(D) all of these. It is inconsistent due to the fact that losses are recognized however not gains, It generally understates assets, and also It can increase future income.

You are watching: The retail inventory method is based on the assumption that the


The primary basis of accountancy for inventories is cost. A exit from the price basis that pricing the perform is compelled where over there is evidence that as soon as the items are sold in the plain course of business their

When valuing raw materials inventory in ~ lower-of-cost-or-market, what is the definition of the ax "market"?


(D) every one of these. The is inconsistent because losses are recognized however not gains, it commonly understates assets, and also it can increase future income.


(B) approximated selling price in the ordinary course of company less fairly predictable prices of completion and also disposal.


(A) Is constantly the middle value of replacement cost, net realizable value, and also net realizable value much less a typical profit margin.


An item of inventory purchased this period for $15.00 has been wrongly written under to its existing replacement expense of $10.00. That sells throughout the following period for $30.00, that is normal marketing price, through disposal costs of $3.00 and also normal profit of $12.00. I beg your pardon of the following statements is not true?


(D) The market value number for ending inventory is substituted because that cost and also the loss is buried in cost of products sold.


Recording inventory at network realizable worth is permitted, also if the is above cost, when there room no significant costs that disposal involved and


When inventory decreases in value below original (historical) cost, and also this decrease is thought about other than temporary, what is the preferably amount the the inventory deserve to be valued at?


If a unit of inventory has decreased in value listed below original cost, however the market value exceeds net realizable value, the amount to be offered for functions of inventory valuation is


(D) every one of these. Over there is a controlled market with a quoted price, there are no significant costs the disposal, and the inventory consists of precious metals or agricultural products.


If a product amount of inventory has actually been ordered v a formal acquisition contract at the balance sheet day for future shipment at for sure prices,


In 2006, Lucas manufacturing signed a contract v a caterer to acquisition raw materials in 2007 for $700,000. Prior to the December 31, 2006 balance paper date, the sector price because that these products dropped to $510,000. The newspaper entry to document this situation at December 31, 2006 will an outcome in a credit transaction that should be reported


(D) The full amount that purchases and the full amount that sales remain fairly unchanged from the comparable previous period.


(D) no one of these. No a portion of the list is destroyed, over there is a considerable increase in inventory during the year, and there is no beginning inventory due to the fact that it is the an initial year that operation.


(D) provides a method for inventory control and facilitates decision of the periodic inventory because that certain types of companies.


An inventory an approach which is draft to approximate inventory valuation in ~ the reduced of price or sector is


(A) final inventory and also the complete of goods accessible for revenue contain the exact same proportion the high-cost and also low-cost ratio goods.


(D) no one of these. Not It may not be provided to estimate inventories because that interim statements, It may not be supplied to estimate inventories for annual statements, It may not be offered by auditors.


When the traditional retail inventory technique is used, markdowns are typically ignored in the computation that the cost to retail ratio because


To produce an inventory valuation which almost right the reduced of expense or market using the typical retail inventory method, the computation of the ratio of expense to sleeve should


(A) All list items have to be categorized follow to the sleeve markup percent which shows the item"s offering price.


When using dollar-value LIFO, if the incremental class was added last year, it should be multiplied by


Marr Corporation has two commodities in its finishing inventory, every accounted for at the lower of expense or market. A benefit margin that 30% on selling price is thought about normal for each product. Certain data with respect to every product follows:

Product #1 Product #2

Historical expense $40.00 $ 70.00

Replacement expense 45.00 54.00

Estimated price to dispose 10.00 26.00

Estimated offering price 80.00 130.00

In pricing its finishing inventory utilizing the lower-of-cost-or-market, what unit values should Marr usage for commodities #1 and #2, respectively?


(B) $46.00 and also $65.00.

NRV – afternoon = $70 – ($80 × .3) = $46, cost = $40.

Product 2: RC = $54, NRV = $130 – $26 = $104

NRV – afternoon = $104 – ($130 × .3) = $65, expense = $70.


