Question 1

An inventory of wheat held by a broker-trader is valued at net realizable value.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is incorrect regarding the lower-of-cost-or-net realizable value (LCNRV)?

Accepted Answer

A)  Net realizable value (NRV) is the selling price less estimated costs to complete and estimated costs to make a sale. 
B)  In most situations, companies price inventory on a total-inventory basis. 
C)  One of two methods may be used to record the income effect of valuing inventory at net realizable value. 
D)  Companies use an allowance account, the "Allowance to Reduce Inventory to Net Realizable Value." 
A)  Net realizable value (NRV) is the selling price less estimated costs to complete and estimated costs to make a sale. 
B)  In most situations, companies price inventory on a total-inventory basis. 
C)  One of two methods may be used to record the income effect of valuing inventory at net realizable value. 
D)  Companies use an allowance account, the "Allowance to Reduce Inventory to Net Realizable Value."

Question 3

What method yields results that are essentially the same as those of the conventional retail method?

Accepted Answer

A)  FIFO. 
B)  Lower-of-average-cost-or-net realizable value. 
C)  Average cost. 
D)  LIFO. 
A)  FIFO. 
B)  Lower-of-average-cost-or-net realizable value. 
C)  Average cost. 
D)  LIFO.

Question 4

The gross profit method can be used to approximate the dollar amount of inventory on hand.

Accepted Answer

A) True 
 B)False

Question 5

Situations in which net realizable value is used to value inventory include

Accepted Answer

A)  agricultural inventory. 
B)  minerals and mineral products. 
C)  commodities held by broker-traders. 
D)  All of these are correct. 
A)  agricultural inventory. 
B)  minerals and mineral products. 
C)  commodities held by broker-traders. 
D)  All of these are correct.

Question 6

The inventory turnover is computed by dividing the cost of goods sold by the ending inventory on hand.

Accepted Answer

A) True 
 B)False

Question 7

What is the effect of net markups on the cost-retail ratio when using the conventional retail method?

Accepted Answer

A)  Increases the cost-retail ratio. 
B)  No effect on the cost-retail ratio. 
C)  Depends on the amount of the net markdowns. 
D)  Decreases the cost-retail ratio. 
A)  Increases the cost-retail ratio. 
B)  No effect on the cost-retail ratio. 
C)  Depends on the amount of the net markdowns. 
D)  Decreases the cost-retail ratio.

Question 8

Most purchase commitments must be recorded as a liability.

Accepted Answer

A) True 
 B)False

Question 9

The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

Accepted Answer

A) True 
 B)False

Question 10

Under International Financial Reporting Standards (IFRS), separate reporting of reversals of inventory write-downs in the period of sale are required.

Accepted Answer

A) True 
 B)False

Question 11

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 12

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

Accepted Answer

A) True 
 B)False

Question 13

In most situations, the gross profit percentage is stated as a percentage of cost.

Accepted Answer

A) True 
 B)False

Question 14

Under International Financial Reporting Standards (IFRS), when companies value inventory using the lower-of-cost-or-net realizable value (LCNRV), in most situations, companies price inventory on a total-inventory basis.

Accepted Answer

A) True 
 B)False

Question 15

An inventory method which is designed to approximate inventory valuation at the lower of cost or net realizable value is

Accepted Answer

A)  last-in, first-out. 
B)  first-in, first-out. 
C)  conventional retail method. 
D)  specific identification. 
A)  last-in, first-out. 
B)  first-in, first-out. 
C)  conventional retail method. 
D)  specific identification.

Question 16

Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value method to inventory?

Accepted Answer

A)  Inventory location. 
B)  Groups of inventory items. 
C)  Individual item. 
D)  Total of the inventory. 
A)  Inventory location. 
B)  Groups of inventory items. 
C)  Individual item. 
D)  Total of the inventory.

Question 17

Which method(s) may be used to record a loss due to a price decline in the value of inventory?

