Art History

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THE ANSWER KEY IS AT THE END OF THIS DOCUMENT

1. Teel Distribution Co. has determined its December 31, 2007 inventory on a FIFO basis at $250,000. Information pertaining to that inventory follows:

Estimated selling price| $255,000|
Estimated cost of disposal/completion| 10,000|
Normal profit margin| 30,000|
Current replacement cost| 225,000|
Teel records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2007, the loss that Teel should recognize is

a.$0.
b.$5,000.
c.$20,000.
d.$25,000.

2.Marr Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:

 | Product 1| Product 2|
Historical cost| $40 | $70 |
Replacement cost| 45| 54|
Estimated cost to complete/dispose| 10| 26|
Estimated selling price| 80| 130|
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Marr use for products #1 and #2, respectively?

a.$40.00 and $60.00.
b.$46.00 and $65.00.
c.$40.00 and $65.00.
d.$45.00 and $54.00.

3.Kellie Company sells product 2005WSC for $20 per unit. The cost of one unit of 2005WSC is $18, and the replacement cost is $17. The estimated cost to complete/dispose of a unit is $4, and the normal profit is 40% of selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?

a.$8.
b.$16.
c.$17.
d.$18.

4. Lynn Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:

| Product 1| Product 2|
Historical cost| $15 | $30 |
Replacement cost| 18| 27|
Estimated cost to dispose/complete| 5| 13|
Estimated selling price| 35| 60|

In pricing its ending inventory using the lower of cost or market, what unit values should Lynn use for products #1 and #2, respectively?

a.$15.00 and $29.00.
b.$19.50 and $29.00.
c.$19.50 and $30.00.
d.$18.00 and $27.00.

5.What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory?

a.Prevents understatement of the inventory value.
b.Allows for a normal profit to be earned.
c.Allows for items to be valued at replacement cost.
d.Prevents overstatement of the value of obsolete or damaged inventories.

6.Alex Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2010 was $60,000. The balance in the same account at the end of 2011 is $90,000. Alex’s Cost of Goods Sold account has a balance of $450,000 from sales transactions recorded during the year. What amount should Alex report as Cost of Goods Sold in the 2011 income statement?

a.$420,000.
b.$450,000.
c.$480,000.
d.$540,000.

7.Kaka Company had 400 units of Product A in its inventory at a cost of $4 each. It purchased 600 more units of Product A at a cost of $6 each. Kaka then sold 700 units at a selling price of $10 each. The LIFO liquidation overstated gross profit by

a.$ -0-
b.$200.
c.$400.
d.$600.

8.Xavi Company had 400 units of Product B in its inventory at a cost of $6 each. It purchased 600 more units of Product B at a cost of $9 each. Xavi then sold 700 units at a selling price of $15 each. The tax rate for Xavi is 30%. The effect of LIFO liquidation on Xavi’s net income is:

a.Overstatement of $210
b.Overstatement of $300
c.Overstatement of $500
d.Overstatement of $350

9.Terry Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO. During...
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