Paul Konerko company sells product 2005WSC because that $20 per unit. The expense of one unit the 2005WSC is $18, and also the replacement expense is $17. The estimated price to dispose the a unit is $4, and the typical profit is 40%. In ~ what amount per unit have to product 2005WSC be reported, applying lower-of-cost-or-market?


(D) $18. NRV = $20 – $4 = $16, RC = $17

NRV – afternoon = $16 – ($20 × .40) = $8, cost = $18.


Remington agency sells product 1976NLC for $40 every unit. The cost of one unit of 1976NLC is $36, and the replacement cost is $34. The estimated price to dispose the a unit is $8, and also the regular profit is 40%. In ~ what amount per unit need to product 1976NLC it is in reported, using lower-of-cost-or-market?


(D) $36. NRV = $40 – $8 = $32, RC = $34

NRV – afternoon = $32 – ($40 × .40) = $16, cost = $36.


Joe Crede Corporation sells its product, a rarely metal, in a managed market through a quoted price applicable to every quantities. The complete cost of 5,000 pounds the the steel now held in inventory is $250,000. The full selling price is $600,000, and also estimated costs of disposal room $10,000. In ~ what amount should the perform of 5,000 pounds be reported in the balance sheet?


(C) 590,000. $600,000 – $10,000 = $590,000.


Pettengal Corporation sell its product, a rarely metal, in a regulated market with a quoted price applicable to every quantities. The full cost of 5,000 pounds of the steel now hosted in list is $150,000. The total selling price is $350,000, and estimated expenses of disposal space $5,000. In ~ what amount need to the perform of 5,000 pounds be reported in the balance sheet?


(C) 345,000. $350,000 – $5,000 = $345,000.


Jermaine Dye Corporation got two inventory items in ~ a lump-sum expense of $50,000. The acquisition had 3,000 devices of product LF, and 7,000 units of product 1B. LF generally sells for $15 every unit, and also 1B for $5 per unit. If Dye sell 1,000 systems of LF, what quantity of gross profit should it recognize?


(B) 5,625. LF 3,000 × $15 = ($45,000 ÷ $80,000) × $50,000 = $28,125

1B 7,000 × $5 = $35,000; $35,000 + $45,000 = $80,000

(1,000 × $15) – ($28,125 × 1,000/3,000) = $5,625.


Williamson Corporation got two inventory items in ~ a lump-sum price of $40,000. The acquisition included 3,000 units of product CF, and also 7,000 units of product 3B. CF generally sells for $12 per unit, and also 3B for $4 per unit. If Williamson sell 1,000 devices of CF, what amount of gross profit need to it recognize?


(B) 4,500. CF 3,000 × $12 = ($36,000 ÷ $64,000) × $40,000 = $22,500

3B 7,000 × $4 = $28,000; $28,000 + $36,000 = $64,000

1,000 × $12) – ($22,500 × 1,000/3,000) = $4,500.


At a lump-sum expense of $48,000, Sealy agency recently purchased the complying with items for resale:

Item No. Of item Purchased Resale Price per Unit

M 4,000 $2.50

N 2,000 8.00

O 6,000 4.00

The appropriate cost every unit of list is:


(C) article # of item × Price

M 4,000 × $2.50 = 10,000 10 ÷ 50 × $48,000 = $9,600 ÷ 4,000 = $2.40

N 2,000 × $8.00 = 16,000 16 ÷ 50 × $48,000 = $15,360 ÷ 2,000 = $7.68

O 6,000 × $4.00 = 24,000 24 ÷ 50 × $48,000 = $23,040 ÷ 6,000 = $3.84

50,000


During 2006, Reese Co., a manufacturer of cacao candies, contract to purchase 100,000 pounds that cocoa beans at $4.00 every pound, delivery to it is in made in the spring of 2007. Due to the fact that a document harvest is predicted for 2007, the price per lb for cocoa beans had fallen come $3.10 by December 31, 2006.

