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Exam 9: Inventories: Additional Issues

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Question 1

Multiple Choice

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Current period cost-to-retail percentage is:

A) 70.0%.
B) 68.7%.
C) 63.6%.
D) 63.5%.

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

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Question 2

Multiple Choice

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

A) $122.
B) $158.
C) $162.
D) $155.$155 designated market value is less than $162 cost.

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

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D

Question 3

Multiple Choice

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Hawkeye Auto Parts uses the retail method to estimate inventories. Data for the first six months of 2009 include: beginning inventory at cost and retail were $55,000 and $100,000, net purchases at cost and retail were $785,000 and $1,300,000, and sales during the first six months totaled $800,000. The estimated inventory at June 30, 2009, would be:

Ramsgate Company has used the FIFO method for inventory valuation since it began business in 2005, but has elected to change to the average cost method starting in 2008. Year-end inventory valuations under each method are shown below: Required: What journal entry, if any, would Ramsgate record in 2008 for the cumulative effect of the change in accounting principle (ignore income taxes)?

Fad City sells novel clothes which are subject to a great deal of price volatility. A recent item which cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:

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

On March 17, 2009, a flood destroyed the entire inventory of Beatty Co. The following information is available from its accounting records: Required: Compute the estimated cost of inventory lost in the flood. $\begin{array}{lr}\text { Inventory, January 1, 2009 } & \$ 208,000 \\\text { Purchases, Jan. 1 - Mar. 17 } & 420,000 \\\text { Sales, Jan. 1 - Mar. 17 } & 600,000 \\\text { Normal gross margin } & 40 \%\end{array}$

In applying LCM, market cannot be:

To use the dollar-value LIFO retail method for inventory, the second step is to determine the estimated:

To determine if an increase in the dollar value of inventory is due to increased quantities, using dollar-value LIFO retail:

The gross profit method and retail method are both ways of estimating ending inventory. Briefly explain how the two methods differ.

The conventional cost-to-retail percentage is:

The average cost-to-retail percentage is:

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available: What is the estimated inventory on July 8 immediately prior to the fire?

Under the retail inventory method:

DK Super Stores Inc. uses the average cost retail method to estimate its ending inventory. Information at June 30, 2009, is as follows: Required: Compute the cost-to-retail percentage used by DK. $\begin{array} { l c c } & \text { Cost } & \text { Retail } \\\text { Beginning inventory } & & \$ 105,000 \\\text { Net purchases } & & 375,000 \\\text { Net sales } & & 380,000 \\\text { Ending inventory } & \$ 64,000\end{array}$

The cost-to-retail percentage used in the retail method to approximate average costs considers both markdowns and markups.

In applying LCM, market cannot be:

A change from LIFO to any other inventory method is accounted for retrospectively.

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