Exam 8: Inventories: Special Valuation Issues

Below is a list of key terms. a) additional Mark up b) allowance method c) conventional retail method d) markdown cancellation e) net realizable value f) net additional markup g) markup h) gross profit method Required: Match each key term with the appropriate definition. ______ 1) Total markup less markup cancellations. ______ 2) Increase in selling price after there has been a markdown. ______ 3) Cost to selling price. ______ 4) Can be used by an auditor to verify the cost of inventory. ______ 5) Also known as the retail inventory method. ______ 6) Increase above the original sale price. ______ 7) The loss is recorded in a separate inventory account. ______ 8) Estimated selling price less costs of completion or disposal.

Given the following information for the Tea Company: Under the periodic system, if the allowance method of recording lower of cost or market is in use, which December 31, 2020 entry is correct?

Under the LIFO or retail inventory method the Net Realizable Value is considered the ceiling that prevents inventory from being valued at amount higher than what the company could reasonably sell it.

Replacement costs are measured based upon GAAP's requirement of an upper and a lower constraint on the market value when applying the LIFO or retail inventory methods. What are the upper and lower constraints?

A fire destroyed the Churchill Company's warehouse on March 15, 2016. Only goods with a normal selling price of $12,500 and a net realizable value of $5,000 were saved. The following information is available from the company's records: For the period from 2011 through 2015, Churchill had a gross profit of $2,100,000 on net sales of $6,000,000. Required: a. Estimate Churchill's inventory loss from the fire using the gross profit method. b. What assumptions allow the use of the gross profit method in these circumstances?

The Alpha Company uses the retail inventory method for valuation of its inventory. If an item had a cost of $45, was originally marked to sell at $60, was later priced at $55, and finally was priced at $68, the resulting price change is a

Morris Company uses the lower of cost or market rule and applies it using the LIFO method in valuing its inventory. The floor constraint for one item in the inventory is $68.20. The following is other information concerning this unit:

Zoe Company has provided the following values for its 400 units of inventory at the end of 2014: Under IFRS requirements, the per-unit reported value for Zoe's inventory will be

In what situations would the gross profit method be used to estimate ending inventory?

Yamachi Inc. incurred a loss from a flash flood on July 20, 2016. The following information was available from the company's accounting records: All purchases of merchandise are on account. The accounts payable balance on January 1, 2016, was $16,500, and cash paid to suppliers during 2016 to the date of the flood loss was $60,000. Purchase discounts taken during the period were $1,200. The unpaid purchase invoices as of July 20, 2016, totaled $35,050. The accounts payable account is used only to record purchases of merchandise. Required: Using the gross profit method, compute the amount of the loss from the flash flood. Hint: The accounts payable account must be analyzed to determine purchases.)

The accountant for the Hilga Company recorded a purchase of merchandise on credit for the current year, but the merchandise was shipped FOB destination and did not arrive until after current year-end. Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet?

Barbara Co. presents the following information: The company uses the average cost retail inventory method. What is the cost of ending inventory?

Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or NRV rule. The allowance method is used in applying the lower of cost or NRV rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: -Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2020, to apply the lower of cost or market rule?

The major criticism of the lower of cost or market rule for valuation of inventory is that.

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

Stacie's Shoes uses the FIFO retail inventory method to determine its ending inventory. The accounting records for Stacie's Shoes contained the following information: The freight-in charges for the merchandise were $7,500. What is the cost of ending inventory for Stacie's Shoes?

The gross profit method may be used to estimate the cost of inventory. Required: a. List four situations when it might be appropriate to use the gross profit method to estimate the cost of inventory. b. Discuss the potential disadvantages of the gross profit method.

A company using the periodic inventory system to record the reduction of inventory to NRV value would record the following journal entry to close beginning inventory using the direct method:

Which one of the following statements is true with regard to the lower of cost or market rule?

Which application of the LCNRV or LCM rule will generally result in the lowest valuation for the ending inventory?