Of the adhering to journal entries, the one which would properly reflect in 2006 the result of the commitment of Reese Co. To acquisition the 100,000 pounds the cocoa is


(C) estimated Loss on purchase Commitments......................... 90,000

estimated Liability on acquisition Commitments.. 90,000



(C) No get or loss because 12/31 price ($5.60) > contract price ($5,00).



(B) a loss of $400.($5.00 – $4.60) × 1,000 = $400.


The complying with information is accessible for October for Jordan Company.

Beginning inventory $ 50,000

Net purchases 150,000

Net sales 300,000

Percentage markup on expense 66.67%

A fire damaged Jordan’s October 31 inventory, leave undamaged inventory v a cost of $3,000. Using the gross profit method, the estimated finishing inventory ruined by fire is


(A) 17,000. ($50,000 + $150,000) – ($300,000 ÷ 5/3) – $3,000 = $17,000.


The following information is easily accessible for October because that Horton Company.

Beginning perform $100,000

Net purchases 300,000

Net sales 600,000

Percentage markup on expense 66.67%

A fire ruined Horton’s October 31 inventory, leaving undamaged inventory v a expense of $6,000. Utilizing the gross benefit method, the estimated ending inventory damaged by fire is


(A) 34,000. ($100,000 + $300,000) – ($600,000 ÷ 5/3) – $6,000 = $34,000.


Sloan Company, a wholesaler, budgeted the complying with sales for the indicated months:

June July respectable

Sales top top account $1,800,000 $1,840,000 $1,900,000

Cash sales 180,000 200,000 260,000

full sales $1,980,000 $2,040,000 $2,160,000

All merchandise is significant up to sell at its invoice expense plus 20%. Was inventories in ~ the start of every month room at 30% of the month"s projected expense of items sold.

The cost of items sold because that the month that June is anticipated to be


(D) 1,650,000. (1 + .2)C = 1,980,000; C = $1,650,000.


Sloan Company, a wholesaler, budgeted the following sales for the shown months:

June July respectable

Sales ~ above account $1,800,000 $1,840,000 $1,900,000

Cash sales 180,000 200,000 260,000

total sales $1,980,000 $2,040,000 $2,160,000

All goods is significant up to sell at that is invoice expense plus 20%. Goods inventories in ~ the beginning of every month room at 30% of that month"s projected price of goods sold.

Merchandise purchases because that July room anticipated to be


(D) 1,730,000. COGS: July = $2,040,000 ÷ 1.2 = $1,700,000

Aug. = $2,160,000 ÷ 1.2 = $1,800,000

July"s purchase = ($1,700,000 × .7) + ($1,800,000 × .3) = $1,730,000.


Gomez company had a gross benefit of $360,000, total purchases the $420,000, and an finishing inventory the $240,000 in its first year the operations together a retailer. Gomez’s sales in its an initial year must have been

(A) 540,000. $360,000 + ($420,000 – $240,000) = $540,000.


A markup the 40% on cost is tantamount to what markup on selling price?

(A) 29%. .40

———— = .29 = 29%.

1 + .40


Miller, Inc. Approximates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on expense is 25%. The following account balances room available:

Inventory, march 1 $220,000

Purchases 172,000

Purchase returns 8,000

Sales during March 300,000

The calculation of the cost of inventory in ~ March 31 would be


(B) 144,000. COGS = $300,000 ÷ 1.25 = $240,000

($220,000 + $172,000 – $8,000) – $240,000 = $144,000.


top top January 1, 2007, the merchandise perform of Colaw, Inc. To be $800,000. During 2007 Colaw to buy $1,600,000 the merchandise and recorded sales that $2,000,000. The pistol profit rate on these sales was 25%.

What is the merchandise list of Colaw in ~ December 31, 2007?


(C) 900,000. COGS = $2,000,000 × .75 = $1,500,000

$800,000 + $1,600,000 – $1,500,000 = $900,000.


