Question 1

The gross profit method and retail method are both ways of estimating ending inventory. Briefly explain how the two methods differ.

Accepted Answer

Both the gross profit method and retail

Question 2

Data related to the inventories of Kimzey Medical Supply are presented below:   
-In applying the lower of cost or market rule, the inventory of surgical equipment would be valued at:

Accepted Answer

A)  $230. 
B)  $240. 
C)  $170. 
D)  $152. 
A)  $230. 
B)  $240. 
C)  $170. 
D)  $152.

Question 3

Retrospective treatment of prior years' financial statements is required when there is a change from:

Accepted Answer

A)  Average cost to FIFO. 
B)  FIFO to average cost. 
C)  LIFO to average cost. 
D)  All of these answer choices are correct. 
A)  Average cost to FIFO. 
B)  FIFO to average cost. 
C)  LIFO to average cost. 
D)  All of these answer choices are correct.

Question 4

On August 31, 2018, Hurricane Chuck destroyed Bedford Craft Mart's entire inventory. The following information is available from its accounting records:   Required:
Assuming that Bedford estimates the cost of destroyed inventory at $510,000, compute gross profit margin % that Bedford uses in estimating inventory.

Accepted Answer

Gross Profit Method @#IMG-DLM& Gross pro

Question 5

For companies that use FIFO or average cost, inventory is valued at the lower of cost or net realizable value at the end of the reporting period.

Accepted Answer

A) True 
 B)False

Question 6

The following disclosure note appeared in the 2018 annual report to shareholders of Upton Systems Inc.
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory allowances based on excess and obsolete inventories.
Another disclosure note in the annual report stated:
The Company recorded a provision for inventory, including purchase commitments, totaling $1.40 billion during fiscal 2018, which included an additional excess inventory charge as previously discussed. This additional excess inventory charge was due to a sudden and significant decrease in demand for the Company's products and was calculated in accordance with the Company's accounting policy.
A skeptic may conclude that Upton's policy and practices threaten earnings quality. Discuss how it may do so.

Accepted Answer

Two possibilities stand out:
1) By takin

Question 7

Under the LIFO retail method, which of the following are not included in the denominator of the cost-to-retail conversion percentage?

Accepted Answer

A)  Freight-in. 
B)  Purchase returns. 
C)  Purchases. 
D)  Net markdowns. 
A)  Freight-in. 
B)  Purchase returns. 
C)  Purchases. 
D)  Net markdowns.

Question 8

Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Poppy's cost of goods sold for this year was:

Accepted Answer

A)  Overstated by $31,000. 
B)  Overstated by $5,000. 
C)  Understated by $31,000. 
D)  Understated by $48,000. 
A)  Overstated by $31,000. 
B)  Overstated by $5,000. 
C)  Understated by $31,000. 
D)  Understated by $48,000.

Question 9

When changing from the average cost method to FIFO, the company:

Accepted Answer

A)  Includes in current year's income the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years. 
B)  Revises comparative financial statements. 
C)  Records a journal entry to adjust the book balances from their current amounts to what those balances would have been using FIFO. 
D)  All of these answer choices are correct. 
A)  Includes in current year's income the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years. 
B)  Revises comparative financial statements. 
C)  Records a journal entry to adjust the book balances from their current amounts to what those balances would have been using FIFO. 
D)  All of these answer choices are correct.

Question 10

If the quantity of goods held in inventory decreased during the period, the dollar amount of ending inventory can't exceed the dollar amount of beginning inventory.

Accepted Answer

A) True 
 B)False

Question 11

For companies using LIFO, inventory is valued at:

Accepted Answer

A)  Net realizable value. 
B)  Cost. 
C)  Replacement cost. 
D)  Lower of cost or market. 
A)  Net realizable value. 
B)  Cost. 
C)  Replacement cost. 
D)  Lower of cost or market.

Question 12

Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory.   
-Estimated ending inventory at retail is:

Accepted Answer

A)  $65,000. 
B)  $169,600. 
C)  $25,000. 
D)  $129,000. 
A)  $65,000. 
B)  $169,600. 
C)  $25,000. 
D)  $129,000.

Question 13

A change from LIFO to any other inventory method is accounted for retrospectively.

