Ch.9 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. For income tax purposes, the LCM rule must be applied to the entire inventory as a whole.    (2 points)

      
      

  2. In determining lower-of-cost-or-market, market is the expected selling price under normal operations.    (2 points)

      
      

  3. Net realizable value is selling price less costs of completion and disposal.    (2 points)

      
      

  4. Market is not selling price, but rather, replacement cost subject to range limits.    (2 points)

      
      

  5. The primary motivation behind LCM is conservatism.    (2 points)

      
      

  6. The purpose of ceilings and floors in LCM is to prevent profit distortion.    (2 points)

      
      

  7. LCM applied on an individual unit basis, to inventory categories or to the entire inventory, will yield identical results.    (2 points)

      
      

  8. Losses on reduction to LCM may be charged to either cost of goods sold or to a current loss account without distorting financial statement ratios.    (2 points)

      
      

  9. Inventory written down due to LCM cannot be written back up if market values go back up.    (2 points)

      
      

  10. The gross profit method for determining inventory may be used for all reporting requirements.    (2 points)

      
      

  11. If the quantity of goods held in inventory decreased during the period, the dollar amount of ending inventory cannot exceed the dollar amount of beginning inventory.    (2 points)

      
      

  12. The retail inventory method is similar to the gross profit method except the retailinventory method requires a physical count of inventory.    (2 points)

      
      

  13. The cost-to-retail percentage used in the retail method to approximate average costs considers both markdowns and markups.    (2 points)

      
      

  14. The cost-to-retail percentage used in the conventional retail method includes markdowns but excludes markups.    (2 points)

      
      

  15. The FIFO retail method is rarely used in practice.    (2 points)

      
      

  16. Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.    (2 points)

      
      

  17. The LIFO retail method assumes stable selling prices.    (2 points)

      
      

  18. For a change from the average cost method to FIFO, the current year's income includes the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.    (2 points)

      
      

  19. If market prices drop below contracted costs under an outstanding purchase commitment that extends beyond the end of a fiscal year, a loss must be accrued for the contract price.    (2 points)

      
      

  20. Purchase commitments are not recorded in the accounts at the time the contract is signed.   (2 points)

      
      

  21. An argument against the use of LCM is its lack of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. In applying LCM, market cannot be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. When using the gross profit method to estimate ending inventory, it is not necessary to know:   (2 points)

    a.  
    b.  
    c.  
    d.  

  24. The gross profit method is not appropriate for:   (2 points)

    a.  
    b.  
    c.  
    d.  

  25. Cost of goods sold equals purchases:   (2 points)

    a.  
    b.  
    c.  
    d.  

  26. When computing the cost-to-retail percentage for the conventional retail method, included in the denominator are:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:   (2 points)

    a.  
    b.  
    c.  
    d.  

  28. When computing the cost-to-retail percentage for the LIFO retail method, included in the denominator are:   (2 points)

    a.  
    b.  
    c.  
    d.  

  29. In calculating the cost-to-retail percentage for the retail method, the retail column will not include:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar-value LIFO retail:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. To determine the value of a LIFO layer, using dollar-value LIFO retail:   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. In applying the LCM rule, the inventory of surgical supplies would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. In applying the LCM rule, the inventory of rehab equipment would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. In applying the LCM rule, the inventory of rehab supplies would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  35. In applying the LCM rule, the inventory of boots would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. In applying the LCM rule, the inventory of apparel would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. In applying the LCM rule, the inventory of supplies would be valued at:   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. San Andreas Mercantile Inc., through no fault of its own, lost an entire warehouse due to an earthquake on April 13, 2000. In preparing their insurance claim on the inventory loss, they developed the following data:Inventory January 1, 2000, $365,000; sales and purchases from January 1, 2000 to April 13, 2000, $1,300,000 and $875,000, respectively. San Andreas consistently reports a 30% gross profit. The estimated inventory on April 13, 2000 is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. Little's Lumberyard suffered a fire loss on November 20, 2000. The company's last physical inventory was taken on September 30, 2000, at which time the inventory totaled $220,000. Sales from September 30 to November 20 were $625,000 and purchases during that time were $480,000. Little's consistently reports a 40% gross profit. The estimated inventory loss is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  40. Shells by the Sea Inc. was completely destroyed by Hurricane Sheldon on August 5, 2000. At January 1, Shells reported an inventory of $55,000. Sales from January 1, 2000 to August 5, 2000 totaled $304,500 and purchases totaled $195,000 during that time. Shells consistently marks up its products 45% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Sheldon would be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. Elron's Discount House uses the retail method to estimate inventories. Data for the first six months of 2000 include:beginning inventory at cost and retail were $75,000 and $105,000, net purchases at cost and retail were $320,000 and $460,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2000 would be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  42. Gyros for Clothes sells fad clothes which are subject to a great deal of price volatility. A recent item which cost $20 was marked up $15, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  43. To the nearest thousand, estimated ending inventory using the conventional retail method is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  44. Estimated ending inventory at retail is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  45. To the nearest thousand, estimated ending inventory at cost is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  46. Estimated ending inventory at retail is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  47. To the nearest thousand, estimated ending inventory at cost is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  48. The denominator for the current period's cost-to-retail percentage is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  49. The estimated ending inventory at retail is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  50. The estimated ending inventory at retail is:   (2 points)

    a.  
    b.  
    c.  
    d.  



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