Intermediate Accounting Chapter 9

Mosby Industries uses IFRS and has the following inventory values: Inventory cost (on December 31, 2016) = $2,500Inventory sales value (on December 31, 2016) = $2,360Inventory net realizable value (on December 31, 2016) = $2,310Inventory cost (on June 30, 2017) = $2,500Inventory sales value (on June 30, 2017) = $2,610Inventory net realizable value (on June 30, 2017) = $2,590 Under IFRS, what is the inventory carrying value on June 30, 2017?

$2,500 Correct answer! IFRS defines "market" as Net Realizable Value. IFRS applies the lower-of-cost-and-net-realizable method when valuing inventory at year-end. Since the cost of $2,500 is lower than net realizable value of $2,590, the inventory is reported at cost.

Colicchio Corporation acquired two inventory items at a lump-sum cost of $60,000. The acquisition included 3,000 units of knife X001, and 3,000 units of knife X002. X001 normally sells for $20 per unit, and X002 for $10 per unit. If Colicchio sells 1,000 units of X002, what amount of gross profit should it recognize?

$3,330.

Viewpoint Company's October 31 inventory was destroyed by fire. The company's beginning inventory was $500,000, and purchases for January through October were $1,200,000. Sales for the same period were $1,800,000. The company's normal gross profit percentage is 30% of sales. Using the gross profit method, the October 31 inventory is estimated to be

$440,000. Correct answer (Beginning Inventory, $500,000 + Purchases, $1,200,000) = Cost of goods available for sale, $1,700,000- Estimated cost of goods sold, [Sales, $1,800,000 - (Sales, $1,800,000 X Gross profit percentage, .30)] = Estimated ending inventory, $440,000.

The Company uses lower-of-cost-or-market approach. The replacement cost of an inventory item is $75. Net realizable value is $82.50. Net realizable value less a normal profit margin is $69. The cost of the item is $76.50. The inventory item would be valued at:

$75.

The replacement cost of an inventory item is $90. Net realizable value is $97.50. Net realizable value less a normal profit margin is $88.50. The cost of the item is $93. The designated market value used in applying Lower-of-Cost-or-Market is

$90.

Inventory may be recorded at net realizable value if

-there is a controlled market with a quoted price. -there are no significant costs of disposal. -the inventory or products are available for immediate delivery. all of these answer choices are correct.

Ayayai Corporation's March 31 inventory was destroyed by fire. January 1 inventory was $270,000, and purchases for January through March totaled $936,000. Sales revenue for the same period was $1,080,000. Ayayai's normal gross profit percentage is 25% on sales.

193500 + 670800 = 864300 774000- (774000*.25) = 580500 864300-580500 = 283800

the carrying value of each item under LCNRV.

50" = 496 42" = 342 Stand = 71

High Country Corporation acquired two inventory items at a lump-sum cost of $80,000. The acquisition included 6,000 units of product A, and 14,000 units of product B. Product A normally sells for $12 per unit, and product B for $4 per unit. If High Country sells 2,000 units of A, what amount of gross profit should it recognize?

6000*12 = 72000 14000*4 = 56000 72000+56000 = 128000 72000/128000 = .5625 .5625 * 80000 = 45000 45000/6000 = 7.5 each 2000 * 7.5 = 15000 2000 * 12 = 24000 9000 diff is Gross Profit

At December 31, 2020, Windsor, Inc., a manufacturer, has outstanding noncancelable purchase commitments for 88,500 pounds of raw material to be used in its manufacturing process. The purchase commitments require Windsor, Inc. to pay $14 per pound for the raw material. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2020, is $11.50, record the journal entry.

88500*14 = 1239000 88500*11.50 = 101750 unrealized holding loss - income 221250 Estimated liability on purchase commitments 221250

Which one of the following is deducted from both the cost and retail columns in computing the cost-to-retail ratio?

Abnormal shortages.

When net realizable value is lower than cost, and the loss method applying the lower-of-cost-and-net-realizable approach of recording the write-down is used, what account is credited?

Allowance to Reduce Inventory to NRV.