For 2007, cost of goods obtainable for sale because that Vale Corporation to be $900,000. The gross profit price was 20%. Sales because that the year were $800,000. What to be the lot of the ending inventory?


(B) 260,000. $900,000 – ($800,000 × .80) = $260,000.


On April 15 of the present year, a fire ruined the whole uninsured list of a sleeve store. The adhering to data room available:

Sales, January 1 through April 15 $300,000

Inventory, January 1 50,000

Purchases, January 1 through April 15 250,000

Markup on cost 25%

The lot of the inventory lose is approximated to be


(A) 60,000. $300,000

$50,000 + $250,000 – ————— = $60,000.

1.25


The inventory account the Lance company at December 31, 2007, included the complying with items:

inventory Amount

Merchandise the end on consignment in ~ sales price

(including markup of 40% on marketing price) $15,000

Goods purchased, in transit (shipped f.o.b. Shipping point) 12,000

Goods organized on consignment through Lance 13,000

Goods out on approval (sales price $7,600, expense $6,400) 7,600

Based ~ above the over information, the perform account in ~ December 31, 2007, have to be decreased by


(A) 20,200. ($15,000 × 40%) + $13,000 + ($7,600 – $6,400) = $20,200.


Flynn Sales agency uses the retail inventory technique to worth its merchandise inventory. The adhering to information is easily accessible for the current year:

price retail

Beginning inventory $ 30,000 $ 50,000

Purchases 145,000 200,000

Freight-in 2,500 —

Net markups — 8,500

Net markdowns — 10,000

Employee discounts — 1,000

Sales — 205,000

If the finishing inventory is to be valued at the lower-of-cost-or-market, what is the cost to retail ratio?


(B) 177,500 / 258,500. Cost: $30,000 + $145,000 + $2,500 = $177,500.

Retail: $50,000 + $200,000 + $8,500 = $258,500.


The complying with data concerning the sleeve inventory technique are taken native the financial documents of rock Company.

expense retail

beginning inventory $ 49,000 $ 70,000

purchases 224,000 320,000

Freight-in 6,000 —

network markups — 20,000

network markdowns — 14,000

Sales — 336,000

The finishing inventory in ~ retail need to be


(B) 60,000. $70,000 + $320,000 + $20,000 – $14,000 – $336,000 = $60,000.


The adhering to data worrying the retail inventory method are taken indigenous the financial records of rock Company.

cost retail

start inventory $ 49,000 $ 70,000

purchases 224,000 320,000

Freight-in 6,000 —

net markups — 20,000

network markdowns — 14,000

Sales — 336,000

If the finishing inventory is to be valued at about the lower of price or market, the calculate of the cost to retail ratio should be based upon goods accessible for sale at (1) cost and also (2) retail, dong of


(A) $279,000 and also $410,000. Cost: $49,000 + $224,000 + $6,000 = $279,000.

Retail: $70,000 + $320,000 + $20,000 = $410,000.


If the foregoing figures are verified and a counting of the ending inventory reveals that merchandise actually on hand amounts to $54,000 at retail, the service has

(B) sustained a loss.


Assuming no adjust in the price level if the LIFO inventory method were offered in conjunction v the data, the ending inventory at expense would be


(B) 42,000. $49,000

———— × $60,000 = $42,000.

$70,000


Assuming that the LIFO inventory an approach were supplied in conjunction v the data and also that the inventory in ~ retail had increased during the period, climate the computation of retail in the cost to retail ratio would


(C) encompass both markups and markdowns and also exclude beginning inventory.


Gooch Corporation had the adhering to amounts, every at retail:

Beginning list $ 3,600 purchase $120,000

Purchase return 6,000 net markups 18,000

Abnormal shortage 4,000 net markdowns 2,800

Sales 72,000 Sales returns 1,800

Employee discounts 1,600 typical shortage 2,600

What is Gooch’s ending inventory in ~ retail?


