Audrey Company uses the LIFO retail inventory method and reports the following information: $\begin{array}{c} \begin{array}{l} \underline{\text { Retail }} \\ \$ 900 \\ 1,000 \\ 4,500\\ 500 \\ 4,000 \end{array} \begin{array}{lll} \underline{\text {Cost}}\\ \$540 \\ \\ \\ \\ 3,150 \end{array} \begin{array}{lll} \\ \text {Beginning inventory}\\ \text { Net markups }\\ \text {Sales}\\ \text {Net markdowns}\\ \text {Purchases} \end{array} \end{array}$ What is the cost of ending inventory for Audrey Company?

A) $540 B) $580 C) $630 D) $900 A) $540 B) $580 C) $630 D) $900

The Alexandra Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports. Information about Alexandra's inventory in the second quarter of 2014 is shown below: $\begin{array}{c} \begin{array}{lll} \underline{\text {Retail}}\\ \$ 800 \\ 1,400 \\ 200 \\ (500) \\ 1,300 \end{array} \begin{array}{lll} \underline{\text { Cost }} \\ \$ 255 \\ 600 \\ \\ \\ \\ \end{array} \begin{array}{lll} \\ \text {Begining inventoty}\\ \text {Purchases}\\ \text {Net markups}\\ \text {Net matkdowns}\\ \text {Sales} \end{array} \end{array}$ What is the estimated cost of Alexandra's inventory on June 30, 2014?

A) $270 B) $300 C) $585 D) $600 A) $270 B) $300 C) $585 D) $600

Given the following information for the Raquel Company: $\begin{array}{ll} \underline{\text { Market }} & \underline{\text { Cost }} &\underline{\text {Date}}\\ \$500&\$500&\text {December 31,2014}\\ 650 & 700& \text {December 31, 2015}\\ 730 & 800&\text {December 31,2016} \end{array}$ Under the periodic system, if the direct method of recording lower of cost or market is in use, which December 31, 2016 entry is correct?

A) Loss Due to Market Valuation 20 Allowance to Reduce Inventory to Market 20 B) Inventory 730 Income Summary 730 C) Loss Due to Market Valuation 70 Allowance to Reduce Inventory to Market 70 D) Inventory 800 Income Summary 800 A) Loss Due to Market Valuation 20 Allowance to Reduce Inventory to Market 20 B) Inventory 730 Income Summary 730 C) Loss Due to Market Valuation 70 Allowance to Reduce Inventory to Market 70 D) Inventory 800 Income Summary 800

Darla's Card Shop uses the average cost retail inventory method to determine the ending inventory. Darla's accounting records for 2014 contained the following information: $\begin{array}{c} \begin{array}{l} \underline{\text { Retail }} \\ \$317,000 \\ 350,000\\ 78,500 \\ 12,000 \\ 8,000 \end{array} \begin{array}{lll} \underline{\text {Cost}}\\ \$ 216,000 \\ \\ \\ 64,000\\ \\ \end{array} \begin{array}{lll} \\ \text {Purchases}\\ \text {Sales}\\ \text {Begining inventory}\\ \text {Net markups}\\ \text {Net markdowns} \end{array} \end{array}$ In addition, sales returns for 2014 were $28,000, and employee discounts taken were $6,000. What is the cost of the ending inventory at December 31, 2014?

A) $21,000 B) $35,000 C) $50,400 D) $54,600 A) $21,000 B) $35,000 C) $50,400 D) $54,600

Exhibit 8-2 The Dormer Company uses the gross profit method to estimate its inventory in interim financial statements. The markup on cost is 50%. The following information is available: $\begin{array}{ll} \$ 12,500 & \text { January 1, 2014, inventory balance } \\ 25,000 & \text { Purchases } \\ 24,000 & \text { Sales During January } \end{array}$ -Refer to Exhibit 8-2. The estimated inventory at January 31, 2014, is

A) $25,500 B) $21,500 C) $16,000 D) $12,000 A) $25,500 B) $21,500 C) $16,000 D) $12,000

Exhibit 8-1 Rival Inc. uses the lower of cost or market rule in valuing its inventory. One unit has a ceiling constraint of $45.50. The following is other information concerning this unit: $\begin{array}{ll} \$ 3.80 & \text { Estimated transportation costs for delivery } \\ 7.50 & \text { Normal profit margin } \\ 3.60 & \text { Packaging costs prior to delivery } \end{array}$ - Refer to Exhibit 8-1. The floor constraint of this unit must be

A) $41.90 B) $38.00 C) $41.70 D) $38.10 A) $41.90 B) $38.00 C) $41.70 D) $38.10

Exam 8: Inventories: Special Valuation Issues

A list of errors is shown below: Required: Show the effects of the errors on the indicated balance sheet and income statement items. Use the following symbols: O = Overstated; U = Understated; N = No Effect.

