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Exam 9: Inventories: Additional Valuation Issues

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Question 21

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Assuming that the LIFO inventory method is used, that the beginning inventory is the base inventory when the index was 100, and that the index at year end is 112, the ending inventory at dollar-value LIFO retail cost is

A) $80,460.
B) $92,757.
C) $95,900.
D) $102,480.

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

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Question 22

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The 2007 financial statements of Wert Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $600,000 for the year.Wert's inventory turnover ratio for 2007 is

A) 7.5 times.
B) 6.0 times.
C) 5.0 times.
D) 4.3 times.

E) B) and C)
F) A) and D)

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Question 23

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Use the following information for questions Sloan Company, a wholesaler, budgeted the following sales for the indicated months: $\begin{array}{lrrr}&\text { June}&\text { July }&\text {Auqust }\\\text { Sales on account } & \$ 1,800,000 & \$ 1,840,000 & \$ 1,900,000 \\\text { Cash sales } & 180,000 & 200,000 & 260,000\\\text { Total sales } & \$ 1,980,000 & \$ 2,040,000 &\$ 2,160,000\\\end{array}$ All merchandise is marked up to sell at its invoice cost plus 20%.Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. -The cost of goods sold for the month of June is anticipated to be

Pettengal Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities.The total cost of 5,000 pounds of the metal now held in inventory is $150,000.The total selling price is $350,000, and estimated costs of disposal are $5,000.At what amount should the inventory of 5,000 pounds be reported in the balance sheet?

The gross profit method can be used to approximate the dollar amount of inventory on hand.

A disadvantage of the gross profit method is that it uses past percentages in determining the markup.

The gross profit method of inventory valuation is invalid when

Use the following information for questions Baker Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2007: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\\\text { Inventory, } 1 / 1 / 07 & \$ 94,000 & \$ 140,000 \\\text { Net purchases } & 378,000 & 562,000 \\\text { Net markups } & & 68,000 \\\text { Net markdowns } & & 30,000 \\\text { Net sales } & & 530,000\end{array}$ -Assuming stable prices (no change in the price index during 2007) , what is the cost of Baker's inventory at December 31, 2007?

Marr Corporation has two products in its ending inventory, each accounted for at the lower of cost or market.A profit margin of 30% on selling price is considered normal for each product.Specific data with respect to each product follows: $\begin{array}{lrr}&\text { Product \#1}&\text { Product \#2 }\\\text { Historical cost } & \$ 40.00 & \$ 70.00 \\\text { Replacement cost } & 45.00 & 54.00 \\\text { Estimated cost to dispose } & 10.00 & 26.00 \\\text { Estimated selling price } & 80.00 & 130.00\end{array}$ In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Marr use for products #1 and #2, respectively?

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is

The following information is available for October for Jordan Company. $\begin{array}{lr}\text { Beginning inventory } & \$ 50,000 \\\text { Net purchases } & 150,000 \\\text { Net sales } & 300,000 \\\text { Percentage markup on cost } & 66.67 \%\end{array}$ A fire destroyed Jordan's October 31 inventory, leaving undamaged inventory with a cost of $3,000.Using the gross profit method, the estimated ending inventory destroyed by fire is

When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by

Miller, Inc.estimates the cost of its physical inventory at March 31 for use in an interim financial statement.The rate of markup on cost is 25%.The following account balances are available: $\begin{array} { l r } \text { Inventory, March 1 } & \$ 220,000 \\\text { Purchases } & 172,000 \\\text { Purchase returns } & 8,000 \\\text { Sales during March } & 300,000\end{array}$ The estimate of the cost of inventory at March 31 would be

Dryer Corporation had the following amounts, all at retail: $\begin{array} { l r l r } \text { Beginning inventory } & \$ 3,600 & \text { Purchases } & \$ 100,000 \\\text { Purchase returns } & 6,000 & \text { Net markups } & 18,000 \\\text { Abnormal shortage } & 4,000 & \text { Net markdowns } & 2,800 \\\text { Sales } & 72,000 & \text { Sales returns } & 1,800 \\\text { Employee discounts } & 1,600 & \text { Normal shortage } & 2,600\end{array}$ What is Dryer's ending inventory at retail?

The following information is available for October for Horton Company. $\begin{array}{lr}\text { Beginning inventory } & \$ 100,000 \\\text { Net purchases } & 300,000 \\\text { Net sales } & 600,000 \\\text { Percentage markup on cost } & 66.67 \%\end{array}$ A fire destroyed Horton's October 31 inventory, leaving undamaged inventory with a cost of $6,000.Using the gross profit method, the estimated ending inventory destroyed by fire is

Remington Company sells product 1976NLC for $40 per unit.The cost of one unit of 1976NLC is $36, and the replacement cost is $34.The estimated cost to dispose of a unit is $8, and the normal profit is 40%.At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?

Designated market value

Use the following information for questions Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\\\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \\\text { Purchases } & 295,000 & 415,000 \\\text { Freight-in } & 5,000 & - \\\text { Employee discounts } & - & 2,000 \\\text { Net markups } & - & 15,000 \\\text { Net Markdowns } & - & 20,000 \\\text { Sales } & - & 390,000\end{array}$ -The approximate cost of the ending inventory by the conventional retail method is

In the retail inventory method, the term markup means a markup on the original cost of an inventory item.