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Exam 9: Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

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Question 41

Multiple Choice

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In applying LCM, market cannot be:

A) Less than net realizable value.
B) Greater than the normal profit.
C) Less than the normal profit margin.
D) Greater than net realizable value.

E) B) and D)
F) None of the above

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Question 42

Multiple Choice

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Cloverdale, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year's operations: What amount should be reported as cost of goods sold for the year?

A) $273,600.
B) $272,861.
C) $275,000.
D) None of the above.

E) B) and C)
F) None of the above

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Question 43

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Briefly explain the financial reporting required when material misstatements are found in previous years' financial statements that are included for comparative purposes in the current year's financial statements.

The primary motivation behind LCM is consistency.

When changing from the average cost method to FIFO, the current year's income includes the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.

When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:

Howard's Supply Co. suffered a fire loss on April 20, 2013. The company's last physical inventory was taken January 30, 2013, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard's consistently reports a 30% gross profit. The estimated inventory loss is:

Ramsgate Company has used the FIFO method for inventory valuation since it began business in 2009, but has elected to change to the average cost method starting in 2012. Year-end inventory valuations under each method are shown below: Required: How, and when, would Ramsgate reflect the change in accounting principle in its financial statements (ignore income taxes)?

Required: Determine the balance sheet inventory carrying value assuming the LCM rule is applied to classes of trees.

When using the gross profit method to estimate ending inventory, it is not necessary to know:

The average cost-to-retail percentage is:

Andover Stores uses the average cost retail method to estimate its ending inventory. Information as of June 30, 2013, is as follows: Required: Use the retail method to estimate the June 30, 2013, inventory.

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

The second step, when using dollar-value LIFO retail method for inventory, is to determine the estimated:

For a purchase commitment extending beyond the current fiscal year, if the market price on the purchase date declines from the previous year-end price, the purchase is recorded at the market price.

To the nearest thousand, estimated ending inventory is:

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

In applying the LCM rule, the inventory of rehab equipment would be valued at:

Harley Inc. uses the conventional retail method to estimate its ending inventories. The following data has been summarized for December 31, 2013: Required: Estimate the cost of ending inventory applying the conventional retail method.

To the nearest thousand, estimated ending inventory using the conventional retail method is: