Exam 8: Inventories: Special Valuation Issues

Describe the differences in the application of lower of the cost or market consideration between U.S. GAAP and IFRS.

Laura's Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting records for the current year contain the following information: Compute the ending inventory under the following cost flow assumptions. 1) FIFO 2) lower of cost or market based on average cost)

If a company recognizes a loss due to inventory write-down then the inventory value subsequently increases due to a market reversal the following year, GAAP does not permit the loss to be recovered.

Draper Company's controller was explaining to the company's president, Dana Draper, that if the inventory's value should decrease below its original cost, the inventory must be written down and a loss must be recognized. The controller told the president that this is called the lower of cost or market rule. The president was unclear as to the purpose of this rule and wanted to know the disadvantages of this method. Required: a. State the accounting convention that supports the lower of cost or market rule, and in this context, discuss the purpose of the rule. b. Discuss the criticisms of the lower of cost or market rule in the valuation of inventories.

The accountant for Lee Company made the following errors related to merchandise inventory in 2016: 1) The beginning inventory for 2016 was overstated by $750 due to an error in the physical count. 2) A $1,300 purchase of merchandise on credit was not recorded and was not included in the ending inventory. Assuming a periodic inventory system, Lee Company's 2016 cost of goods sold will be

Careful valuation of the ending inventory is necessary because errors can result in inaccurate values on both the income statement and balance sheet. Assume that a company overstates its ending inventory for 2016. Required: Explain the effects of the error on the income statements and balance sheets for 2016 and 2017.

At the beginning of 2016, the Joan Company had an inventory valued at $34,375 at cost $50,000 at retail). During the year, Joan purchased inventory for $50,000 $70,000 at retail), and made markdowns of $7,500. Joan's sales in 2016 were $62,500. What is Joan's estimated ending inventory at FIFO cost using the retail inventory method?

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?

Which one of the following statements is false concerning the retail inventory method?

Which one of the following inventories may be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory?

Which of the following variations of the retail inventory method would generally result in the lowest cost-to-retail ratio in a period of rising prices?

Assume that there is a decline in inventory value in one period, then there is a reversal of value to the original or higher value and a later period. Which of the following statements about recognition of the loss is true?

Guinea, Inc. adopted the dollar-value LIFO retail inventory method on January 1, 2016, when the price index was 100. The following information was taken from company records on December 31, 2016, when the price index was 110. Compute the cost of the December 31, 2016, inventory. Round off calculations to the nearest dollar.)

If in the current year a purchase was not recorded but the purchased item was included in ending physical inventory, which one of the following situations occurs for the current year?

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

With the retail inventory method, how is the total beginning inventory value used in the calculation of the cost-to-retail ratio for the current period under the following cost flow assumptions?

The correct net income for Sarah Corp. was $53,500. However, 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 Sarah Corp. report?

If the net markdowns are excluded from the calculation of the cost-to-retail ratio in the retail inventory method, what is the effect on the cost-to-retail ratio?

Precious metals can be valued above costs because they are immediately marketable at a quoted market price.

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?