CHAP009 - Chapter 9 Inventories: Additional Issues...

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Unformatted text preview: Chapter 9 Inventories: Additional Issues True/False Questions 1. In determining lower-of-cost-or-market, market is the expected selling price under normal operations. Answer: False Learning Objective: 1 Level of Learning: 1 2. Net realizable value is selling price less costs of completion and disposal. Answer: True Learning Objective: 1 Level of Learning: 1 3. The primary motivation behind LCM is consistency. Answer: False Learning Objective: 1 Level of Learning: 2 4. The purpose of ceilings and floors in LCM is to prevent profit distortion. Answer: True Learning Objective: 1 Level of Learning: 2 5. Losses on reduction to LCM may be charged to either cost of goods sold or to a current loss account without distorting financial statement ratios. Answer: False Learning Objective: 1 Level of Learning: 2 6. Inventory written down due to LCM may be written back up if market values go back up. Answer: False Learning Objective: 1 Level of Learning:1 7. 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. Answer: False Learning Objective: 5 Level of Learning: 1 8. The cost-to-retail percentage used in the retail method to approximate average costs considers both markdowns and markups. Answer: True Learning Objective: 4 Level of Learning: 1 9. In using the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups. Answer: True Learning Objective: 3 Level of Learning: 1 10. Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method. Answer: False Learning Objective: 3 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 67 Chapter 9 Inventories: Additional Issues 11. For a change 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. Answer: False Learning Objective: 6 Level of Learning: 1 12. A change from LIFO to any other inventory method is accounted for retrospectively. Answer: True Learning Objective: 6 Level of Learning: 1 Matching Pair Questions Use the following to answer questions 13-17: 13-17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. Terms: A. Approximation of average cost B. Change from LIFO to FIFO C. Cost-to-retail percentage D. Cumulative effect E. Gross profit method F. LIFO retail G. Net markdown H. Net markup I. Normal spoilage J. Retrospective treatment Phrases: 13. _____ Estimates value of destroyed inventory based on historical relationships....
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CHAP009 - Chapter 9 Inventories: Additional Issues...

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