(A) 54,400. $3,600 + $114,000 + $18,000 – $4,000 – $70,200 – $1,600 – $2,800 – $2,600

= $54,400.


Dryer Corporation had actually the following amounts, every at retail:

Beginning perform $ 3,600 to buy $100,000

Purchase returns 6,000 network markups 18,000

Abnormal shortage 4,000 network markdowns 2,800

Sales 72,000 Sales returns 1,800

Employee discounts 1,600 typical shortage 2,600

What is Dryer’s ending inventory in ~ retail?


(A) 34,400. $3,600 + $94,000 + $18,000 – $4,000 – $70,200 – $1,600 – $2,800 – $2,600

= $34,400.


Dye Corporation’s computation of price of items sold is:

Beginning list $ 60,000

Add: expense of products purchased 405,000

Cost that goods obtainable for revenue 465,000

Ending inventory 90,000

Cost of goods sold $375,000

The average days to sell inventory because that Dye are


(C) 73.0 $375,000 ÷ <($60,000 + $90,000) ÷ 2> = 5; 365 ÷ 5 = 73.0.


Ace Corporation’s computation of price of goods sold is:

Beginning perform $ 60,000

Add: expense of goods purchased 405,000

Cost that goods available for revenue 465,000

Ending list 80,000

Cost of goods sold $385,000

The average days to sell inventory because that Ace are


(C) 66.4 $385,000 ÷ <($60,000 + $80,000) ÷ 2> = 5.5; 365 ÷ 5.5 = 66.4.


The 2007 jae won statements that Wert company reported a beginning inventory the $80,000, an ending inventory the $120,000, and cost of products sold the $600,000 because that the year. Wert’s list turnover proportion for 2007 is


(B) 6.0 times. $600,000 ÷ <($80,000 + $120,000) ÷ 2> = 6 times


Trent Co. Provides the sleeve inventory method. The following information is available for the present year.

price sleeve

beginning inventory $ 78,000 $122,000

purchase 295,000 415,000

Freight-in 5,000 —

Employee discounts — 2,000

network markups — 15,000

net Markdowns — 20,000

Sales — 390,000


(D) $378,000 and $552,000. Cost: $78,000 + $295,000 + $5,000 = $378,000.

Retail: $122,000 + $415,000 + $15,000 = $552,000.


Trent Co. Offers the retail inventory method. The following information is available for the existing year.

expense sleeve

start inventory $ 78,000 $122,000

purchase 295,000 415,000

Freight-in 5,000 —

Employee discounts — 2,000

network markups — 15,000

network Markdowns — 20,000

Sales — 390,000

The ending inventory at retail have to be


(D) 140,000. $122,000 + $415,000 – $2,000 + $15,000 – $20,000 – $390,000 = $140,000.


Trent Co. Uses the retail inventory method. The adhering to information is accessible for the present year.

expense retail

beginning inventory $ 78,000 $122,000

to buy 295,000 415,000

Freight-in 5,000 —

Employee discounts — 2,000

net markups — 15,000

net Markdowns — 20,000

Sales

The approximate cost of the ending inventory through the standard retail an approach is


(A) 95,900. $140,000 × .685 = $95,900.


If the ending inventory is to it is in valued at around LIFO cost, the calculation of the cost ratio have to be based on cost and retail of


(C) $300,000 and $410,000. Cost: $295,000 + $5,000 = $300,000.

Retail: $415,000 + $15,000 – $20,000 = $410,000.


Assuming the the LIFO inventory technique is used, that the start inventory is the basic inventory as soon as the index to be 100, and that the index at year end is 112, the ending inventory in ~ dollar-value LIFO retail cost is


(A) 80,460. $140,000 basic year price = EI = ————— = $125,000

1.12

$122,000
expense = $78,000

$3,000 × .732* × 1.12 = 2,460

$80,460

$300,000

* ————— = .732

$410,000


Baker Company, which supplies the sleeve LIFO an approach to recognize inventory cost, has detailed the adhering to information because that 2007:

expense sleeve

net purchases 378,000 562,000

network markups 68,000

net markdowns 30,000

net sales 530,000

Assuming secure prices (no readjust in the price index throughout 2007), what is the cost of Baker"s inventory at December 31, 2007?


