MC #9

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In applying LCM, market cannot be:

D. Greater than net realizable value.

In applying LCM, market cannot be:

A. Less than net realizable value minus a normal profit margin.

Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements are correct?
Cost is Greater than NRV?
NRV is Greater than replacement Cost?

C. Option C (Cost is Greater than NRV: Yes / NRV is Greater than replacement Cost: NO)

An argument against the use of LCM is its lack of:

C. Consistency.

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows:
Selling Price 620,00
Disposal Cost 30,000
Normal profit margin 80,00
Replacement Cost 520,000
What should be the carrying value of Montana's inventory?

B. $520,000.

When using the gross profit method to estimate ending inventory, it is not necessary to know:

C. Cost of goods sold.

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:
Sales 1/1-7/8 700,000
Inventory 1/1 130,000
Purchases1/1-7/8 640,000
Gross Profit Ratio 30%
What is the estimated inventory on July 8 immediately prior to the fire?

D. $280,000

So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2011. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2011, $300,000; sales and purchases from January 1, 2011, to May 1, 2011, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2011, is:

C. $395,000.

Howard's Supply Co. suffered a fire loss on April 20, 2011. The company's last physical inventory was taken on January 30, 2011, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard's consistently reports a 30% gross profit. The estimated inventory loss is:

C. $250,000.

Coastal Shores Inc. (CSI) was completely destroyed by Hurricane Fred on August 5, 2011. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2011, to August 5, 2011, totaled $480,000 and purchases totaled $195,000 during that time. CSI consistently marks up its products 60% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Fred would be:

B. $65,000.

. When computing the cost-to-retail percentage for the conventional retail method, included in the denominator are:

C. Net markups, but not net markdowns.

Included in the computation of the cost-to-retail percentage for the LIFO retail method are:

A. Net markups and net markdowns.

In calculating the cost-to-retail percentage for the retail method, the retail column will not include:

D. Freight-in.

Under the retail inventory method:

A. A company measures inventory on its balance sheet by converting retail prices to cost

Under the conventional retail method, which of the following are not included in the denominator of the current period cost-to-retail conversion percentage

D. Net markdowns

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

A. Freight-in

In determining the cost-to-retail percentage for the current year:

A. Net markups are included.

Fad City sells novel clothes which are subject to a great deal of price volatility. A recent item which cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:

C. $29.

Lacy's Linen Mart uses the retail method to estimate inventories. Data for the first six months of 2011 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2011, would be:

A. $68,200.

. Hawkeye Auto Parts uses the retail method to estimate inventories. Data for the first six months of 2011 include: beginning inventory at cost and retail were $55,000 and $100,000, net purchases at cost and retail were $785,000 and $1,300,000, and sales during the first six months totaled $800,000. The estimated inventory at June 30, 2011, would be:

B. $360,000.

When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:

A. Net markups and net markdowns.

The conventional retail inventory method is based on:

C. Average, lower of cost or market

Cloverdale, Inc. uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations:
Cost Retail
B.I. & Purchases 313,500 540,00
Net markups 30,000
Net markdowns 20,000
Net sales 480,000
What amount should be reported as cost of goods sold for the year?

C. $275,000.

Willie Nelson's Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
Cost Retail
Beg Inventory 46,000 63,000
Net Purchases 154,000 215,000
Net markups 22,000
Net markdowns 35,000
Net Sales 220,00

The conventional cost-to-retail percentage (rounded) is:

B. 66.7%.

Willie Nelson's Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
Cost Retail
Beg Inventory 46,000 63,000
Net Purchases 154,000 215,000
Net markups 22,000
Net markdowns 35,000
Net Sales 220,000
To the nearest thousand, estimated ending inventory using the conventional retail method is:

D. $30,000.

Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
Cost Retail
Beg. inventory 112,000 191,000
Net purchases 402,000 703,000
Net markups 43,000
Net Markdowns 21,000
Net sales 685,000

The conventional cost-to-retail percentage (rounded) is:

A. 54.9%.

Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
Cost Retail
Beg. inventory 112,000 191,000
Net purchases 402,000 703,000
Net markups 43,000
Net Markdowns 21,000
Net sales 685,000
To the nearest thousand, estimated ending inventory using the conventional retail method is:

C. $127,000.

Using the dollar-value LIFO retail method for inventory:

B. Combines retail LIFO accounting with dollar-value LIFO accounting

To use the dollar-value LIFO retail method for inventory, the first step is to:

C. Determine the cost-to-retail percentage for the current year transactions.

To use the dollar-value LIFO retail method for inventory, the second step is to determine the estimated:

D. Ending inventory at base year retail prices.

To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar-value LIFO retail:

D. Deflate the ending inventory amount to beginning of year prices and compare to the beginning inventory amount.

To determine the value of a LIFO layer, using dollar-value LIFO retail:

C. Multiply the LIFO layer by the layer-year price index and by the layer-year cost-to-retail percentage.

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2010 (its base year). Its beginning inventory for 2011 was $36,000 at cost and $72,000 at retail prices. At the end of 2011, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2011 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/11 balance sheet?

D. It can't be determined with the given information.

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

D. All of the above. (A. Average cost to FIFO.
B. FIFO to average cost.
C. LIFO to average cost.)

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale's cost of goods sold for this year was:

A. Overstated by $94,000.

Prunedale 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, Prunedale's cost of goods sold for this year was:

C. Understated by $31,000.

On July 10, 2011, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2012. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2011, was $180,000. The company uses a perpetual inventory system.

B. $20,000.

At what amount will Johnson record the inventory purchased on February 1, 2012?

C. $180,000

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
Selling Price 520,000
Disposal Cost 30,000
Normal Prft Margin 60,000
Replacement cost 440,000

What should be the carrying value of Sullivan's inventory?

B. $440,000.

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
Selling Price 520,000
Disposal Cost 30,000
Normal Prft Margin 60,000
Replacement cost 440,000

What should be the carrying value of Sullivan's inventory if the company prepares its financial statements according to International Financial Reporting Standards?

D. $490,000. (Alway NRV as designated market, which is less than cost)

When applying the lower-of-cost-or-market rule to inventory valuation according to International Financial Reporting Standards, market always is:

B. Net realizable value.

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