With the retail inventory method, how is the total beginning inventory value used in the calculation of the cost-to-retail ratio for the current period under the following cost flow assumptions? $\begin{array}{llll} &\underline{\text { LIFO }} &\underline{ \text { Average Cost }} &\underline{ \text { FIFO} } & \\ \text { I. } &\text { Exclude } & \text { Include } & \text { Include } \\ \text { II. }&\text { Exclude } & \text { Exclude } & \text { Include } \\ \text { III. } &\text { Exclude } & \text { Exclude } & \text { Exclude } \\ \text { IV. } &\text { Exclude } & \text { Include } & \text { Exclude } \end{array}$

A) I B) II C) III D) IV A) I B) II C) III D) IV

Barbara Co. presents the following information: $\begin{array}{c} \begin{array}{l} \text { Retail } \\ \$ 785 \\ 2,850 \\ 2,150 \\ 50 \\ 350 \end{array} \begin{array}{lll} \text {Cost}\\ \\ \\ \$ 1,570 \\ \\ 300 \end{array} \begin{array}{lll} \\ \text {Net markups}\\ \text {Sales}\\ \text {Purchases}\\ \text {Net markdowns}\\ \text {Beginning inventory} \end{array} \end{array}$ The company uses the average cost retail inventory method. What is the cost of ending inventory?

A) $233.55 B) $255.98 C) $275.80 D) $222.55 A) $233.55 B) $255.98 C) $275.80 D) $222.55

Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: $\begin{array}{c} \begin{array}{l} \underline{\text { Market} } \\ \$ 70,000 \\ 46,000 \\ 58,000 \end{array} \begin{array}{lll} \underline{\text { Cost}}\\ \$ 70,000 \\ 56,000\\ 64,000 \end{array} \begin{array}{lll} \underline{\text { Date}}\\ \text {December 31,2014}\\ \text {December 31, 2015}\\ \text { December31,2016} \end{array} \end{array}$ -Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2016, to apply the lower of cost or market rule?

A) Inventory 58,000 Income Summary 58,000 B) Loss Due to Market Valuation 6,000 Allowance to Reduce Inventory To Market 6,000 C) Allowance to Reduce Inventory to Market 4,000 Loss Recovery Due to Market Valuation 4,000 D) Cost of Goods Sold 6,000 Allowance to Reduce Inventory To Market 6,000 A) Inventory 58,000 Income Summary 58,000 B) Loss Due to Market Valuation 6,000 Allowance to Reduce Inventory To Market 6,000 C) Allowance to Reduce Inventory to Market 4,000 Loss Recovery Due to Market Valuation 4,000 D) Cost of Goods Sold 6,000 Allowance to Reduce Inventory To Market 6,000

Given the following information for Bonnie Bunny Company: $\begin{array}{ll} \$ 650 & \text { Freight-in } \\ 12,550 & \text { Purchases } \\ 300 & \text { Sales returns } \\ 1,950 & \text { Beginning inventory } \\ 23,450 & \text { Sales } \\ 45 \% & \text { Gross profit on sales } \end{array}$ Calculate ending inventory of Bonnie Bunny using the gross profit method.

A) $1,360 B) $1,075 C) $4,597 D) $2,253 A) $1,360 B) $1,075 C) $4,597 D) $2,253

Exam 8: Inventories: Special Valuation Issues

The correct net income for Sarah Corp. was $53,500. The company reported incorrect net income because beginning inventory was understated by $2,500, purchases were overstated by $2,000, and ending inventory was overstated by $2,000. What net income did Sarah Corp. report?

(Multiple Choice)

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Question 121

In comparison to the allowance method of applying the lower of cost or market rule to the valuation of inventory, the direct method has which of the following deficiencies?

(Multiple Choice)

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Question 122

Careful valuation of the ending inventory is necessary because errors can result in inaccurate values on both the income statement and balance sheet. Assume that a company overstates its ending inventory for 2010. Required: Explain the effects of the error on the income statements and balance sheets for 2010 and 2011.

