Exam 8: Inventories: Special Valuation Issues

The accountant for Ella Company made the following errors related to the inventory in 2014: 1.The beginning inventory for 2014 was understated by $1,350 due to an error in the physical count. 2.A $1,500 purchase of merchandise on credit was not recorded or included in ending inventory. Assuming a periodic inventory system, Ella Company's 2014 net income will be

The gross profit method is more sensitive to price changes and produces a more accurate estimate of current period ending inventory.

GAAP allows a company to report its inventory above cost with justifiable exceptions which include the inability to determine a cost.

Bennett Company's accountant made the following errors related to merchandise inventory in 2013: 1.The beginning inventory for 2013 was overstated by $1,900 due to an error in the physical count. 2.A $1,150 purchase of merchandise on credit was not recorded, but the items were included in the ending inventory. Assuming a periodic inventory system, Bennett Company's 2013 cost of goods sold will be

Given the following information for Miller, Inc.: Required: a.Determine the inventory value using the retail inventory method and the FIFO cost flow assumption. Round off any decimals to two places. b.Determine the inventory value using the retail inventory method and the lower of average cost or market cost flow assumption.

Donahue adopted the dollar-value LIFO retail inventory method on January 1, 2014. The following information for 2014 was taken from the company's records: The price index on January 1, 2014, was 100. On December 31, 2014, it was 110. Round cost/retail percentages to the nearest whole percent if necessary. Required: Compute the inventory value for December 31, 2014.

Describe the differences in the application of lower of the cost or market consideration between U.S. GAAP and IFRS.

Given the following information for the Raquel Company: \ 500 650 730 \ 500 700 800 December 31,2014 December 31, 2015 December31,2016 If the allowance method of recording lower of cost or market is in use, which December 31, 2016, entry is correct?

One of the main advantages to the retail inventory method over the gross profit is the retail method uses current-period estimates whereas the gross profit used past periods.

Match each key term with the appropriate definition -The loss is recorded in a separate inventory account.

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?

Replacement costs are measured based upon GAAP's requirement of an upper and a lower constraint on the market value. What are the upper and lower constraints?

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.

What is dollar value LIFO retail method?

The accountant for Angie Company made the following errors related to purchases of merchandise and ending inventory in 2013: 1.A $2,200 purchase of merchandise on credit was not recorded or included in ending inventory. 2.A $3,180 purchase of merchandise on credit was recorded, but it was inadvertently omitted from the end-of-year physical inventory count. Assuming a periodic inventory system, Angie's Company's 2013 net income will be

Farmington Company uses a perpetual inventory system and values its inventory at lower of cost or market. Its accounting records indicate the following information relating to inventory: Required: Prepare the required journal entries at December 31, 2014, and December 31, 2015, to record the inventory at lower of cost or market using the following methods: a.Direct method b.Allowance method

Kelcie Sports uses the dollar-value LIFO retail method. The price index on January 1, 2014, was 100, and on that date the inventory was $20,000 (retail) and $14,000 (cost). Additional information follows: \ 204,000 \ 160,000 Purchases, retail 150,960 115,200 Purchases, cost 202,160 160,416 Sales 103 102 Price index, Dec. 31 What is the cost of the December 31, 2015, inventory (to the nearest dollar)?

Under special circumstances GAAP allows a company to report its inventory above cost. How must this exception be justified?

What are the four alternative valuations used in the application of the Retail Inventory Method?

The accountant for the Issenock Company did not record a purchase of merchandise on credit for the current year, but the merchandise was correctly included in the ending inventory. Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet?