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

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Question 31

Multiple Choice

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

A) $96,300.
B) $73,300.
C) $101,000.
D) $81,500.

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

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Question 32

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Inventory written down due to LCM may be written back up if market values increase.

A) True
B) False

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Question 33

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Zanesville Pots Co. uses the conventional retail method to estimate ending inventories. The following data has been summarized for the year ended December 31, 2013: Required: Estimate the cost of ending inventory applying the conventional retail method.

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

Trask Inc. uses the average cost retail method to estimate its ending inventory. Partial information at June 30, 2013, is as follows: Required: Assuming Trask's cost-to-retail = 60%, compute Trask's beginning inventory at retail.

Haskell Corporation. has determined its year-end inventory on a FIFO basis to be $785,000. Information pertaining to that inventory is as follows: What should be the carrying value of Sullivan's inventory if the company prepares its financial statements according to International Financial Reporting Standards?

Current period cost-to-retail percentage is:

If the quantity of goods held in inventory decreased during the period, the dollar amount of ending inventory cannot exceed the dollar amount of beginning inventory.

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

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 (rounded) is:

On March 17, 2013, 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.

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards in the application of the lower-of-cost-or-market rule for valuing inventory.

In the year 2013, the internal auditors of Goofy Co. discovered that goods costing $25 million that were purchased in December of 2012 were recorded for $20 million. The goods were properly measured in the December 31, 2012, ending physical inventory. Required: Prepare the journal entry needed in 2013 to correct the error. Also, briefly describe any other measures Goofy would take in connection with correcting the error. (Ignore income taxes.)

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 method, in determining the cost-to-retail percentage for the current year:

Under the conventional retail method, the denominator in the cost-to-retail percentage includes:

Briefly explain what is meant by "market" in the lower-of-cost-or-market (LCM) approach.

The purpose of ceilings and floors in LCM is to prevent profit distortion.

Cindy Lou Linens uses the conventional retail method to estimate its ending inventories. The company records sales net of employee discounts. The following partial data has been summarized for the year ended December 31, 2013: Required: Compute the net markups for Cindy Lou Linens during 2013.