(Essay)

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Question 123

With the retail inventory method, how is the total beginning inventory value used in the calculation of the cost-to-retail ratio for the current period under the following cost flow assumptions? I. Exclude Include Include II. Exclude Exclude Include III. Exclude Exclude Exclude IV. Exclude Include Exclude

(Multiple Choice)

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Question 124

Laura's Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting records for the current year contain the following information: Compute the ending inventory under the following cost flow assumptions. 1) FIFO 2) lower of cost or market (based on average cost)

(Essay)

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Question 125

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

(Multiple Choice)

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Question 126

If in the current year a purchase was not recorded but the purchased item was included in ending physical inventory, which one of the following situations occurs for the current year?

(Multiple Choice)

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Question 127

Dahlia 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 105. Required: Compute the inventory value for December 31, 2014.

(Essay)

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Question 128

Match each key term with the appropriate definition -Can be used by an auditor to verify the cost of inventory.

(Multiple Choice)

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Question 129

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

(Multiple Choice)

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Question 130

Barbara Co. presents the following information: Retail \ 785 2,850 2,150 50 350 Cost \ 1,570 300 Net markups Sales Purchases Net markdowns Beginning inventory The company uses the average cost retail inventory method. What is the cost of ending inventory?

(Multiple Choice)

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Question 131

Laura's Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting records for the current year contain the following information: Compute the cost of inventory under the following cost flow assumptions. 1) LIFO 2) Average Cost

(Essay)

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Question 132

Below are a list of key terms. Required: Match each key term with the appropriate definition.

(Essay)

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Question 133

Which one of the following statements regarding the gross profit method is not true?

(Multiple Choice)

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Question 134

The retail inventory method is used extensively in the retail industry. Required: Discuss the assumptions and benefits of the retail inventory method.

(Essay)

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Question 135

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

(Essay)

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Question 136

The application of the lower of cost or market rule to inventory valuation is an example of

(Multiple Choice)

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Question 137

Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: \ 70,000 46,000 58,000 \ 70,000 56,000 64,000 December 31,2014 December 31, 2015 December31,2016 -Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2016, to apply the lower of cost or market rule?

(Multiple Choice)

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Question 138

Given the following information for Bonnie Bunny Company: \ 650 Freight-in 12,550 Purchases 300 Sales returns 1,950 Beginning inventory 23,450 Sales 45\% Gross profit on sales Calculate ending inventory of Bonnie Bunny using the gross profit method.

(Multiple Choice)

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Question 139

Relevance of the gross profit margin depends upon

(Multiple Choice)

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Question 140

The correct net income for Sarah Corp. was $53,500. The company reported incorrect net income because beginning inventory was understated by $2,500, purchases were overstated by $2,000, and ending inventory was overstated by $2,000. What net income did Sarah Corp. report?

In comparison to the allowance method of applying the lower of cost or market rule to the valuation of inventory, the direct method has which of the following deficiencies?

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

If in the current year a purchase was not recorded but the purchased item was included in ending physical inventory, which one of the following situations occurs for the current year?

Dahlia 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 105. Required: Compute the inventory value for December 31, 2014.

Match each key term with the appropriate definition -Can be used by an auditor to verify the cost of inventory.

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

Barbara Co. presents the following information: Retail \ 785 2,850 2,150 50 350 Cost \ 1,570 300 Net markups Sales Purchases Net markdowns Beginning inventory The company uses the average cost retail inventory method. What is the cost of ending inventory?

Laura's Homemade cannot decide which inventory method to use to determine its ending inventory. The accounting records for the current year contain the following information: Compute the cost of inventory under the following cost flow assumptions. 1) LIFO 2) Average Cost

Below are a list of key terms. Required: Match each key term with the appropriate definition.

Which one of the following statements regarding the gross profit method is not true?

The retail inventory method is used extensively in the retail industry. Required: Discuss the assumptions and benefits of the retail inventory method.

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

The application of the lower of cost or market rule to inventory valuation is an example of

Given the following information for Bonnie Bunny Company: \ 650 Freight-in 12,550 Purchases 300 Sales returns 1,950 Beginning inventory 23,450 Sales 45\% Gross profit on sales Calculate ending inventory of Bonnie Bunny using the gross profit method.

Relevance of the gross profit margin depends upon

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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