True or False: Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.

True or False: Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.

Answer: FALSE

True or False: In using the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups.

True or False: In using the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups.

Answer: TRUE

True or False: Inventory written down due to LCM may be written back up if market values go back up.

True or False: Inventory written down due to LCM may be written back up if market values go back up.

Answer: FALSE

True or False: 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.

True or False: 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.

Answer: FALSE

True or False: The purpose of ceilings and floors in LCM is to prevent profit distortion.

True or False: The purpose of ceilings and floors in LCM is to prevent profit distortion.

Answer: TRUE

True or False: The primary motivation behind LCM is consistency.

True or False: The primary motivation behind LCM is consistency.

Answer: FALSE

True or False: Net Realizable Value is selling price less costs of completion and disposal.

True or False: Net Realizable Value is selling price less costs of completion and disposal.

Answer: TRUE

True or False: In determining lower-of-cost-or-market, market is the expected selling price under normal operations.

True or False: In determining lower-of-cost-or-market, market is the expected selling price under normal operations.

Answer: FALSE

When applying the lower-of-cost-or-market rule to inventory valuation according to International Financial Reporting Standards, market always is:

When applying the lower-of-cost-or-market rule to inventory valuation according to International Financial Reporting Standards, market always is:

A. Replacement cost.
B. Net realizable value.
C. Net realizable value reduced by a normal profit margin.
D. None of the above.


Answer: B. Net realizable value.

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000.
Information pertaining to that inventory is as follows:

selling price: $520,000
disposal cost: 30,000
normal profit margin: 60,000
replacement cost: 440,000
What should be the carrying value of Sullivan's inventory if the company prepares its financial
statements according to International Financial Reporting Standards?



A. $500,000.
B. $440,000.
C. $430,000.
D. $490,000.


Answer: D. $490,000.

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:

Sullivan Corporation. has determined its year-end inventory on a FIFO basis to be $500,000.
Information pertaining to that inventory is as follows:

selling price: $520,000
disposal cost: 30,000
normal profit margin: 60,000
replacement cost: 440,000
What should be the carrying value of Sullivan's inventory?



A. $500,000.
B. $440,000.
C. $430,000.
D. $490,000.


Answer: B. $440,000.

On July 10, 2011, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2012. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2011, was $180,000. The company uses a perpetual inventory system. At what amount will Johnson record the inventory purchased on February 1, 2012?

On July 10, 2011, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2012. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2011, was $180,000. The company uses a perpetual inventory system. At what amount will Johnson record the inventory purchased on February 1, 2012?

A. $210,000
B. $200,000
C. $180,000
D. $190,000


Answer: C. $180,000

On July 10, 2011, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2012. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2011, was $180,000. The company uses a perpetual inventory system. How much loss on purchase commitment will Johnson recognize in 2011?

On July 10, 2011, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2012. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2011, was $180,000. The company uses a perpetual inventory system. How much loss on purchase commitment will Johnson recognize in 2011?

A. $10,000.
B. $20,000.
C. $30,000.
D. None.


Answer: B. $20,000.

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Prunedale's cost of goods sold for this year was:

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Prunedale's cost of goods sold for this year was:

A. Overstated by $31,000.
B. Overstated by $5,000.
C. Understated by $31,000.
D. Understated by $48,000.


Answer: C. Understated by $31,000.

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale cost of goods sold for this year was:

Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale cost of goods sold for this year was:

A. Overstated by $94,000.
B. Overstated by $30,000.
C. Understated by $94,000.
D. Understated by $30,000.


Answer: A. Overstated by $94,000.

Retrospective treatment of prior years' financial statements is required when there is a change from:

Retrospective treatment of prior years' financial statements is required when there is a change from:

A. Average cost to FIFO.
B. FIFO to average cost.
C. LIFO to average cost.
D. All of the above.


Answer: D. All of the above.

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2010 (its base year). Its beginning inventory for 2011 was $36,000 at cost and $72,000 at retail prices. At the end of 2011, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2011 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/11 balance sheet?

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2010 (its base year). Its beginning inventory for 2011 was $36,000 at cost and $72,000 at retail prices. At the end of 2011, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2011 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/11 balance sheet?

A. $64,800
B. $72,000
C. $120,000
D. It can't be determined with the given information.


Answer: D. It can't be determined with the given information.

To determine the value of a LIFO layer, using dollar-value LIFO retail:

To determine the value of a LIFO layer, using dollar-value LIFO retail:

A.Divide the LIFO layer by the layer-year price index and multiply by the layer-year cost-to-retail percentage.
B. Multiply the LIFO layer by the base year price index and the current year cost-to-retail percentage.
C. Multiply the LIFO layer by the layer-year price index and by the layer-year cost-to-retail percentage.
D.Divide the LIFO layer by the layer-year cost-to-retail percentage and multiply by the layer-year price index.


Answer: C. Multiply the LIFO layer by the layer-year price index and by the layer-year cost-to-retail percentage.

To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar value LIFO retail:

To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar value LIFO retail:

A. Compare beginning and ending inventory amounts at current year prices.
B.Compare beginning and ending inventory amounts after adjusting both amounts to the average price level for the year.
C. Inflate beginning inventory amount to end of year prices and compare to ending inventory amount.
D.Deflate the ending inventory amount to beginning of year prices and compare to the beginning inventory amount.


Answer: D.Deflate the ending inventory amount to beginning of year prices and compare to the beginning inventory amount.

To use the dollar-value LIFO retail method for inventory, the second step is to determine the estimated:

To use the dollar-value LIFO retail method for inventory, the second step is to determine the estimated:

A. Ending inventory at current year retail prices.
B. Cost of goods sold for the current year.
C. Ending inventory at cost.
D. Ending inventory at base year retail prices.



Answer: D. Ending inventory at base year retail prices.