1.Which of the following is true about lower of cost or market?
a.It is inconsistent because losses are recognized but not gains. b.It usually understates assets.
c.It can increase future income. d.All of these.
2.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 than their replacement cost.
b. replacement cost will be more than their net realizable value. c.cost will be less than their replacement cost.
d.future utility will be less than their cost.
3.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
4.In no case can "market" in the lower of cost or market rule be more than a.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.
5.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.
6.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.
7.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.
8.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?
b.Net realizable value c.Historical cost
d.Net realizable value reduced by a normal profit margin
9.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.
10.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.
d.net realizable value less a normal profit margin.
11.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.
12.If a material amount of inventory has been ordered through a formal purchase contract at the...