Exam 8: Inventories: Special Valuation Issues

Farmington Company uses a perpetual inventory system and values its inventory at lower of cost or market. Its accounting records indicate the following information relating to inventory: Prepare the required journal entries at December 31, 2017, and December 31, 2018, to record the inventory at lower of cost or market using the following methods: a. Direct method b. Allowance method

The accountant for Suzanne Company made the following errors related to inventory in 2017: 1) The beginning inventory for 2017 was overstated by $1,375 due to an error in the physical count. 2) A $1,650 purchase of merchandise on credit in 2017 was not recorded or included in the ending inventory. Assuming a periodic inventory system, how would Sue's cost of goods sold, gross profit, and net income be affected in 2017 by these errors?

The gross profit method is an appropriate method for determining the cost of inventory for interim financial statements.

The Rebecca Company provided the following data for its December 31, 2016, inventory maintained on the retail basis. What is the estimated inventory at December 31, 2016, valued at lower of average cost or market?

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 floor constraint of this unit must be

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

If ending inventory is overstated for the current period due to a costing error but purchases are correct, the balance sheet at the end of the succeeding year would be correctly stated.

Eloise Corp. uses the FIFO retail inventory method and reports the following information: What is the FIFO value of ending inventory for Eloise Corp.?

Using a periodic inventory system, Bertram Company records inventory at lower of cost or NRV using the allowance method. The end-of-the-year journal entries to adjust inventories would include

The Peter Park Company began operations in early 2018. At December 31, 2018, the company's ending inventory's c the inventory at this date was $11,800. Peter Park values its inventory at lower of cost or market applied on an individ inventory system. Below is information relating to Peter's inventory at December 31, 2019: a. Assuming that the company uses the allowance method, prepare the required entry at December 31, 2018, to record the inventory at lower of cost or market. b. Prepare a schedule to calculate the inventory's value as of December 31, 2019, using the lower of cost or market method applied using the LIFO method. The schedule should contain the following column headings: Item, Upper Constraint, Lower Constraint, Applicable Unit Inventory Value, Number of Units, and Total Inventory Value. c. Prepare the required entry at December 31, 2019, to record the inventory at lower of cost or market. Assume the allowance method is used.

The retail inventory method is used extensively in the retail industry. Required: Discuss the assumptions and benefits of the retail inventory method.

What is dollar value LIFO retail method?

The gross profit method is more sensitive to price changes than the FIFO method and produces a more accurate estimate of current period ending inventory.

As a result of taking a physical inventory count on December 31, 20106 the Cookie Company inventory was determined to be $425,000. The auditors for Cookie 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: Using the gross profit method, what did the auditors estimate as the amount of the inventory shortage at December 31, 2016?

Under the dollar-value LIFO the cost-to-retail ratio includes net markups and net markdowns from both the current period and beginning inventory. during the current period.

For the period from 2016 through 2016, the Charlie Company had net sales of $500,000 and a gross profit of $200,000. During the first quarter of 2018, the company made purchases of $19,500 and recorded sales of $47,500. The inventory value at the beginning of the year was 15,500. What is the estimated cost of Charlie's inventory on March 31, 2018, using the gross profit method?

The accountant for Ella Company made the following errors related to the inventory in 2016: 1) The beginning inventory for 2016 was understated by $1,350 due to an error in the physical count. 2) A $1,500 purchase of merchandise in transit was not recorded as a purchase and was not included in ending inventory. Assuming a periodic inventory system, Ella Company's 2016 net income will be

When applying lower of cost or market under the LIFO or retail inventory method, market value should not be less than

Leslie, Ltd. used the LIFO retail inventory method to determine its ending inventory. The accounting records for the company contained the following relevant information: What is the LIFO cost of the ending inventory?