AccCh9

Jones Company's inventory cost is $100. The expected sales price is $110. The company estimates sales cost as 10% of the sales price. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at

$99. Lower of cost and net realizable value is required. The NRV is $110-11 = 99 and is lower than cost.

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at

100

Linden Company has three inventory items. Utilizing the lower of cost and net realizable value rule, Linden determines the following: Item A: cost exceeds net realizable value by $20 Item B: cost is $10 lower than net realizable value Item C, cost is $5 lower than net realizable value. If Linden applies the rule to individual items, it should recognize a loss of

20

Feather Company's inventory is recorded at its historical cost of $100,000. The replacement cost currently is $95,000; estimated selling price is $102,000; estimated selling cost is $5,000; normal profit is $10,000. The estimated net realizable value of the inventory is

97000 Reason: $102,000 - $5,000

A LIFO liquidation occurs when there is _____ in inventory quantity.

A net decrease

Amber is in charge of preparing an annual budget for her company. As part of the budgeting process, she must estimate cost of goods sold and ending inventory. Which of the following statements is correct regarding the use of the gross profit method?

Amber may utilize the gross profit method to estimate ending inventory and cost of goods sold.

The ending inventory balance determined using the gross profit method is _____ and _____ acceptable according to GAAP.

An estimate and is not

The inventory value determined using the gross profit method represents

An estimate of ending inventory

Mauser Company properly applies the lower of cost or net realizable value rule and determines that its inventory value has declined by $10,500 below cost. Which of the following could be debited for this write-down?

COGS, Other Loss or Expense

Applying the retail inventory method to approximate the lower of average cost or market value is often referred to as the

Conventional retail

Merger Company applies the lower of cost and net realizable value rule to individual inventory items. If the company were to apply the rule to the entire inventory balance, the chance of recording an inventory loss would

Decrease

The retail inventory method can be modified to estimate which of the following using FIFO, LIFO, or average cost? (Select all that apply.)

Ending Inventory and COGS

Which of the following are estimated when using the gross profit method

Ending Inventory and COGS

The gross profit method is useful in situations where _____ of inventory are desirable.

Estimates

Net realizable value of inventory is determined by subtracting selling cost from the

Expected Sales Price

The original amount a company adds to cost to determine the selling price is known as

Initial Markup

Which of the following must be known to apply the retail inventory method? (Select all that apply.)

Inventory and purchases based on retail value. Inventory and purchases based on cost.

Which of the following is an important limitation of the gross profit method?

It does not explicitly consider possible theft or spoilage of inventory.

When there is a net increase in the physical quantity of inventory during a period, the use of _____ results in an additional layer of inventory.

LIFO

When using the conventional retail method with markdowns present, the cost approximation of ending inventory will always be _____ the retail inventory method.

Less than

When using the LIFO retail method, how many inventory layers can be added per year if inventory increases?

No more than one inventory layer per year.

If inventory values recover after a lower of cost and net realizable value write-down, the write-down must

Not be Reversed

Which of the following statements is correct regarding the accuracy of the estimates derived under the gross profit method?

The gross profit ratio must be reliable.

Which of the following must be considered when applying the gross profit method?

The inventory cost flow assumption used by the company. Conditions that may have changed the current year gross profit margin.

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the cash it can provide.

The cost-to-retail percentage is found by dividing goods available for sale at _________by goods available for sale at current selling

cost

Western Company determines the cost of its inventory is $410,000 and net realizable value is $400,000. Western Company should

credit inventory $10,000 debit cost of goods sold $10,000

Lifo retai method

each inventory layer will carry its own cost-to-retail percentage.

Which of the following information is needed to utilize the gross profit method? (Select all that apply.)

net sales beginning inventory purchases estimated gross profit ratio

When using the LIFO retail method,

one cost-to-retail percentage is computed for the total of all inventory.

Under the LCM approach, market generally is defined as ______ cost.

replacement

The lower of cost or market approach is _____ for companies that use _____

required under GAAP; LIFO or the retail inventory

To use the _____ method, a company must maintain records of inventory and purchases at cost and at current selling price.

retail inventory

The _. _. method uses the cost-to-retail percentage based on a current relationship between cost and

retail, inventory

In applying the lower of cost or market rule, market value

should not be less than net realizable value less normal profit margin should not be greater than net realizable value

The lower of cost and net realizable value rule causes income to be reduced in the period when

the inventory value declines below cost.