Accepted Answer

A) True 
 B)False

Question 14

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018:  
- The denominator for the current period's cost-to-retail percentage is:

Accepted Answer

A)  $96,300. 
B)  $73,300. 
C)  $101,000. 
D)  $81,500. 
A)  $96,300. 
B)  $73,300. 
C)  $101,000. 
D)  $81,500.

Question 15

A reduction in reported inventory due to market value falling below cost would reduce net income in the current period.

Accepted Answer

A) True 
 B)False

Question 16

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018:   
-The estimated ending inventory at retail is:

Accepted Answer

A)  $27,300. 
B)  $25,000. 
C)  $26,600. 
D)  $26,400. 
A)  $27,300. 
B)  $25,000. 
C)  $26,600. 
D)  $26,400.

Question 17

In the following questions, inventory errors are noted for 2018. Assume that the errors are not discovered until 2019, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code:
U = Understated; O = Overstated; NE = No effect

-$$\begin{array} { | l | l | l | } 
\hline { \text { Error } } & \text { Cost of goods sold } & \text { Retained earnings } \
\hline \text { Unrecorded purchases } & & \
\hline
\end{array}$$

Accepted Answer

The answer of In the following questions, inventory errors are...

Question 18

Under the retail method, in determining the cost-to-retail percentage for the current year:

Accepted Answer

A)  Net markups are included. 
B)  Net markdowns are excluded. 
C)  Net sales are included. 
D)  All of these answer choices are correct. 
A)  Net markups are included. 
B)  Net markdowns are excluded. 
C)  Net sales are included. 
D)  All of these answer choices are correct.

Question 19

Novelli's Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees.

The costs to sell are 10% of selling price. 
-Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to the total inventory.

Accepted Answer

Based on T

Question 20

The disposal costs are 20% of the selling price and the normal profit margin on all feed is 25% of the selling price. 
-Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to categories of feed products.

Accepted Answer

Classes of

The gross profit method and retail method are both ways of estimating ending inventory. Briefly explain how the two methods differ.

Data related to the inventories of Kimzey Medical Supply are presented below: -In applying the lower of cost or market rule, the inventory of surgical equipment would be valued at:

Retrospective treatment of prior years' financial statements is required when there is a change from:

For companies that use FIFO or average cost, inventory is valued at the lower of cost or net realizable value at the end of the reporting period.

Under the LIFO retail method, which of the following are not included in the denominator of the cost-to-retail conversion percentage?

When changing from the average cost method to FIFO, the company:

If the quantity of goods held in inventory decreased during the period, the dollar amount of ending inventory can't exceed the dollar amount of beginning inventory.

For companies using LIFO, inventory is valued at:

Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. -Estimated ending inventory at retail is:

A change from LIFO to any other inventory method is accounted for retrospectively.

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018: - The denominator for the current period's cost-to-retail percentage is:

A reduction in reported inventory due to market value falling below cost would reduce net income in the current period.

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018: -The estimated ending inventory at retail is:

Under the retail method, in determining the cost-to-retail percentage for the current year:

The disposal costs are 20% of the selling price and the normal profit margin on all feed is 25% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to categories of feed products.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

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Exam 9: Inventories: Additional Issues

The gross profit method and retail method are both ways of estimating ending inventory. Briefly explain how the two methods differ.

Data related to the inventories of Kimzey Medical Supply are presented below: -In applying the lower of cost or market rule, the inventory of surgical equipment would be valued at:

Retrospective treatment of prior years' financial statements is required when there is a change from:

For companies that use FIFO or average cost, inventory is valued at the lower of cost or net realizable value at the end of the reporting period.

Under the LIFO retail method, which of the following are not included in the denominator of the cost-to-retail conversion percentage?

When changing from the average cost method to FIFO, the company:

If the quantity of goods held in inventory decreased during the period, the dollar amount of ending inventory can't exceed the dollar amount of beginning inventory.

For companies using LIFO, inventory is valued at:

Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. -Estimated ending inventory at retail is:

A change from LIFO to any other inventory method is accounted for retrospectively.

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018: - The denominator for the current period's cost-to-retail percentage is:

A reduction in reported inventory due to market value falling below cost would reduce net income in the current period.

Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018: -The estimated ending inventory at retail is:

Under the retail method, in determining the cost-to-retail percentage for the current year:

The disposal costs are 20% of the selling price and the normal profit margin on all feed is 25% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to categories of feed products.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters