Grade Details Unit 3 Review

Grade Details Unit 3 Review - Unit 3: Inventories: Special...

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Unit 3: Inventories: Special Valuation Issues (Feb 16 - Feb 22) Grade Details Unit 3 Review 1. The most common approach to implementing the lower of cost or market rule for inventory valuation is to apply it (Points: 2) separately to each item of inventory CORRECT to each major category of inventory to the total inventory in a combination of these methods 2. Which application of the lower of cost or market rule will generally result in the lowest valuation for the ending inventory? (Points: 2) to each item of the inventory CORRECT to each major category of inventory to the total inventory all of these applications result in the same valuation for inventory 3. The Martha Company normally sells its inventory at a 20% profit margin on sales. In 2010, the net realizable value of inventory purchased for $50,000 declined to $44,000. There are no costs to complete and dispose of this inventory. What is the floor constraint on the valuation of this inventory using the lower of cost or market rule? (Points: 2) $35,200 CORRECT $40,000 $44,000 $50,000 4. The major criticism of the lower of cost or market rule for valuation of inventory is that (Points: 2) holding losses are recognized, but holding gains are not CORRECT holding gains are recognized, but holding losses are not the total difference between selling price and cost is usually recognized in the period of the sale the conservatism principle is violated because of the use of the floor constraint 5. Relevance of the gross profit margin depends upon (Points: 2) the accuracy of the gross profit percentage CORRECT the net sales applying the overall profit margin to each individual department averaging prior periods' net sales and total sales to verify which is best to use 6. The gross profit method is most commonly used to (Points: 2) replace the year-end physical inventory check the cost generated by a perpetual inventory system CORRECT determine the cost of inventory destroyed by fire develop a sales budget 7. At the beginning of 2010, the Nancy Company had an inventory valued at $34,375 at cost ($50,000 at retail). During the year, Nancy purchased inventory for $50,000 ($70,000 at retail), and made markdowns of $7,500. Nancy's sales in 2010 were $62,500. What is Nancy's estimated ending inventory at FIFO cost using the retail inventory method? (Points: 2) $37,500 $40,000 CORRECT $39,000 $34,375 8. The Beta Company uses the retail inventory method for valuation of its inventory. If an item had a cost of $45, was originally marked to sell at $60, was later priced at $55, and finally was priced at $63, the final price change is a (Points: 2) net markup of $18 Page 1 of 13
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Unit 3: Inventories: Special Valuation Issues (Feb 16 - Feb 22)
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Grade Details Unit 3 Review - Unit 3: Inventories: Special...

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