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Exam 9: Inventories: Special Valuation Issues

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Question 1

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Given the following information for Miller, Inc.: Required:

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Question 2

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The Marjorie Company entered into a non-cancellable fixed price purchase obligation on August 19, 2010.The agreement was to purchase 2, 500 units of material at $16.00 per unit to be delivered on April 1, 2011.On December 31, 2010, and on April 1, 2011, the replacement cost is determined to be $14.50 per unit.Which journal entry would be correct to record the delivery on April 1, 2011?

A)
Inventory (or Purchases) $\quad 36,250$
Accrued Loss on Purchase Commitments $\quad$ 3,750
Accounts Payable $\quad$$\quad$ 40,000
B)
$\begin{array}{cr}\text { Inventory (or Purchases) } & 40,000 \\\text { Accounts Payable } & 40,000\end{array}$
C)
$\begin{array}{l}\text { Accrued Loss on Purchase Commitments } &3,750\\\text { Inventory }&3,750\end{array}$
D) No required entry

E) B) and D)
F) All of the above

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Question 3

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Consider the following: Code: $\quad A=$ Gross profit to net sales ratio $\quad\quad\quad\mathrm{B}=$ Gross profit to cost of goods sold ratic Which equation is correct?

The Martha Company normally sells its inventory at a 20% profit margin on sales.In 2010, the net realizable value of inventory purchased for $50, 000 declined to $44, 000.There are no costs to complete and dispose of this inventory.What is the floor constraint on the valuation of this inventory using the lower of cost or market rule?

If purchases are recorded correctly but ending physical inventory is understated, which one of the following situations occurs for the current year?

The Wendy Company entered into a non-cancellable fixed price purchase obligation on July 20, 2010, to purchase 3, 000 assemblies at $6.50 per assembly to be delivered on March 2, 2012.On December 31, 2011, the replacement cost of the assembly was determined to be $5.90 per assembly.Which of the following adjusting journal entries would be correct as of December 31, 2011, to account for the price change?

The Latisha Department Store uses the average cost retail inventory method to determine its ending inventory.The accounting records for the current year for Latisha contained the following information: $\begin{array}{lcc}&\text { Cost }&\text { Retail }\\\text { Purchases } & \$ 61,200 & \$ 85,000 \\\text { Beginning inventory } & 17,000 & 25,000 \\\text { Sales } & & 75,700 \\\text { Net markups } & & 7,500 \\\text { Net markdowns } & & 2,500\end{array}$ In addition, the accounting records for Latisha disclosed that purchases returns at cost and retail were $1, 800 and $4, 300, respectively.What is the cost-to-retail percentage to be used for ending inventory calculations?

Although IFRS require the use of the lower of cost or market method to value inventory, some differences from GAAP still exist.Which of the following is not one of the differences?

The account, Accrued Loss on Purchase Commitments, used when the year-end market price is less than the fixed purchase price for non-cancellable purchase obligations is reported as a(n)

If the net markdowns are excluded from the calculation of the cost-to-retail ratio in the retail inventory method, the ending inventory's valuation is lower because of which of the following effects on the cost-to-retail ratio?

Edna Corp.uses the FIFO retail inventory method and reports the following information: $\begin{array}{lll}&\text { Cost }&\text { Retail }\\\text { Purchases } & \$ 21,450 & \$ 28,000 \\\text { Sales } & & 24,800 \\\text { Net markips } & & 1,000 \\\text { Beginning inventory } & 2,100 & 3,000 \\\text { Net\_markdowns } & & 400\end{array}$ What is the cost of ending inventory for Edna Corp.?

The retail inventory method is used extensively in the retail industry. Required: Discuss the assumptions and benefits of the retail inventory method.

Daphne Company used the gross profit method to estimate its ending inventory of $800, which was an increase of $200 from the beginning inventory for the month.Gross purchases for the month amounted to $6, 000 and sales were $7, 250, made at a gross profit of 25% on cost.Calculate the amount of purchase returns made by Daphne for the month.

Adell Co.uses the dollar-value LIFO retail method.The beginning inventory, purchased when the price index was 100, had a retail value of $4, 000 and a cost of $3, 600.During the period, purchases amounted to $60, 000 at retail ($52, 800 at cost) .Sales amounted to $56, 300.The year-end price index was 110.What is the cost of ending inventory?

The account, Loss on Purchase Commitments, used when the year-end market price is less than the fixed purchase price for non-cancellable purchase obligations is reported as a(n)

The most common approach to implementing the lower of cost or market rule for inventory valuation is to apply it

The accountant for the Shelley Company made the following errors related to purchases of merchandise and ending inventory in 2010: 1. $\$ 2,100$ purchase of merchandise on credit early in 2011 was recorded and included in encling inventory at December 31,2010 2. purchase of merchandise on credit in 2010 was recorded, but it was not inclucled in the end-of-year plysical inventony count Assuming a periodic inventory system, Shelley Company's 2010 net income will be

Which one of the following statements regarding the gross profit method is true?

When applying lower of cost or market, market value

Which of the following variations of the retail inventory method would generally result in the lowest cost-to-retail ratio in a period of declining prices?