Question 1

If purchases are recorded correctly but ending physical inventory is understated, which one of the following situations occurs for the current year?

Accepted Answer

A)  Working capital is understated and net income is overstated. 
B)  Working capital and net income are understated. 
C)  Working capital is overstated and net income is understated. 
D)  Working capital and net income are overstated. 
A)  Working capital is understated and net income is overstated. 
B)  Working capital and net income are understated. 
C)  Working capital is overstated and net income is understated. 
D)  Working capital and net income are overstated.

Question 2

The lower-of-cost-or-market rule must be applied to each individual inventory item but not to groups of items

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following statements is not true with regard to the gross profit method of estimating inventories?

Accepted Answer

A)  The gross profit method may be used to determine inventory for interim financial reporting purposes without taking a physical count. 
B)  The percentage used for the gross profit method is determined by using previous years' historical data. 
C)  The gross profit method is not as accurate as the retail inventory method. 
D)  The gross profit method may only be used with a perpetual inventory accounting system. 
A)  The gross profit method may be used to determine inventory for interim financial reporting purposes without taking a physical count. 
B)  The percentage used for the gross profit method is determined by using previous years' historical data. 
C)  The gross profit method is not as accurate as the retail inventory method. 
D)  The gross profit method may only be used with a perpetual inventory accounting system.

Question 4

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

Accepted Answer

A)  Net markups and markdowns are always added and subtracted in order to compute the retail value of ending inventory. 
B)  Markups and markdowns are recorded only at retail. 
C)  In the lower of average cost or market method, net markups are excluded from the computation of the cost- to-retail ratio. 
D)  In computing the cost-to-retail ratio, purchase discounts affect only the cost of purchases and not the retail amount of purchases. 
A)  Net markups and markdowns are always added and subtracted in order to compute the retail value of ending inventory. 
B)  Markups and markdowns are recorded only at retail. 
C)  In the lower of average cost or market method, net markups are excluded from the computation of the cost- to-retail ratio. 
D)  In computing the cost-to-retail ratio, purchase discounts affect only the cost of purchases and not the retail amount of purchases.

Question 5

Debbie's Bling Shop uses the lower of average cost or market retail inventory method to determine its ending inventory. The accounting records for the current year for Debbie's contained the following information:  
 In addition, the accounting records for Debbie's disclosed that freight-in charges were $6,700 and sales returns were $2,833. What is the cost-to-retail percentage to be used for ending inventory calculations?

Accepted Answer

A)  71.4% 
B)  73.2% 
C)  76.7% 
D)  78.6% 
A)  71.4% 
B)  73.2% 
C)  76.7% 
D)  78.6%

Question 6

As a result of taking a physical inventory count on December 31, 2016, the Mona Lisa Company inventory was determined to be $61,500. The auditors for Mona Lisa 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 that should have been on hand at December 31, 2016?

Accepted Answer

A)  $240,000 
B)  $170,000 
C)  $125,000 
D)  $ 61,500 
A)  $240,000 
B)  $170,000 
C)  $125,000 
D)  $ 61,500

Question 7

When applying lower of cost or net realizable value under the FIFO, average cost, or specific identification method, market value

Accepted Answer

A)  is defined as the selling price. 
B)  is defined as the net realizable value. 
C)  should not exceed the net realizable value less an allowance for a normal profit margin. 
D)  should not exceed the net realizable value plus an allowance for a normal profit margin. 
A)  is defined as the selling price. 
B)  is defined as the net realizable value. 
C)  should not exceed the net realizable value less an allowance for a normal profit margin. 
D)  should not exceed the net realizable value plus an allowance for a normal profit margin.

Question 8

Scotland Inc. incurred a fire loss. Certain information follows:   Required:
Using the gross profit method, compute the amount of the fire loss.

Accepted Answer

The answer of Scotland Inc. incurred a fire loss. Certain...

Question 9

Given the following information for the Raquel Company who uses the periodic inventory system:  
 If the allowance method of recording lower of cost or NRV is in use, which December 31, 2020, journal entry is correct?

Accepted Answer

The answer of Given the following information for the Raquel...

Question 10

Ann Co. uses the dollar-value LIFO retail method. The beginning inventory, purchased when the price index was 100, had a retail value of $4,000 and a cost of $3,600. During the period, purchases amounted to $60,000 at retail $52,800 at cost). Sales amounted to $56,300. The year-end price index was 110. What is the cost of ending inventory?

Accepted Answer

A)  $6,240 
B)  $6,504 
C)  $6,570 
D)  $6,900 
A)  $6,240 
B)  $6,504 
C)  $6,570 
D)  $6,900

Question 11

Which one of the following inventories may not 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?

Accepted Answer

A)  grain for an agricultural company 
B)  crude oil for an oil company 
C)  gold for a mining corporation 
D)  laptops for a computer manufacturer 
A)  grain for an agricultural company 
B)  crude oil for an oil company 
C)  gold for a mining corporation 
D)  laptops for a computer manufacturer

Question 12

The Brad's Farm Company uses the retail inventory method to compute ending inventory. Information for last year is as follows:   Determine Brad's Farm Company's ending inventory based on the retail lower of average cost or market method.

Accepted Answer

The answer of The Brad's Farm Company uses the retail...

Question 13

Which of the following statements is true?

