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.