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Which of the following is true about lover of cost or market?
A. it is inconsistent bc losses are recognized but not gains
B. it usually understates assets
C. it can increase future income
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..
A. selling price will be less then their replacement cost
B. replacement cost will be more then their net realizable value
C. cost will be less then their replacement cost
D. future utility will be less than their cost
When valuing raw materials inventory at lower of cost or market, what is the meaning of the term "market"?
a. Net realizable value b. Net realizable value less a normal profit margin c. Current replacement cost d. Discounted present value
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. b. estimated selling price in the ordinary course of business less reasonably predictable costs of
completion and disposal. c. estimated selling price in the ordinary course of business less reasonably predictable costs of
completion and disposal and an allowance for an approximately normal profit margin. d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an
adequate reserve for possible future losses
Designated market value a. is always the middle value of replacement cost, net realizable value, and net realizable value
less a normal profit margin. b. should always be equal to net realizable value. c. may sometimes exceed net realizable value. d. should always be equal to net realizable value less a normal profit margin.
Lower of cost or market a. is most conservative if applied to the total inventory. b. is most conservative if applied to major categories of inventory. c. is most conservative if applied to individual items of inventory. d. must be applied to major categories for taxes.
An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true?
a. The cost of sales of the following year will be understated. b. The current year's income is understated. c. The closing inventory of the current year is understated. d. Income of the following year will be understated.
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value
c. Historical cost d. Net realizable value reduced by a normal profit margin
Net realizable value is a. acquisition cost plus costs to complete and sell. b. selling price. c. selling price plus costs to complete and sell. d. selling price less costs to complete and sell.
If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is a. net realizable value. b. original cost.
c. market value. d. net realizable value less a normal profit margin.
Inventory may be recorded at net realizable value if a. there is a controlled market with a quoted price. b. there are no significant costs of disposal. c. the inventory consists of precious metals or agricultural products. d. all of these.
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, a. this fact must be disclosed. b. disclosure is required only if prices have declined since the date of the order. c. disclosure is required only if prices have since risen substantially. d. an appropriation of retained earnings is necessary.
The credit balance that arises when a net loss on a purchase commitment is recognized should be a. presented as a current liability. b. subtracted from ending inventory. c. presented as an appropriation of retained earnings. d. presented in the income statement.
The gross profit method of inventory valuation is invalid when a. a portion of the inventory is destroyed. b. there is a substantial increase in inventory during the year. c. there is no beginning inventory because it is the first year of operation. d. none of these.
Which statement is not true about the gross profit method of inventory valuation?
A. It may be used to estimate inventories for interim statements. B. It may be used to estimate inventories for annual statements. C. It may be used by auditors. D. None of these.
A major advantage of the retail inventory method is that it. A. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. B. hides costs from competitors and customers. C. gives a more accurate statement of inventory costs than other methods. D. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
An inventory method which is designed to approximate inventory valuation at the lower of cost or market is
a. last-in, first-out. b. first-in, first-out. c. conventional retail method. d. specific identification.
The retail inventory method is based on the assumption that the. a.final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. b. ratio of gross margin to sales is approximately the same each period. c. ratio of cost to retail changes at a constant rate. d. proportions of markups and markdowns to selling price are the same.
Which statement is true about the retail inventory method? A. It may not be used to estimate inventories for interim statements. B It may not be used to estimate inventories for annual statements. C It may not be used by auditors.D None of these.
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because a. there may be no markdowns in a given year. b. this tends to give a better approximation of the lower of cost or market.
c. markups are also ignored. d. this tends to result in the showing of a normal profit margin in a period when no markdown
goods have been sold.
To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a. include markups but not markdowns. b. include markups and markdowns.
c. ignore both markups and markdowns. d. include markdowns but not markups.
When calculating the cost ratio for the retail inventory method, a. if it is the conventional method, the beginning inventory is included and markdowns are
deducted. b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. c. if it is the LIFO method, the beginning inventory is included and markdowns are not
deducted. d. ifitisthe conventional method, the beginning inventory is excluded and markdowns are not
The inventory turnover ratio is computed by dividing the cost of goods sold by a. beginning inventory.b. ending inventory. c. average inventory. d. number of days in the year.
When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by
a. last year's cost ratio and this year's index. b. this year's cost ratio and this year's index. c. last year's cost ratio and last year's index. d. this year's cost ratio and last year's index.
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