Exam 8: Inventories: Special Valuation Issues

Major Company uses the lower of cost or market rule in valuing its inventory and applies it using the LIFO method. The floor constraint for one item in the inventory is $58.20. The following is other information concerning this unit:

Free

(Short Answer)

4.7/5

(72)

Question 1

Correct Answer:

Verified

Given the following information for the Lawrence Company who uses the LIFO method: Required: 1.) Determine the lower of cost or market for each inventory item. 2.) Now assume instead that the company uses FIFO and the inventory is valued using the LCNRV rule, determine t each inventory item.

Free

(Essay)

4.9/5

(82)

Question 2

Correct Answer:

Verified

a.
Answers for part 1
$ 3.40
b. $28.80
c. $ 1.56
d. $ 6.00
e. $21.00
f. $12.30

Answers for part 2:
Item:
a. 4.14
b. 27.60
c. 1.56
d. 6.15
e. 21.00
f. 12.30

Why would a company elect to use dollar-value LIFO retail method for valuing inventory?

Free

(Essay)

4.8/5

(85)

Question 3

Correct Answer:

Verified

Companies typically choose LIFO versus FIFO or average cost methods) because, in a period of rising prices, LIFO results in lower taxable income and therefore lower income tax liabilities. Companies that have few inventory items may elect to use traditional LIFO. However, record keeping requirements are costly if the company has a large number of inventory items. Furthermore, if the types of inventory items are constantly changing, adding new items and eliminating old items, the tax benefits of LIFO reverse themselves after old items are removed from inventory which erodes older layers of LIFO-based inventories.
The companies that maintain a large number of products and expect significant changes in their product mix in future, frequently use dollar-value LIFO technique. Older LIFO layers of inventory, representing past tax savings, are based on price-level indices. These layers are maintained as long as the overall quantity levels of inventory are maintained regardless of the quantities of individual inventory items

Generally, valuing inventory above cost

(Multiple Choice)

4.9/5

(72)

Question 4

Dahlia adopted the dollar-value LIFO retail inventory method on January 1, 2016. The following information for 2016 was taken from the company's records: The price index on January 1, 2016, was 100. On December 31, 2016, it was 105. Required: Compute the inventory value for December 31, 2016.

(Essay)

5.0/5

(91)

Question 5

Under special circumstances GAAP allows a company to report its inventory above cost. How must this exception be justified?

(Essay)

4.8/5

(97)

Question 6

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 balance sheet effects of these omissions on assets, liabilities, and retained earnings would be

(Multiple Choice)

4.9/5

(84)

Question 7

An advantage of the retail inventory method over the gross profit is the retail method uses current-period estimates whereas the gross profit used past periods.

(True/False)

4.7/5

(97)

Question 8

A purchase on credit is omitted from the purchases account, but ending inventory is correct. What is the effect of this error on the balance sheet for the current year? What is the effect on the income statement for the current year?

(Essay)

4.8/5

(82)

Question 9

The Sahara Company's inventory was partially destroyed on June 4, 2016, 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: Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?

(Multiple Choice)

4.8/5

(85)

Question 10

Which one of the following statements regarding the gross profit method is true?

(Multiple Choice)

4.9/5

(72)

Question 11

A purchase on credit is recorded twice and not corrected during the year-end physical inventory. Which of the following statements correctly describes the impact of this error?

(Multiple Choice)

4.7/5

(86)

Question 12

When using the cost-to-retail ratio for the retail inventory method,

(Multiple Choice)

4.8/5

(67)

Question 13

In comparison to the allowance method of applying the lower of cost or market rule to the valuation of inventory, the direct method has which of the following deficiencies?