(Essay)

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(76)

Question 21

Audrey Company uses the LIFO retail inventory method and reports the following information: \ 900 1,000 4,500 500 4,000 \5 40 3,150 Beginning inventory Net markups Sales Net markdowns Purchases What is the cost of ending inventory for Audrey Company?

(Multiple Choice)

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Question 22

Under the dollar-value LIFO the cost-to-retail ratio includes net markups and net markdowns but includes the beginning inventory.

(True/False)

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Question 23

A purchase on credit is recorded twice and not corrected during the physical inventory. Which of the following statements correctly describes the impact of this error?

(Multiple Choice)

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Question 24

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?

(Multiple Choice)

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Question 25

The Alexandra Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports. Information about Alexandra's inventory in the second quarter of 2014 is shown below: \ 800 1,400 200 (500) 1,300 \ 255 600 Begining inventoty Purchases Net markups Net matkdowns Sales What is the estimated cost of Alexandra's inventory on June 30, 2014?

(Multiple Choice)

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Question 26

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

(True/False)

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Question 27

Given the following information for the Raquel Company: \5 00 \5 00 December 31,2014 650 700 December 31, 2015 730 800 December 31,2016 Under the periodic system, if the direct method of recording lower of cost or market is in use, which December 31, 2016 entry is correct?

(Multiple Choice)

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Question 28

Define the following: Markup Additional Markup Net Additional Markup Markdown Cancellation

(Essay)

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Question 29

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

(Multiple Choice)

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Question 30

Darla's Card Shop uses the average cost retail inventory method to determine the ending inventory. Darla's accounting records for 2014 contained the following information: \3 17,000 350,000 78,500 12,000 8,000 \ 216,000 64,000 Purchases Sales Begining inventory Net markups Net markdowns In addition, sales returns for 2014 were $28,000, and employee discounts taken were $6,000. What is the cost of the ending inventory at December 31, 2014?

(Multiple Choice)

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Question 31

Which of the following statements is true?

(Multiple Choice)

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Question 32

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 final price change is a

(Multiple Choice)

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Question 33

Which application of the lower of cost or market rule will generally result in the lowest valuation for the ending inventory?

(Multiple Choice)

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Question 34

Consider the following: Code: A = Gross profit to net sales ratio B = Gross profit to cost of goods sold ratio Which equation is correct?

(Multiple Choice)

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Question 35

The dollar-value LIFO cost-to-cost retail ratio does not include

(Multiple Choice)

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Question 36

The dollar-value LIFO retail method combines

(Multiple Choice)

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Question 37

Exhibit 8-2 The Dormer Company uses the gross profit method to estimate its inventory in interim financial statements. The markup on cost is 50%. The following information is available: \ 12,500 January 1, 2014, inventory balance 25,000 Purchases 24,000 Sales During January -Refer to Exhibit 8-2. The estimated inventory at January 31, 2014, is

(Multiple Choice)

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(82)

Question 38

Which one of the following statements is not true concerning the retail inventory method?

(Multiple Choice)

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Question 39

Exhibit 8-1 Rival Inc. uses the lower of cost or market rule in valuing its inventory. One unit has a ceiling constraint of $45.50. The following is other information concerning this unit: \ 3.80 Estimated transportation costs for delivery 7.50 Normal profit margin 3.60 Packaging costs prior to delivery - Refer to Exhibit 8-1. The floor constraint of this unit must be

(Multiple Choice)

4.9/5

(80)

Question 40

A list of errors is shown below: Required: Show the effects of the errors on the indicated balance sheet and income statement items. Use the following symbols: O = Overstated; U = Understated; N = No Effect.

Audrey Company uses the LIFO retail inventory method and reports the following information: \ 900 1,000 4,500 500 4,000 \5 40 3,150 Beginning inventory Net markups Sales Net markdowns Purchases What is the cost of ending inventory for Audrey Company?

Under the dollar-value LIFO the cost-to-retail ratio includes net markups and net markdowns but includes the beginning inventory.

A purchase on credit is recorded twice and not corrected during the physical inventory. Which of the following statements correctly describes the impact of this error?

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?

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

Given the following information for the Raquel Company: \5 00 \5 00 December 31,2014 650 700 December 31, 2015 730 800 December 31,2016 Under the periodic system, if the direct method of recording lower of cost or market is in use, which December 31, 2016 entry is correct?

Define the following: Markup Additional Markup Net Additional Markup Markdown Cancellation

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

Which of the following statements is true?

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 final price change is a

Which application of the lower of cost or market rule will generally result in the lowest valuation for the ending inventory?

Consider the following: Code: A = Gross profit to net sales ratio B = Gross profit to cost of goods sold ratio Which equation is correct?

The dollar-value LIFO cost-to-cost retail ratio does not include

The dollar-value LIFO retail method combines

Which one of the following statements is not true concerning the retail inventory method?

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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