Question 1

In applying the lower of cost or market method to inventory valuation,market is defined as the current selling price.

Accepted Answer

Market, in the context of the lower of cost or market method for inventory valuation, is defined as the current replacement cost of the inventory, not the selling price.

Question 2

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio,we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

Accepted Answer

The statement accurately describes the reasoning behind the retail inventory method.

Question 3

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

Accepted Answer

Under FIFO, the oldest costs are assigned to the cost of goods sold, while the newest costs are assigned to ending inventory. This holds true for both perpetual and periodic inventory systems.

Question 4

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000.Under the lower cost or market,the amount reported should be $329,000.

Accepted Answer

According to the lower cost or market (LCM) rule, inventory should be reported at the lower of cost or market value. In this case, the market value is $307,000, which is lower than the cost of $329,000. Therefore, the inventory should be reported at $307,000.

Question 5

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

Accepted Answer

LIFO with the periodic inventory system assigns costs from the most recent purchases for the period, not at the point of each sale.

Question 6

The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.

Accepted Answer

The choice of inventory valuation method directly affects the cost of goods sold and therefore the gross profit. Different methods, such as FIFO, LIFO, and average cost, can result in different cost of sales and therefore different gross profits.

Question 7

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Accepted Answer

This concept is commonly known as the lower of cost or market (LCM) rule and is in accordance with generally accepted accounting principles (GAAP).

Question 8

Under FIFO,the most recent costs are assigned to ending inventory.

Accepted Answer

The answer of Under FIFO,the most recent costs are assigned...

Question 9

The lower of cost or market rule for inventory valuation is always applied to individual units separately rather than to major categories of inventory or to the entire inventory.

Accepted Answer

The lower of cost or market rule can be applied to individual items, major categories of inventory, or the entire inventory, depending on the accounting policy chosen by the company.

Question 10

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Accepted Answer

The retail inventory method estimates the cost of ending inventory by applying a cost-to-retail ratio to the ending inventory at retail prices, not by applying the gross profit ratio to net sales.

Question 11

The costs of goods purchased will vary under the different inventory methods of specific identification,FIFO,LIFO,and weighted average.

Accepted Answer

The answer of The costs of goods purchased will vary...

Question 12

FIFO assumes that inventory costs flow in the order incurred.

Accepted Answer

FIFO stands for "first-in, first-out" and assumes that the oldest inventory items are sold first, meaning that the costs associated with those items are recognized first as cost of goods sold. This assumes that inventory costs flow in the order incurred, which is in line with the FIFO method.

Question 13

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

Accepted Answer

In a perpetual system, the weighted average cost is constantly updated with each purchase and sale, resulting in a more accurate cost of goods sold and inventory valuation. In a periodic system, the weighted average cost is calculated only at the end of the accounting period, which can result in a different cost of goods sold and inventory valuation.

Question 14

A company's cost of inventory was $219,500.Due to phenomenal demand the market value of its inventory increased to $221,700.This company should record the inventory at its market value.

Accepted Answer

According to the lower of cost or market rule in accounting, inventory should be recorded at the lower of its historical cost or market value. Since the cost ($219,500) is lower than the market value ($221,700), the inventory should be recorded at its cost.

Question 15

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when cost is lower than market value.

Accepted Answer

Accounting principles require that inventory be reported at the lower of cost or market value, not specifically at the market value of replacing inventory when cost is lower. This principle ensures that inventory is not overstated on the financial statements.

Question 16

The assignment of costs to cost of goods sold and inventory using FIFO usually yields different results depending on whether a perpetual or periodic system is used.

Accepted Answer

Under both perpetual and periodic systems, FIFO (First-In, First-Out) will yield the same results for the assignment of costs to cost of goods sold and inventory because the order in which costs are assigned does not change with the type of inventory system.

Question 17

Under LIFO,the most recent costs are assigned to ending inventory.

Accepted Answer

Under LIFO (Last In, First Out), the most recent costs are assigned to the cost of goods sold, while the older costs remain in ending inventory.

Question 18

In applying the lower of cost or market method to inventory valuation,market is defined as the current replacement cost.

Accepted Answer

Market is defined as the current replacement cost in the lower of cost or market method of inventory valuation.

Question 19

The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.

Accepted Answer

The FIFO (First-In, First-Out) inventory method assumes that the costs for the earliest units purchased are the first to be charged to the cost of goods sold.

Question 20

A company has inventory with a selling price of $451,000,a market value of $223,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $223,000.

Accepted Answer

According to the lower of cost or market rule, the inventory should be written down to the lower of its cost or market value. In this case, the market value is $223,000, which is lower than the cost of $241,000. Therefore, the inventory should be written down to $223,000.

Quiz 5: Reporting and Analyzing Inventories