Chapter 9 Quiz

Topics: Inventory, Generally Accepted Accounting Principles, Balance sheet Pages: 7 (1442 words) Published: December 8, 2012
Chapter 9

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

The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the realizable value. realizable value less normal profit margin.
c.replacement cost.
d.selling price less costs of completion and disposal.

Why are inventories stated at lower-of-cost-or-market?
a.To report a loss when there is a decrease in the future utility. b.To be conservative.
c.To report a loss when there is a decrease in the future utility below the original cost. d.To permit future profits to be recognized.

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. 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.

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.

Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market? a.$12.


Given the historical cost of product Z is $80, the selling price of product Z is $95, costs to sell product Z are $11, the replacement cost for product Z is $83, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a.$46.


Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $3,250, a replacement cost of $3,100, a net realizable value of $3,200, and a normal profit margin of $200. What is the final lower-of-cost-or-market inventory value for product 66? a.$3,200.


Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $150,000. The total selling price is $360,000, and estimated costs of disposal are $10,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a.$140,000.


During 2012, Larue Co., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2013. Because a record harvest is predicted for 2013, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2012.

Of the following journal entries, the one which would properly reflect in 2012 the effect of the commitment of Larue Co. to purchase the 100,000 pounds of cocoa is a.Cocoa Inventory400,000

Accounts Payable400,000
b.Cocoa Inventory330,000
Loss on Purchase Commitments70,000
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