(B) 138,100. Cost to retail ratio = $378,000 ÷ ($562,000 + $68,000 – $30,000) = 0.63

EI = $140,000 + $562,000 + $68,000 – $30,000 – $530,000

= $210,000 at retail

$210,000 – $140,000 = $70,000

expense of list = $94,000 + ($70,000 × .63) = $138,100.


Baker Company, which uses the sleeve LIFO technique to identify inventory cost, has provided the following information for 2007:

cost retail

net purchases 378,000 562,000

network markups 68,000

network markdowns 30,000

network sales 530,000

Assuming that the price index was 105 at December 31, 2007 and also 100 at January 1, 2007, what is the price of Baker"s inventory in ~ December 31, 2007 under the dollar-value-LIFO retail method?


(A) 133,690. Base year price: EI = $210,000 ÷ 1.05 = $200,000

$140,000
expense = $ 94,000

60,000 × .63 × 1.05 = 39,690

$200,000 $133,690


Teel distribution Co. Has figured out its December 31, 2007 list on a FIFO communication at $250,000. Info pertaining to the inventory follows:

Estimated marketing price $255,000

Estimated price of disposal 10,000

Normal profit margin 30,000

Current replacement price 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


(D) 25,000. $250,000 – $225,000 (RC) = $25,000.


Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be supplied as the designated industry value


(B) network realizable value much less the typical profit margin.


Gore Company"s accountancy records indicated the adhering to information:

Purchases throughout 2007 3,000,000

Sales throughout 2007 3,800,000

A physical inventory tackled December 31, 2007, caused an ending inventory of $700,000. Gore"s gross profit on sales has actually remained continuous at 25% in recent years. Gore suspects some inventory may have actually been bring away by a brand-new employee. At December 31, 2007, what is the estimated expense of absent inventory?

(A) 50,000. $3,800,000 × .75 = $2,850,000 (COGS)

$600,000 + $3,000,000 – $2,850,000 – $700,000 = $50,000.


Eaton Co. Provides the retail inventory method to estimate its inventory because that interim explain purposes. Data relating come the computation that the inventory in ~ July 31, 2007, space as follows:

price retail

Purchases 1,000,000 1,575,000

Markups, network 175,000

Sales 1,750,000

Estimated normal shoplifting losses 20,000

Markdowns, net 110,000

Under the lower-of-cost-or-market method, Eaton"s approximated inventory at July 31, 2007 is


(A) 72,000. ($200,000 + $1,000,000) ÷ ($250,000 + $1,575,000 + $175,000) = 0.6

($250,000 + $1,575,000 + $175,000 – $20,000 – $110,000 –

$1,750,000) × 0.6 = $72,000.


At December 31, 2007, the adhering to information was obtainable from Dole Co."s accounting records:

expense retail

Purchases 833,000 1,155,000

Additional markups 42,000

Available for sale $980,000 $1,400,000

Sales because that the year totaled $1,050,000. Markdowns price to $10,000. Under the lower-of-cost-or-market method, Dole"s inventory at December 31, 2007 was


(D) 238,000. $980,000 ÷ $1,400,000 = 0.7

($1,400,000 – $10,000 – $1,050,000) × 0.7 = $238,000.

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On December 31, 2006, Lilly Co. Embraced the dollar-value LIFO sleeve inventory method. Inventory data for 2007 are as follows:

LIFO expense sleeve

Increase in price level because that 2007 10%

Cost to retail proportion for 2007 70%

Under the LIFO retail method, Lilly"s inventory in ~ December 31, 2007, must be


(A) $361,600. $550,000 ÷ 1.1 = $500,000

$300,000 + ($80,000 × 1.1 × .7) = $361,600.


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