Accepted Answer

A)  Loss method. 
B)  Sales method. 
C)  Cost-of-goods-sold method. 
D)  Both the loss method and the cost-of-goods-sold method. 
A)  Loss method. 
B)  Sales method. 
C)  Cost-of-goods-sold method. 
D)  Both the loss method and the cost-of-goods-sold method.

Question 18

Biological assets, such as milking cows, are reported as non-current assets at fair value less costs to sale (net realizable value).

Accepted Answer

A) True 
 B)False

Question 19

The retail inventory method is based on the assumption that the

Accepted Answer

A)  final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. 
B)  ratio of gross margin to sales is approximately the same each period. 
C)  ratio of cost to retail changes at a constant rate. 
D)  proportions of markups and markdowns to selling price are the same. 
A)  final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. 
B)  ratio of gross margin to sales is approximately the same each period. 
C)  ratio of cost to retail changes at a constant rate. 
D)  proportions of markups and markdowns to selling price are the same.

Question 20

IFRS requires inventory to be written down below its original cost in some situations, but inventory cannot be written up above its original cost.

Accepted Answer

A) True 
 B)False

An inventory of wheat held by a broker-trader is valued at net realizable value.

Which of the following statements is incorrect regarding the lower-of-cost-or-net realizable value (LCNRV)?

What method yields results that are essentially the same as those of the conventional retail method?

The gross profit method can be used to approximate the dollar amount of inventory on hand.

Situations in which net realizable value is used to value inventory include

The inventory turnover is computed by dividing the cost of goods sold by the ending inventory on hand.

What is the effect of net markups on the cost-retail ratio when using the conventional retail method?

Most purchase commitments must be recorded as a liability.

The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

Under International Financial Reporting Standards (IFRS), separate reporting of reversals of inventory write-downs in the period of sale are required.

A major advantage of the retail inventory method is that it

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

In most situations, the gross profit percentage is stated as a percentage of cost.

Under International Financial Reporting Standards (IFRS), when companies value inventory using the lower-of-cost-or-net realizable value (LCNRV), in most situations, companies price inventory on a total-inventory basis.

An inventory method which is designed to approximate inventory valuation at the lower of cost or net realizable value is

Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value method to inventory?

Which method(s) may be used to record a loss due to a price decline in the value of inventory?

Biological assets, such as milking cows, are reported as non-current assets at fair value less costs to sale (net realizable value).

The retail inventory method is based on the assumption that the

IFRS requires inventory to be written down below its original cost in some situations, but inventory cannot be written up above its original cost.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position 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

Filters

Exam 9: Inventories: Additional Valuation Issues

An inventory of wheat held by a broker-trader is valued at net realizable value.

Which of the following statements is incorrect regarding the lower-of-cost-or-net realizable value (LCNRV)?

What method yields results that are essentially the same as those of the conventional retail method?

The gross profit method can be used to approximate the dollar amount of inventory on hand.

Situations in which net realizable value is used to value inventory include

The inventory turnover is computed by dividing the cost of goods sold by the ending inventory on hand.

What is the effect of net markups on the cost-retail ratio when using the conventional retail method?

Most purchase commitments must be recorded as a liability.

The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

Under International Financial Reporting Standards (IFRS), separate reporting of reversals of inventory write-downs in the period of sale are required.

A major advantage of the retail inventory method is that it

The lower-of-cost-or-net realizable method is used for inventory despite being less conservative than valuing inventory at net realizable value.

In most situations, the gross profit percentage is stated as a percentage of cost.

Under International Financial Reporting Standards (IFRS), when companies value inventory using the lower-of-cost-or-net realizable value (LCNRV), in most situations, companies price inventory on a total-inventory basis.

An inventory method which is designed to approximate inventory valuation at the lower of cost or net realizable value is

Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value method to inventory?

Which method(s) may be used to record a loss due to a price decline in the value of inventory?

Biological assets, such as milking cows, are reported as non-current assets at fair value less costs to sale (net realizable value).

The retail inventory method is based on the assumption that the

IFRS requires inventory to be written down below its original cost in some situations, but inventory cannot be written up above its original cost.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position 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

Filters