(Multiple Choice)

4.9/5

(82)

Question 14

The gross profit method is not used to

(Multiple Choice)

4.9/5

(71)

Question 15

Barry Corp. reported 2016 net income of $40,000. However, the ending inventory in 2015 had been understated by $3,000, and 2016's ending inventory had been overstated by $6,000. Barry's correct net income for 2016 was

(Multiple Choice)

4.9/5

(80)

Question 16

Exhibit 8-1 Rival Inc. uses the lower of cost or market rule in valuing its inventory. Assume the company uses the LIFO method and that one unit has a ceiling constraint of $45.50. The following is other information concerning this unit: -Refer to Exhibit 8-1. The selling price of this unit must be

(Multiple Choice)

4.8/5

(87)

Question 17

The dollar-value LIFO cost-to-cost retail ratio does not include

(Multiple Choice)

4.9/5

(76)

Question 18

Darla's Card Shop uses the average cost retail inventory method to determine the ending inventory. Darla's accounting records for the current year contained the following information: In addition, sales returns for the year were $28,000, and employee discounts taken were $6,000. What is the cost of the ending inventory

(Multiple Choice)

4.9/5

(86)

Question 19

Laura's Department Store uses the average cost retail inventory method to determine its ending inventory. The accounting records for the current year for Laura's contained the following information: In addition, the accounting records for Laura's disclosed that purchases returns at cost and retail were $1,950 and $4,250, respectively. What is the cost-to-retail percentage to be used for ending inventory calculations?

(Multiple Choice)

4.8/5

(82)

Question 20

Showing 1 - 20 of 141

Major Company uses the lower of cost or market rule in valuing its inventory and applies it using the LIFO method. The floor constraint for one item in the inventory is $58.20. The following is other information concerning this unit:

Given the following information for the Lawrence Company who uses the LIFO method: Required: 1.) Determine the lower of cost or market for each inventory item. 2.) Now assume instead that the company uses FIFO and the inventory is valued using the LCNRV rule, determine t each inventory item.

Why would a company elect to use dollar-value LIFO retail method for valuing inventory?

Generally, valuing inventory above cost

Dahlia adopted the dollar-value LIFO retail inventory method on January 1, 2016. The following information for 2016 was taken from the company's records: The price index on January 1, 2016, was 100. On December 31, 2016, it was 105. Required: Compute the inventory value for December 31, 2016.

Under special circumstances GAAP allows a company to report its inventory above cost. How must this exception be justified?

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 balance sheet effects of these omissions on assets, liabilities, and retained earnings would be

An advantage of the retail inventory method over the gross profit is the retail method uses current-period estimates whereas the gross profit used past periods.

A purchase on credit is omitted from the purchases account, but ending inventory is correct. What is the effect of this error on the balance sheet for the current year? What is the effect on the income statement for the current year?

Which one of the following statements regarding the gross profit method is true?

A purchase on credit is recorded twice and not corrected during the year-end physical inventory. Which of the following statements correctly describes the impact of this error?

When using the cost-to-retail ratio for the retail inventory method,

In comparison to the allowance method of applying the lower of cost or market rule to the valuation of inventory, the direct method has which of the following deficiencies?

The gross profit method is not used to

Barry Corp. reported 2016 net income of $40,000. However, the ending inventory in 2015 had been understated by $3,000, and 2016's ending inventory had been overstated by $6,000. Barry's correct net income for 2016 was

Exhibit 8-1 Rival Inc. uses the lower of cost or market rule in valuing its inventory. Assume the company uses the LIFO method and that one unit has a ceiling constraint of $45.50. The following is other information concerning this unit: -Refer to Exhibit 8-1. The selling price of this unit must be

The dollar-value LIFO cost-to-cost retail ratio does not include

The Demand for and Supply of Financial Accounting Information

Financial Reporting: Its Conceptual Framework

Review of a Company S Accounting System

The Balance Sheet and the Statement of Shareholders Equity

The Income Statement and the Statement of Cash Flows Time Value of Money Module

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Current Liabilities and Contingent Obligations

Property, Plant, and Equipment: Acquisition and Subsequent Investments

Depreciation, Depletion, Impairment, and Disposal

Intangibles

Investments and Long-Term Receivables

Financing Liabilities: Bonds and Long-Term Notes Payable

Contributed Capital

Retained Earnings and Earnings Per Share

Advanced Issues in Revenue Recognition

Accounting for Income Taxes

Accounting for Post-Retirement Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Understanding Time Value of Money Formulas and Concepts

Filters