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: $\begin{array}{lll} \underline{\text { Retail }}&\underline{\text {Cost}} \\ \$ 87,750 & \$ 71,200 & \text { Purchases } \\ 23,500 & 17,000 & \text { Begining inventory } \\ 98,000 & & \text { Sales } \\ 6,500 & & \text { Net markups } \\ 3,000 & & \text { Net markdowns } \end{array}$ 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?

A) 75.1% B) 79.8% C) 76.8% D) 78.1% A) 75.1% B) 79.8% C) 76.8% D) 78.1%

The Sherri's Retail Shop uses the FIFO retail inventory method to determine its ending inventory. The accounting records for the current year for Sherri's contained the following information: $\begin{array}{lll} \underline{\text { Retail }}&\underline{\text {Cost}} \\ \$ 362,250 & \$ 225,000 & \text { Purchases } \\ 73,000 & 55,000 & \text { Beginning inventory } \\ 385,750 & & \text { Sales } \\ 32,500 & & \text { Net markups } \\ 19,750 & & \text { Net markdowns } \\ 12,500 & & \text { Emplovee discounts } \end{array}$ What is the cost-to-retail percentage to be used for ending inventory calculations?

A) 57.0% B) 60.0% C) 62.1% D) 62.5% A) 57.0% B) 60.0% C) 62.1% D) 62.5%

Eloise Corp. uses the FIFO retail inventory method and reports the following information: $\begin{array}{c} \begin{array}{l} \underline{\text { Retail }} \\ \$ 28,000 \\ 24,800\\ 1,000 \\ 3,000 \\ 400 \end{array} \begin{array}{lll} \underline{\text {Cost}}\\ \$ 21,450 \\ \\ \\ 2,100\\ \\ \end{array} \begin{array}{lll} \\ \text {Purchases}\\ \text {Sales}\\ \text {Net markups}\\ \text {Beginning inventory}\\ \text {Net markdowns} \end{array} \end{array}$ What is the cost of ending inventory for Eloise Corp.?

A) $4,760 B) $5,100 C) $5,209 D) $5,552 A) $4,760 B) $5,100 C) $5,209 D) $5,552

The Jamison Company's inventory was destroyed on July 4, 2013, when its warehouse caught on fire early in the morning. Inventory was totally destroyed. The accounting records, which were located in a fireproof vault, contained the following information: $\begin{array}{ll} \$ 250,000 & \text { Sales }(1 / 1 / 13 \text { through } 7 / 3 / 13) \\ 180,000 & \text { Purchases }(1 / 1 / 13 \text { through } 7 / 3 / 13) \\ 45,000 & \text { Inventory }(1 / 1 / 13) \\ 25 \% \text { of cost } & \text { Gross profit ratio } \end{array}$ Using the gross profit method, what is the estimated cost of the inventory that was destroyed by the fire?

A) $17,500 B) $25,000 C) $30,000 D) $37,500 A) $17,500 B) $25,000 C) $30,000 D) $37,500

Given the following information for the Tea Company: $\begin{array} { l l l } \underline{\text { Merket }} & \underline{\text { Cost} } & \underline{\text { Dete} } \\ \$800 & \$ 800& \text { December 31, 2014 } \\ 940 & 1,000 & \text { December 31, 2015 } \\ 1,060 & 1,100 & \text { December 31, 2016 } \end{array}$ Under the periodic system, if the allowance method of recording lower of cost or market is in use, which December 31, 2016 entry is not correct?

A) Loss Due to Market Valuation 40 Allowance to Reduce Inventory to Market 40 B) Allowance to Reduce Inventory to Market 20 Loss Recovery Due to Market Valuation 20 C) Inventory 1,100 Income Summary 1,100 D) Income Summary 1,000 Inventory 1,000 A) Loss Due to Market Valuation 40 Allowance to Reduce Inventory to Market 40 B) Allowance to Reduce Inventory to Market 20 Loss Recovery Due to Market Valuation 20 C) Inventory 1,100 Income Summary 1,100 D) Income Summary 1,000 Inventory 1,000

Morris Company uses the lower of cost or market rule in valuing its inventory. The floor constraint for one item in the inventory is $68.20. The following is other information concerning this unit: $\begin{array}{ll} \$ 4.00 & \text { Transportation costs } \\ 12.70 & \text { Normal profit margin } \\ 4.20 & \text { Packaging costs } \end{array}$ The net realizable value for this item is

A) $72.40 B) $55.50 C) $80.90 D) $76.40 A) $72.40 B) $55.50 C) $80.90 D) $76.40

Exam 8: Inventories: Special Valuation Issues

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?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

D

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?

Free

(Essay)

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(81)

Question 2

Correct Answer:

Verified

Net income would be over stated because cost of goods sold was under stated.

The purpose of dollar-value LIFO retail method is to eliminate the effects of price changes during a period.

Free

(True/False)

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Question 3

Correct Answer:

Verified

True

The gross profit method is an excellent method to determine the cost of inventory for interim financial statements. The method of estimation must be disclosed.

