Question 1

A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.

Accepted Answer

A) True 
 B)False

Question 2

Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.

Accepted Answer

A) True 
 B)False

Question 3

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

Accepted Answer

A)  Net realizable value 
B)  Net realizable value less a normal profit margin 
C)  Current replacement cost 
D)  Discounted present value 
A)  Net realizable value 
B)  Net realizable value less a normal profit margin 
C)  Current replacement cost 
D)  Discounted present value

Question 4

Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $150,000. The total selling price is $420,000, and estimated costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?

Accepted Answer

A)  $135,000. 
B)  $150,000. 
C)  $405,000. 
D)  $420,000. 
A)  $135,000. 
B)  $150,000. 
C)  $405,000. 
D)  $420,000.

Question 5

Retail inventory method.
When you undertook the preparation of the financial statements for Telfer Company at January 31, 2015, the following data were available:   
Instructions
Compute the ending inventory at cost as of January 31, 2015, using the retail method which approximates lower of cost or market. Your solution should be in good form with amounts clearly labeled.

Accepted Answer

The answer of Retail inventory method.
When you undertook the preparation...

Question 6

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company.  
-Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would

Accepted Answer

A)  exclude both markups and markdowns and include beginning inventory. 
B)  include markups and exclude both markdowns and beginning inventory. 
C)  include both markups and markdowns and exclude beginning inventory. 
D)  exclude markups and include both markdowns and beginning inventory. 
A)  exclude both markups and markdowns and include beginning inventory. 
B)  include markups and exclude both markdowns and beginning inventory. 
C)  include both markups and markdowns and exclude beginning inventory. 
D)  exclude markups and include both markdowns and beginning inventory.

Question 7

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 8

Use the following information for questions 125 through 129.
Plank Co. uses the retail inventory method. The following information is available for the current year.  
-If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail amounts of

Accepted Answer

A)  $1,134,000 and $1,656,000. 
B)  $1,134,000 and $1,596,000. 
C)  $900,000 and $1,230,000. 
D)  $900,000 and $1,290,000. 
A)  $1,134,000 and $1,656,000. 
B)  $1,134,000 and $1,596,000. 
C)  $900,000 and $1,230,000. 
D)  $900,000 and $1,290,000.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Doran Realty Company purchased a plot of ground for $900,000 and spent $3,100,000 in developing it for building lots. The lots were classified into Highland, Midland, and Lowland grades, to sell at $120,000, $90,000, and $60,000 each, respectively.

Instructions
Complete the table below to allocate the cost of the lots using a relative sales value method.

Accepted Answer

The answer of Doran Realty Company purchased a plot of...

Question 11

Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $131, a replacement cost of $101, a net realizable value of $117, and a normal profit margin of $5. What is the final lower-of-cost-or-market inventory value for Packit?

Accepted Answer

A)  $112. 
B)  $131. 
C)  $101. 
D)  $117. 
A)  $112. 
B)  $131. 
C)  $101. 
D)  $117.

Question 12

Goren Corporation had the following amounts, all at retail:   What is Goren's ending inventory at retail?

Accepted Answer

A)  $39,400. 
B)  $41,000. 
C)  $42,600. 
D)  $43,400 
A)  $39,400. 
B)  $41,000. 
C)  $42,600. 
D)  $43,400

Question 13

Retail LIFO.Klein Book Store uses the conventional retail method and is now considering converting to the LIFO retail method for the period beginning 1/1/15. Available information consists of the following:   Following is a schedule showing the computation of the cost of inventory on hand at 12/31/14 based on the conventional retail method.   
Instructions
(a) Prepare the journal entry to convert the inventory from the conventional retail to the LIFO retail method. Show detailed calculations to support your entry.
(b) Prepare a schedule showing the computation of the 12/31/15 inventory based on the LIFO retail method as adjusted for fluctuating prices. Without prejudice to your answer to 
(a) above, assume that you computed the 1/1/15 inventory (retail value $49,000) under the LIFO retail method at a cost of $34,000.

Accepted Answer

The answer of Retail LIFO.Klein Book Store uses the conventional...

Question 14

If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,

Accepted Answer

A)  this fact must be disclosed. 
B)  disclosure is required only if prices have declined since the date of the order. 
C)  disclosure is required only if prices have since risen substantially. 
D)  an appropriation of retained earnings is necessary. 
A)  this fact must be disclosed. 
B)  disclosure is required only if prices have declined since the date of the order. 
C)  disclosure is required only if prices have since risen substantially. 
D)  an appropriation of retained earnings is necessary.

Question 15

During 2014, Larue Co., a manufacturer of chocolate candies, contracted to purchase 200,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2015. Because a record harvest is predicted for 2015, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2014.Of the following journal entries, the one which would properly reflect in 2014 the effect of the commitment of Larue Co. to purchase the 200,000 pounds of cocoa is

Accepted Answer

The answer of During 2014, Larue Co., a manufacturer of...

Question 16

State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?

Accepted Answer

A)  $80,000 
B)  $88,000 
C)  $72,000 
D)  $75,600 
A)  $80,000 
B)  $88,000 
C)  $72,000 
D)  $75,600

Question 17

The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

Accepted Answer

A)  net realizable value. 
B)  net realizable value less the normal profit margin. 
C)  replacement cost. 
D)  original cost. 
A)  net realizable value. 
B)  net realizable value less the normal profit margin. 
C)  replacement cost. 
D)  original cost.

Question 18

Which of the following is not a common disclosure for inventories?

Accepted Answer

A)  Inventory composition. 
B)  Inventory location. 
C)  Inventory financing arrangements. 
D)  Inventory costing methods employed. 
A)  Inventory composition. 
B)  Inventory location. 
C)  Inventory financing arrangements. 
D)  Inventory costing methods employed.

Question 19

Given the historical cost of product Z is $40, the selling price of product Z is $50, costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?

Accepted Answer

A)  $22. 
B)  $40. 
C)  $42. 
D)  $41. 
A)  $22. 
B)  $40. 
C)  $42. 
D)  $41.

Question 20

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

Accepted Answer

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

A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.

Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

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

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

Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $131, a replacement cost of $101, a net realizable value of $117, and a normal profit margin of $5. What is the final lower-of-cost-or-market inventory value for Packit?

Goren Corporation had the following amounts, all at retail: What is Goren's ending inventory at retail?

If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,

State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?

The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

Which of the following is not a common disclosure for inventories?

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

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

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Exam 9: Inventories: Additional Valuation Issues

A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.

Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

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

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

Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $131, a replacement cost of $101, a net realizable value of $117, and a normal profit margin of $5. What is the final lower-of-cost-or-market inventory value for Packit?

Goren Corporation had the following amounts, all at retail: What is Goren's ending inventory at retail?

If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,

State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?

The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

Which of the following is not a common disclosure for inventories?

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

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