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Exam 17: Merchandise Inventory

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Question 1

True/False

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The lower of cost or market rule can be applied on an item-by-item basis,by group or by comparing total inventory at cost to total inventory valued at market.

A) True
B) False

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True

Question 2

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When the replacement cost of an item is below its original purchase cost,it is necessary to value the inventory at market price in order to reflect the lower current value in the firm's financial records.

A) True
B) False

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Question 3

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The modifying convention of conservatism requires that inventory be presented on the balance sheet at

The company's gross profit ratio is 40%.With beginning inventory of $54,000,additional purchases of $21,000 and net sales for the quarter of $85,000,the controller estimated ending inventory values at:

Under FIFO costing,the most recent costs are assigned to ending inventory.

For internal control,unit figures used to compute the inventory should be verified through spot checks.

If other items remain the same,the larger the ending inventory valuation,the

To calculate the cost-to-retail ratio,the beginning inventory at cost is divided by the merchandise available for sale at retail.

The disclosure principle requires a company to reveal the costing method used to value inventory.

Inventory valuation affects the net income or net loss reported on the income statement.

Which inventory valuation method mimics the actual flow of goods for most businesses?

The accountant for a company whose inventory was destroyed by fire determined from undamaged records that the cost of goods available for sale was $100,000 and the net sales were $80,000 up to the date of the fire.The accountant also determined that the company's normal gross profit rate is 40 percent of net sales.From this data,the accountant estimated the cost of the inventory destroyed by the fire to be

Under a periodic inventory system,the _________________________ account is the one account that appears on both the balance sheet and the income statement.

The LIFO method of inventory valuation assigns the cost of the most recent purchases to the ending inventory.

The ____________________ method of estimating inventory requires the use of data about both cost and selling prices.

The ____________________ method of estimating ending inventory involves estimating the cost of goods sold by applying a company's cost/sales ratio to its sales for the current period.

Inventory valuation is very important in computing federal income tax because the value placed on the inventory determines the net income reported.

The cost of the earliest merchandise purchased is assigned to ending inventory when a company uses

Point-of-sale cash registers and scanners assist in tracking inventory units purchased and sold under a periodic inventory system.

Net Sales minus Gross Profit equals ___________________.