Coronado uses LIFO inventory costing. At January 1, 2020, inventory was $320,400 at both cost and market value. At December 31, 2020, the inventory was $407,700 at cost and $383,400 at market value. COGS method

COGS 24300 Allowance to Reduce Inventory to Market 24300

When the cost-of-goods-sold method is used adjust cost to "net realizable value" in the lower-of-cost-and-net-realizable-value (LCNRV) approach, what account is debited?

Cost of Goods Sold.

IFRS permits the use of the LIFO cost flow assumption and specific identification where appropriate.

F

IFRS uses a floor to determine market for inventory valuation.

F

The LIFO retail method assumes that markups and markdowns apply to both beginning inventory and goods purchased during the period.

F

The conventional retail inventory method includes both net markups and net markdowns to calculate the cost-to-retail ratio.

F

The cost-of-goods-sold method of recording inventory at net realizable value under the lower-of-cost and net-realizable value (LCNRV) rule establishes a separate contra asset account and a loss account to record the write-off.

F

The gross profit method of estimating inventory is acceptable for both interim and annual financial reports.

F

Presented below is selected information related to Bonita Electronics' inventory. (per unit) HDTV-50" HDTV-42" TV Stand Historical cost $496 $354 $71 Selling price $636 $388 $93 Cost to sell $37 $18 $3 Cost to complete $61 $28 $8 Determine the following: (a) the net realizable value for each item

HDTV - 50" = 636 - 37 - 61 = 538 HDTV - 42" = 388 - 18 - 28 = 342 Stand = 93 - 3 - 8 = 82

Which of the following statements about IFRS for inventory accounting is not true?

IFRS defines market value as replacement cost subject to the constraints of a ceiling and floor.

Which statement is not true about the gross profit method of inventory valuation?

It may be used to estimate inventories for annual statements.

Loss Method

Loss Due to Market Decline in Inventory 24300 Allowance to Reduce Inventory to Market 24300

Which of the following is included in the calculation of the cost-to-retail ratio under the conventional retail inventory method?

Markups and markup cancellations.

Net realizable value is defined as estimated selling price less purchase price.

T

The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.

T

The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Which of the following statements is true regarding IFRS and inventories?

With respect to inventories, IFRS defines market as net realizable value.

The inventory turnover ratio is computed by dividing the cost of goods sold by

average inventory.

In the lower of cost or market rule, net realizable value is referred to as the:

ceiling.

The method of recording inventory at net realizable cost that substitutes the net realizable cost for the historical cost and reports the loss as a part of cost of goods sold is the:

cost of goods sold method.

The lower limit (floor) for inventory valuation is defined as the selling price less:

estimated costs of completion and disposal (net realizable value) less a normal profit margin.

In no case can "market" in the lower-of-cost-or-market rule be more than

estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.

When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by

last year's cost ratio and last year's index

A decrease in the original sales price of an item is called a:

markdown.

The percentage markup on cost can be computed by dividing gross profit on selling price by 100%:

minus gross profit on selling price.

Under the conventional retail inventory method, the cost-to-retail ratio includes the retail price of goods available and:

net markups only.

Inventories of certain minerals and agricultural products are valued at:

net realizable value

In applying the lower of cost or market rule, the floor is defined as:

net realizable value less a normal profit margin.

The relative sales value method is used throughout the:

petroleum industry.

The term market in the phrase "lower of cost or market" generally means the:

replacement cost.

If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $108,000 at retail, the business has

sustained a loss. Correct! Ending inventory at retail is computed as follows: (Beginning Inventory, Retail, $140,000 + Purchases, Retail, $640,000 + Net markups, retail, $40,000 - Net markdowns, Retail, $28,000 - Sales, $672,000) = $120,000 Ending inventory at retail, according to the financial records, while inventory on hand, at retail, is only $108,000. Therefore it is a loss.

In applying Lower-of-Cost-or-Market, the designated market value is

the middle value of replacement cost, net realizable value and net realizable value less a normal profit margin.

Which of the following is not permitted under IFRS?

the use of the LIFO cost flow assumption.

If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,

this fact should be disclosed.

An estimated loss on purchase commitments is reported:

under Other Expenses and Losses.