(True/False)

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Question 4

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: \ 87,750 \ 71,200 Purchases 23,500 17,000 Begining inventory 98,000 Sales 6,500 Net markups 3,000 Net markdowns 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)

5.0/5

(71)

Question 5

The Sherri's Retail Shop uses the FIFO retail inventory method to determine its ending inventory. The accounting records for the current year for Sherri's contained the following information: \ 362,250 \ 225,000 Purchases 73,000 55,000 Beginning inventory 385,750 Sales 32,500 Net markups 19,750 Net markdowns 12,500 Emplovee discounts What is the cost-to-retail percentage to be used for ending inventory calculations?

(Multiple Choice)

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Question 6

Match each key term with the appropriate definition -Increase above the original sale price.

(Multiple Choice)

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Question 7

Eloise Corp. uses the FIFO retail inventory method and reports the following information: \ 28,000 24,800 1,000 3,000 400 \ 21,450 2,100 Purchases Sales Net markups Beginning inventory Net markdowns What is the cost of ending inventory for Eloise Corp.?

(Multiple Choice)

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Question 8

Ending inventory is overstated due to a costing error but purchases are correct. The balance sheet would be correct in the succeeding year because the previous years error would have been counterbalanced.

(True/False)

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Question 9

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

(Multiple Choice)

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Question 10

The Jamison Company's inventory was destroyed on July 4, 2013, when its warehouse caught on fire early in the morning. Inventory was totally destroyed. The accounting records, which were located in a fireproof vault, contained the following information: \ 250,000 Sales (1/1/13 through 7/3/13) 180,000 Purchases (1/1/13 through 7/3/13) 45,000 Inventory (1/1/13) 25\% of cost Gross profit ratio Using the gross profit method, what is the estimated cost of the inventory that was destroyed by the fire?

(Multiple Choice)

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Question 11

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

(Multiple Choice)

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Question 12

Match each key term with the appropriate definition -Increase in selling price after there has been a markdown.

(Multiple Choice)

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Question 13

Although IFRS require the use of the lower of cost or market method to value inventory, some differences from GAAP still exist. Which of the following is not one of the differences?

(Multiple Choice)

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Question 14

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

(Multiple Choice)

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Question 15

Given the following information for the Tea Company: \8 00 \ 800 December 31, 2014 940 1,000 December 31, 2015 1,060 1,100 December 31, 2016 Under the periodic system, if the allowance method of recording lower of cost or market is in use, which December 31, 2016 entry is not correct?

(Multiple Choice)

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Question 16

Morris Company uses the lower of cost or market rule in valuing its inventory. The floor constraint for one item in the inventory is $68.20. The following is other information concerning this unit: \ 4.00 Transportation costs 12.70 Normal profit margin 4.20 Packaging costs The net realizable value for this item is

(Multiple Choice)

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(71)

Question 17

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?

(Multiple Choice)

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Question 18

The accountant for the Daneen Company made the following errors related to purchases of merchandise and ending inventory in 2014: 1.A $3,100 purchase of merchandise on credit early in 2015 was recorded and included in ending inventory at December 31, 2014. 2.A $2,750 purchase of merchandise on credit in 2014 was recorded, but it was not included in the end-of-year physical inventory count. Assuming a periodic inventory system, Daneen Company's 2014 net income will be

(Multiple Choice)

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Question 19

The gross profit method is not used to

(Multiple Choice)

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Question 20

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?

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 purpose of dollar-value LIFO retail method is to eliminate the effects of price changes during a period.

The gross profit method is an excellent method to determine the cost of inventory for interim financial statements. The method of estimation must be disclosed.

Match each key term with the appropriate definition -Increase above the original sale price.

Eloise Corp. uses the FIFO retail inventory method and reports the following information: \ 28,000 24,800 1,000 3,000 400 \ 21,450 2,100 Purchases Sales Net markups Beginning inventory Net markdowns What is the cost of ending inventory for Eloise Corp.?

Ending inventory is overstated due to a costing error but purchases are correct. The balance sheet would be correct in the succeeding year because the previous years error would have been counterbalanced.

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

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

Match each key term with the appropriate definition -Increase in selling price after there has been a markdown.

Although IFRS require the use of the lower of cost or market method to value inventory, some differences from GAAP still exist. Which of the following is not one of the differences?

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

Given the following information for the Tea Company: \8 00 \ 800 December 31, 2014 940 1,000 December 31, 2015 1,060 1,100 December 31, 2016 Under the periodic system, if the allowance method of recording lower of cost or market is in use, which December 31, 2016 entry is not correct?

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?

The gross profit method is not used to

The Demand for and Supply of Financial Accounting Information

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Shareholders Equity

The Income Statement and the Statement of Cash Flows

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Current Liabilities and Contingencies

Property, Plant, and Equipment: Acquisition and Subsequent Investments

Depreciation, Depletion, Impairment, and Disposal

Intangibles

Investments and Long-Term Receivables

Financing Liabilities: Bonds and Notes Payable

Contributed Capital

Retained Earnings and Earnings Per Share

Advanced Issues in Revenue Recognition

Accounting for Income Taxes

Accounting for Postretirement Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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