris Company did not record a purchase of merchandise on credit for the current year, but the merchandise was correctly included in the ending inventory.Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet? $\begin{array}{lll}&\text {Asssets }&\text { Liabilities}&\text { Retained Earming}\\\hline I.&\text { No effect } & \text { Understated } & \text { Understated } \\ II.&\text { Undlerstated } & \text { Understated } & \text { No effect } \\ III.&\text { No effect } & \text { No effect } & \text { Overstated }\\ IV.&\text { No effect } & \text { Understated } & \text { Overstated }\\ \end{array}$

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

Exam 9: Inventories: Special Valuation Issues

Exhibit 9-1 Waring Inc.uses the lower of cost or market rule in valuing its inventory.One unit has a ceiling constraint of $42.50.The following is other information concerning this unit: Estimated transportation costs for delivery \ 3.20 Normal profit margin 5.50 Packaging costs prior to delivery 2.20 - Refer to Exhibit 9-1.The floor constraint of this unit must be

(Multiple Choice)

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Question 81

Dawson adopted the dollar-value LIFO retail inventory method on January 1, 2010.The following information for 2010 was taken from the company's records: Sales \ 173,350 Net markups 2,000 Inventory, January 1, 2010 \ 24,300 30,000 Purchases 147,740 180,000 Net markdowns 4,000 The price index on January 1, 2010, was 100.On December 31, 2010, it was 105. Required: Compute the inventory value for December 31, 2010.

(Essay)

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Question 82

When comparing the lower of cost to market

(Multiple Choice)

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Question 83

The major criticism of the lower of cost or market rule for valuation of inventory is that

(Multiple Choice)

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Question 84

Exhibit 9-2 The Jenny Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule.The allowance method is used in applying the lower of cost or market rule.The company adjusts and closes its books annually on December 31.Below are the cost and market values of the company's year-end inventories for a three-year period: Date Cost Market December 31, 2010 \ 70,000 \ 70,000 December 31, 2011 56,000 46,000 December 31, 2012 64,000 58,000 -Refer to Exhibit 9-2.Which of the following journal entries would be correct as of December 31, 2011, to apply the lower of cost or market rule to the valuation of inventory?

(Multiple Choice)

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Question 85

Madeline Sports uses the dollar-value LIFO retail method.The price index on January 1, 2010, was 100, and on that date the inventory was $20, 000 (retail)and $14, 000 (cost).Additional information follows: 2010 2011 Purchases, retail \ 160,000 \ 204,000 Purchases, cost 115,200 150,960 Sales 160,416 202,160 Price index Dec. 31. 102 103 What is the cost of the December 31, 2011, inventory (to the nearest dollar)?

(Multiple Choice)

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Question 86

The Susan Retail Shop uses the FIFO retail inventory method to determine its ending inventory.The accounting records for the current year for Susan contained the following information: Cost Retail Purchases \ 225,000 \ 362,250 Beginning inventory 55,000 73,000 Sales 385,750 Net markups 32,500 Net markdowns 19,750 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 87

In general, it is argued that the lower of cost or market rule is supported most closely by which of the following theoretical assumptions?

(Multiple Choice)

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Question 88

Which one of the following statements regarding the gross profit method is not true?

(Multiple Choice)

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Question 89

The accountant for Elaine Company made the following errors related to the inventory in 2010: 1. The beginning inventory for 2010 was understated by $\$ 1,350$ due to an error in the physical count. 2. A $\$ 1,500$ purchase of merchandise on credit was not recorded or induded in ending inventory. Assuming a periodic inventory system, Elaine Company's 2010 net income will be

(Multiple Choice)

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Question 90

Debra's Card Shop uses the average cost retail inventory method to determine the ending inventory.Debra's accounting records for 2010 contained the following information: Cost Retail Purchases \ 216,000 \ 317,500 Sales 350,000 Beginning inventory 64,000 78,500 Net markups 12,000 Net markclowns 8,000 In addition, sales returns for 2010 were $28, 000, and employee discounts taken were $6, 000.What is the cost of the ending inventory at December 31, 2010?

(Multiple Choice)

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Question 91

What is the effect on net income if a company fails to record a purchase in transit (FOB shipping point)and also fails to include the purchase in physical inventory?

(Multiple Choice)

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Question 92

What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point)but includes the materials in physical inventory at year-end?

(Multiple Choice)

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Question 93

Given the following information for the Lawton Company: Required: Determine the lower of cost or market for each inventory item.

(Essay)

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Question 94

The correct net income for Lana Corp.was $43, 500.The company reported incorrect net income because beginning inventory was understated by $2, 500, purchases were overstated by $2, 000, and ending inventory was overstated by $2, 000.What net income did Lana Corp.report?

(Multiple Choice)

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Question 95

Exhibit 9-2 The Jenny Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule.The allowance method is used in applying the lower of cost or market rule.The company adjusts and closes its books annually on December 31.Below are the cost and market values of the company's year-end inventories for a three-year period: Date Cost Market December 31, 2010 \ 70,000 \ 70,000 December 31, 2011 56,000 46,000 December 31, 2012 64,000 58,000 - Refer to Exhibit 9-2.Which of the following journal entries would be correct as of December 31, 2012, to apply the lower of cost or market rule?

(Multiple Choice)

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Question 96

For the period from 2010 through 2012, the Cheryl Company had net sales of $500, 000 and a gross profit of $200, 000.During the first quarter of 2013, the company made purchases of $17, 500 and recorded sales of $37, 500.The inventory value at the beginning of the year was 11, 500.What is the estimated cost of Cheryl's inventory on March 31, 2013, using the gross profit method?

(Multiple Choice)

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Question 97

Which one of the following statements is not true concerning the retail inventory method?

(Multiple Choice)

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Question 98

The Sara Company's inventory was partially destroyed on July 4, 2010, when its warehouse caught on fire early in the morning.Inventory that had a cost of $8, 000 was saved.The accounting records, which were located in a fireproof vault, contained the following information: Sales (1/1/10 through 7/3/10) \ 260,000 Purchases (1/1/10 through 7/3/10) 190,000 Inventory (1/1/10) 40,000 Grossprofit ratio 30\% of cost Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?

(Multiple Choice)

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Question 99

The accountant for the Iris Company did not record a purchase of merchandise on credit for the current year, but the merchandise was correctly included in the ending inventory.Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet? Asssets Liabilities Retained Earming I. No effect Understated Understated II. Undlerstated Understated No effect III. No effect No effect Overstated IV. No effect Understated Overstated

(Multiple Choice)

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Question 100

When comparing the lower of cost to market

The major criticism of the lower of cost or market rule for valuation of inventory is that

In general, it is argued that the lower of cost or market rule is supported most closely by which of the following theoretical assumptions?

Which one of the following statements regarding the gross profit method is not true?

What is the effect on net income if a company fails to record a purchase in transit (FOB shipping point)and also fails to include the purchase in physical inventory?

What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point)but includes the materials in physical inventory at year-end?

Given the following information for the Lawton Company: Required: Determine the lower of cost or market for each inventory item.

The correct net income for Lana Corp.was $43, 500.The company reported incorrect net income because beginning inventory was understated by $2, 500, purchases were overstated by $2, 000, and ending inventory was overstated by $2, 000.What net income did Lana Corp.report?

Which one of the following statements is not true concerning the retail inventory method?

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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