Exam 8: Inventories: Special Valuation Issues

The Sahara Company's inventory was partially destroyed on June 4, 2014, when its warehouse caught on fire early in the morning. Inventory that had a cost of $8,000 was saved. The accounting records, which were located in a fireproof vault, contained the following information: \ 260,000 Sales (1/1/14 through 6/3/14) 190,000 Purchases (1/1/14 through 7/3/14) 40,000 Inventory (1/1/14) 30\% of cost Gross profit ratio Using the gross profit method, what is the estimated cost of the inventory destroyed by the fire?

Generally, valuing inventory above cost

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Match each key term with the appropriate definition -Total markup less markup cancellations.

Concerning application of the lower of cost or market method, which one of the following statements is true regarding the constraints on market value?

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

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?

The Net Realizable Value is considered the ceiling or the upper bound that prevents inventory from being valued at amount higher than what the company could reasonably sell it.

When applying the lower of cost or market rule to the valuation of inventory, the allowance method is considered preferable to the direct method because

As a result of taking a physical inventory count on December 31, 2014, 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: \ 130,000 Inventory (1/1/14) 760,000 Purchases (2014) 1,020,000 Sales (2014) 60,000 Sales returns (2014) 25\% of sales Gross profit ratio 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, 2014?

The Maxa Company normally sells its inventory at a 20% profit margin on sales. In 2014, the net realizable value of inventory purchased for $75,000 declined to $66,000. There are no costs to complete and dispose of this inventory. What is the floor constraint on the valuation of this inventory using the lower of cost or market rule?

For the period from 2014 through 2015, the Charlie Company had net sales of $500,000 and a gross profit of $200,000. During the first quarter of 2016, the company made purchases of $19,500 and recorded sales of $47,500. The inventory value at the beginning of the year was 15,500. What is the estimated cost of Charlie's inventory on March 31, 2016, using the gross profit method?

When applying lower of cost or market, market value

The accountant for Lee Company made the following errors related to merchandise inventory in 2014: 1.The beginning inventory for 2014 was overstated by $750 due to an error in the physical count. 2.A $1,300 purchase of merchandise on credit was not recorded or included in the ending inventory. Assuming a periodic inventory system, Lee Company's 2014 cost of goods sold will be

At the beginning of 2014, 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 2014 were $62,500. What is Joan's estimated ending inventory at FIFO cost using the retail inventory method?

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The Brad's Farm Company uses the retail inventory method to compute ending inventory. Information for 2015 is as follows: Required: Determine Brad's Farm Company's ending inventory based on the retail lower of average cost or market method.

The following information was taken from the inventory records of the Walker Company: 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

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

Barry Corp. reported 2014 net income of $40,000. However, the ending inventory in 2013 had been understated by $3,000, and 2014's ending inventory had been overstated by $6,000. Barry's correct net income for 2014 was