Question 1

The Baby Super Store uses the average cost retail inventory method to determine its ending inventory. The accounting records for the current year for the Baby Super Store contained the following information:  In addition, the accounting records for Baby Super Store disclosed that freight-in charges were $6,700. What is the cost-to-retail percentage to be used for ending inventory calculations?

Accepted Answer

The answer of The Baby Super Store uses the average...

Question 2

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

Accepted Answer

The answer of What are the four alternative valuations used...

Question 3

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

Accepted Answer

A)  the allowance method reports smaller losses than the direct method. 
B)  the allowance method reports a higher inventory net valuation for balance sheet purposes than the direct method. 
C)  the allowance method reports the inventory loss or loss recovery in a separate income statement account. 
D)  the allowance method, unlike the direct method, reduces the value of inventory reported on the balance sheet.

Question 4

Reporting inventory at the lower of cost or market provides a representationally faithful value of inventory; therefore, the application of the lower of cost or market rule is consistent with the materiality principle.

Accepted Answer

A) True 
 B)False

Question 5

IFRS, like U.S. GAAP, require the use of the lower of cost or market method to value inventory, however some differences do exist. Which of the following is not one of the differences?

Accepted Answer

A)  IFRS eliminate the need to use a ceiling in determining market value. 
B)  When write-downs occur, IFRS do not specify how the loss must be categorized in the income statement. 
C)  IFRS allow the reversal of a previous write-down. 
D)  IFRS define market only as replacement value.

Question 6

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

Accepted Answer

A)  net markdowns 
B)  purchases 
C)  beginning inventory 
D)  freight-in charges

Question 7

The accountant for the Daneen Company made the following errors related to purchases of merchandise and ending inventory in 2016:
1) A $3,100 purchase of merchandise on credit early in 2015 was recorded and included in ending inventory at December 31, 2016.
2) A $2,750 purchase of merchandise on credit in 2014 was recorded, but it was not included in the end-of-year physical inventory count.
Assuming a periodic inventory system, Daneen Company's 2016 net income will be

Accepted Answer

A)  understated by $350. 
B)  understated by $5,850. 
C)  overstated by $5,850. 
D)  overstated by $350.

Question 8

Given the following information for the Raquel Company:  Under the perpetual system, if the direct method of recording lower of cost or market is in use, which December 31, 2020 entry is correct?

Accepted Answer

The answer of Given the following information for the Raquel...

Question 9

The Maxa Company normally sells its inventory at a 20% profit margin on sales. In 2016, 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. Using the LIFO method what is the floor constraint on the valuation of this inventory using the lower of cost or market rule?

Accepted Answer

A)  $60,000 
B)  $66,000 
C)  $79,200 
D)  $52,800

Question 10

Given the following information for Bonnie Bunny Company:  
Calculate ending inventory of Bonnie Bunny using the gross profit method.

Accepted Answer

A)  $4,755 
B)  $4,373 
C)  $2,445 
D)  $2,060

Question 11

Relevance of the gross profit margin depends upon

Accepted Answer

A)  the accuracy of the gross profit percentage 
B)  the net sales 
C)  applying the overall profit margin to each individual department 
D)  averaging prior periods' net sales and total sales to verify which is best to use

Question 12

Describe the lower of cost or market rule.

Accepted Answer

The answer of Describe the lower of cost or market...

Question 13

Consider the following: Code: 
A = Gross profit to net sales ratio
B = Gross profit to cost of goods sold ratio

Which equation is correct?

Accepted Answer

A)  A = B / 1 ? 
B)  
B)  A = 1 + 
B)  / B 
C)  A = 1 ? 
B)  / B 
D)  A = B / 1 + 
B)

Question 14

The following information for five products A-E) was taken from the inventory records of the Walker Company who use the FIFO method:  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

Accepted Answer

The answer of The following information for five products A-E)...

Question 15

The dollar-value LIFO retail method

Accepted Answer

A)  combines the principle of retail LIFO with dollar-value LIFO. 
B)  does not really include retail LIFO in the calculation process. 
C)  is a new principle. 
D)  is an interesting theoretical exercise that is rarely used in practice.

Question 16

Exhibit 8-3
The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or NRV rule. The allowance method is used in applying the lower of cost or NRV 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: 
-Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2019, to apply the lower of cost or market rule to the valuation of inventory?

Accepted Answer

The answer of Exhibit 8-3
The J. Love Company uses a...

Question 17

The accountant for Angie Company made the following errors related to purchases of merchandise and ending inventory in 2016:
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 2016 net income will be

Accepted Answer

A)  understated by $3,180. 
B)  understated by $2,380. 
C)  overstated by $5,380. 
D)  overstated by $3,180.

Question 18

Given the following information for Gator Company who uses the LIFO method:  Required: 
a. Determine the lower of cost or market value for each inventory item for Gator Company.
b. Determine the lower of cost or market value for Gator Company's inventory if the lower of cost or market rule is applied to the total inventory.

Accepted Answer

The answer of Given the following information for Gator Company...

Question 19

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

Accepted Answer

The answer of Define the following:
Markup
Additional Markup
Net Additional Markup Markdown...

Question 20

Match between columns
                        Premises:  Premium Expense
 Dividends Payable
 Sales Tax Payable
 Accounts Payable
 Loss from Litigation
 Warranty Expense
 Property Taxes payable
 Notes Payable
 Federal Income Taxes Payable
 Accrued Expenses

Accepted Answer

The Answer of Contractual Amounts and Contingent Amounts and Amounts is...

Exam 8: Inventories: Special Valuation Issues

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

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

Reporting inventory at the lower of cost or market provides a representationally faithful value of inventory; therefore, the application of the lower of cost or market rule is consistent with the materiality principle.

IFRS, like U.S. GAAP, require the use of the lower of cost or market method to value inventory, however some differences do exist. Which of the following is not one of the differences?

Which of the following items would not be used in the calculation of the cost-to-retail ratio if the FIFO retail inventory method were used to determine the ending inventory?

Given the following information for the Raquel Company: Under the perpetual system, if the direct method of recording lower of cost or market is in use, which December 31, 2020 entry is correct?

Given the following information for Bonnie Bunny Company: Calculate ending inventory of Bonnie Bunny using the gross profit method.

Relevance of the gross profit margin depends upon

Describe the lower of cost or market rule.

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 following information for five products A-E) was taken from the inventory records of the Walker Company who use the FIFO method: 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

The dollar-value LIFO retail method

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

Write the appropriate letter for the accounts listed below