Accepted Answer

A)  Application of LIFO for financial reporting purposes must follow the tax laws applicable to LIFO. 
B)  A company must use FIFO for both tax reporting and financial statement reporting. 
C)  A company may use FIFO to valuate inventory and LIFO for financial statement reporting purposes. 
D)  LIFO must be used for financial reporting if it is used for tax purposes. 
A)  Application of LIFO for financial reporting purposes must follow the tax laws applicable to LIFO. 
B)  A company must use FIFO for both tax reporting and financial statement reporting. 
C)  A company may use FIFO to valuate inventory and LIFO for financial statement reporting purposes. 
D)  LIFO must be used for financial reporting if it is used for tax purposes.

Question 14

Lower of cost or NRV rule can be applied to periodic inventory. What are the two methods? Which one requires an entry to the loss due to write-down of inventory account?

Accepted Answer

Direct method Allowance method

Question 15

Companies may express their gross profit as a percentage of net sales or as a percentage of cost of goods sold. The following data are available on two different companies:   Required: 
a. Compute the gross profit as a percentage of cost of goods sold for Company A.
b. Compute the gross profit as a percentage of net sales for Company B.

Accepted Answer

a. 0.25/1 ? 0.25) =

Question 16

An auditor may not use the gross profit method to verify the accuracy of the reported cost of inventory.

Accepted Answer

A) True 
 B)False

Question 17

If a purchase on credit is omitted from the purchase account in error and ending inventory is correctly determined, net income for the period would be understated.

Accepted Answer

A) True 
 B)False

Question 18

Ending inventory is over stated due to an error, purchases were verified to be correct. What is the effect on the current year's income statement?

Accepted Answer

Net income would be

Question 19

The following information for five products A-E) was taken from the inventory records of the Walker Company who use the LIFO method:   Required:
Determine the valuation of the inventory at the lower of cost or market applied to: 
a. individual items
b. the inventory as a whole

Accepted Answer

a. $5.20 × 175) + $10.00 × 200) + $5.10

Question 20

Audrey Company uses the LIFO retail inventory method and reports the following information:

Accepted Answer

The answer of Audrey Company uses the LIFO retail inventory...

If purchases are recorded correctly but ending physical inventory is understated, which one of the following situations occurs for the current year?

The lower-of-cost-or-market rule must be applied to each individual inventory item but not to groups of items

Which one of the following statements is not true with regard to the gross profit method of estimating inventories?

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

When applying lower of cost or net realizable value under the FIFO, average cost, or specific identification method, market value

Scotland Inc. incurred a fire loss. Certain information follows: Required: Using the gross profit method, compute the amount of the fire loss.

Given the following information for the Raquel Company who uses the periodic inventory system: If the allowance method of recording lower of cost or NRV is in use, which December 31, 2020, journal entry is correct?

Which one of the following inventories may not 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?

The Brad's Farm Company uses the retail inventory method to compute ending inventory. Information for last year is as follows: Determine Brad's Farm Company's ending inventory based on the retail lower of average cost or market method.

Which of the following statements is true?

Lower of cost or NRV rule can be applied to periodic inventory. What are the two methods? Which one requires an entry to the loss due to write-down of inventory account?

An auditor may not use the gross profit method to verify the accuracy of the reported cost of inventory.

If a purchase on credit is omitted from the purchase account in error and ending inventory is correctly determined, net income for the period would be understated.

Ending inventory is over stated due to an error, purchases were verified to be correct. What is the effect on the current year's income statement?

The following information for five products A-E) was taken from the inventory records of the Walker Company who use the LIFO method: Required: Determine the valuation of the inventory at the lower of cost or market applied to: a. individual items b. the inventory as a whole

Audrey Company uses the LIFO retail inventory method and reports the following information:

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

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Exam 8: Inventories: Special Valuation Issues

If purchases are recorded correctly but ending physical inventory is understated, which one of the following situations occurs for the current year?

The lower-of-cost-or-market rule must be applied to each individual inventory item but not to groups of items

Which one of the following statements is not true with regard to the gross profit method of estimating inventories?

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

When applying lower of cost or net realizable value under the FIFO, average cost, or specific identification method, market value

Scotland Inc. incurred a fire loss. Certain information follows: Required: Using the gross profit method, compute the amount of the fire loss.

Given the following information for the Raquel Company who uses the periodic inventory system: If the allowance method of recording lower of cost or NRV is in use, which December 31, 2020, journal entry is correct?

Which one of the following inventories may not 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?

The Brad's Farm Company uses the retail inventory method to compute ending inventory. Information for last year is as follows: Determine Brad's Farm Company's ending inventory based on the retail lower of average cost or market method.

Which of the following statements is true?

Lower of cost or NRV rule can be applied to periodic inventory. What are the two methods? Which one requires an entry to the loss due to write-down of inventory account?

An auditor may not use the gross profit method to verify the accuracy of the reported cost of inventory.

If a purchase on credit is omitted from the purchase account in error and ending inventory is correctly determined, net income for the period would be understated.

Ending inventory is over stated due to an error, purchases were verified to be correct. What is the effect on the current year's income statement?

The following information for five products A-E) was taken from the inventory records of the Walker Company who use the LIFO method: Required: Determine the valuation of the inventory at the lower of cost or market applied to: a. individual items b. the inventory as a whole

Audrey Company uses the LIFO retail inventory method and reports the following information:

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

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