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Exam 9: Inventories: Additional Issues

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Question 1

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The primary motivation behind the lower of cost and net realizable value rule is consistency.

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B) False

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Question 2

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Briefly outline the steps in the gross profit method of estimating ending inventory and indicate when the method might be used.

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The gross profit method estimates cost o...

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Question 3

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Harlequin Co.has used the dollar-value LIFO retail method since it began operations in early 2015 (its base year) .Its beginning inventory for 2016 was $36,000 at cost and $72,000 at retail prices.At the end of 2016,it computed its estimated ending inventory at retail to be $120,000.Assuming its cost-to-retail percentage for 2016 transactions was 60%,what is the inventory balance that Harlequin Co.would report in its 12/31/16 balance sheet?

The first step,when using dollar-value LIFO retail method for inventory,is to:

Andover Stores uses the average cost retail method to estimate its ending inventory.Information as of June 30,2016,is as follows: Required: Use the retail method to estimate the June 30,2016,inventory.

In the following questions, inventory errors are noted for 2016. Assume that the errors are not discovered until 2017, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = Understated; O = Overstated; NE = No effect -

International Financial Reporting Standards allow the reversal of an inventory write-down.

Briefly explain how a material adjustment to inventory due to application of the lower of cost and net realizable value rule should be reported in the financial statements.

Under the conventional retail method,which of the following are not included in the denominator of the current period cost-to-retail conversion percentage?

Lower of cost and net realizable value can be applied to individual inventory items,to logical categories of inventory,or to the entire inventory.

Littleton Company uses a periodic inventory system and the LIFO retail method to estimate its ending inventories.The following partial data has been summarized for December 31,2016: Required: Determine the cost-to-retail percentage used by Littleton.Assume stable retail prices during the period.

The denominator for the current period's cost-to-retail percentage is:

Montana Co.has determined its year-end inventory on a FIFO basis to be $600,000.Information pertaining to that inventory is as follows: What should be the reported value of Montana's inventory?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

In the following questions, inventory errors are noted for 2016. Assume that the errors are not discovered until 2017, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = Understated; O = Overstated; NE = No effect -

Zanesville Pots Co.uses the conventional retail method to estimate ending inventories.The following data has been summarized for the year ended December 31,2016: Required: Estimate the cost of ending inventory applying the conventional retail method.

Under the retail inventory method:

In the following questions, inventory errors are noted for 2016. Assume that the errors are not discovered until 2017, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = Understated; O = Overstated; NE = No effect -

On August 31,2016,Hurricane Chuck destroyed Bedford Craft Mart's entire inventory.The following information is available from its accounting records: Required: Assuming that Bedford estimates the cost of destroyed inventory at $510,000,compute gross profit margin % that Bedford uses in estimating inventory.

Using the dollar-value LIFO retail method for inventory: