Question 1

When a company uses the perpetual inventory method,which of the following would be the entry to adjust inventory to lower-of-cost-or-market?

Accepted Answer

When using the perpetual inventory method, the entry to adjust inventory to lower-of-cost-or-market is to debit Cost of goods sold and credit Inventory to recognize the loss in value. This adjustment is made at the end of the accounting period to ensure that inventory is reported at the lower of its cost or net realizable value. Option A and B do not reflect the decrease in the inventory value, and option D is not correct as inventory is debited only when it increases.

Question 2

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 78 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual FIFO method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

Under the perpetual FIFO method, the first items purchased are the first ones sold. By the end of the year, 15 units are sold. The sales would first deplete the beginning inventory of 10 units at $70 each, and then 5 units from the June purchase at $80 each. This leaves 15 units from the June purchase in inventory. The ending inventory valuation would be 15 units at $80 each, totaling $1,200. However, since the replacement cost is $78, and under FIFO, the cost of the remaining inventory would not be adjusted to the replacement cost directly. Therefore, the ending inventory is valued at the cost of the remaining units, which is 15 units at $80 each, totaling $1,200. The correct answer is A, not B as initially indicated. This correction addresses the mistake in the explanation regarding the replacement cost's impact under FIFO and the calculation of the ending inventory value.

Question 3

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 60 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual average-costing method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

The answer of Williams Company had the following balances and...

Question 4

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.How would the Gross profit be affected by the adjusting entry needed under lower-of-cost-or-market?

Accepted Answer

D) Calculations: 100 × 2 = $200

Question 5

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 60 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual FIFO method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

Under the perpetual FIFO method, the first items purchased are the first ones sold. By the end of the year, 15 units are sold. The sales would first deplete the 10 units from the beginning inventory at $70 each, and then 5 units from the June purchase at $80 each. The ending inventory would consist of the remaining 15 units from the June purchase at $80 each, totaling $1,200 (15 units * $80). However, since the replacement cost is $60, which is lower than the cost at which the remaining inventory was purchased, the lower of cost or market (LCM) rule applies. Therefore, the inventory should be valued at the lower replacement cost of $60 per unit, resulting in an ending inventory value of $900 (15 units * $60).

Question 6

Which of the following amounts would be reported for Inventory on the balance sheet if the cost of an item is $80,the current selling price is $100 and the current replacement cost is $75?

Accepted Answer

Inventory is reported at the lower of cost or market value. In this scenario, the market value is the replacement cost of $75, which is lower than the cost of $80. Therefore, the amount reported for Inventory on the balance sheet would be $75.

Question 7

If the historical cost of inventory falls below replacement cost,the business must write down the inventory cost.

Accepted Answer

According to generally accepted accounting principles (GAAP), if the historical cost of inventory is less than the replacement cost, there is no need to write down the inventory cost. Write-downs typically occur when the market value falls below the historical cost, not the other way around.

Question 8

Better Buy has six CD players in inventory on December 31.The players were purchased in November for $170.Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $175.The current sales price for each of the CD players is $320.What would be the amount reported as Inventory on the balance sheet?

Accepted Answer

C) Calculations: 6 × $170 = $1,020

Question 9

Better Buy has six CD players in inventory on December 31.The players were purchased in November for $170.Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168.The current sales price for each of the CD players is $320.What would be the amount reported as Inventory on the balance sheet?

Accepted Answer

A) Calculations: 6 × $168 = $1,008

Question 10

Better Buy has six CD players in inventory on December 31.The players were purchased in November for $170.Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168.The current sales price for each of the CD players is $320.The adjustment would have what effect on Gross profit?

Accepted Answer

C) Calculations: 6 × 2 = $12

Question 11

Better Buy has six CD players in inventory on December 31.The players were purchased in November for $170.Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168.The current sales price for each of the CD players is $320.The adjustment would have what effect on Cost of goods sold?

Accepted Answer

D) Calculations: 6 × 2 = $12

Question 12

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 78 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual average-costing method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

The perpetual average-costing method assigns the average cost of all units available for sale during the period to each unit sold. The average cost is calculated as follows:Beginning inventory (10 units x $70) = $700Purchases (20 units x $80) = $1,600Total cost of goods available for sale = $2,300Units available for sale = 30 unitsAverage cost per unit = $2,300 / 30 units = $76.67Ending inventory (15 units x $76.67) = $1,150

Question 13

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.What amount would be reported as Inventory on the balance sheet?

Accepted Answer

C) Calculations: 100 × $8 = $800

Question 14

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 78 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual LIFO method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

The answer of Williams Company had the following balances and...

Question 15

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $11.00.What amount would be reported as Inventory on the balance sheet?

Accepted Answer

A) Calculations: 100 × $10 = $1,000

Question 16

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.How would the Cost of goods sold be affected by the adjusting entry needed under lower-of-cost-or-market?

Accepted Answer

C) Calculations: 100 × 2 = $200

Question 17

Twenty units of inventory on hand at the end of the year are recorded at their cost of $5.00 per unit using FIFO.Current replacement cost is $4.50 per unit.What amount would be reported as inventory on the balance sheet?

Accepted Answer

D) Calculations: 20 × $4.50 = $90

Question 18

Williams Company had the following balances and transactions during 2013. $$\begin{array} { | l | l | } 
\hline \text { Beginning inventory } & 10 \text { units at } \$ 70 \
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 80 \
\hline \text { December } 30 & \text { Sold } 15 \text { units } \
\hline \text { December } 31 & \text { Replacement cost } \$ 60 \
\hline
\end{array}$$ What would the company's inventory amount be on the December 31,2013 balance sheet if the perpetual LIFO method is used? (Answers are rounded to the nearest dollar.)

Accepted Answer

The answer of Williams Company had the following balances and...

Question 19

Which of the following is used for market when valuing inventory at lower-of-cost-or-market?

Accepted Answer

Lower-of-cost-or-market (LCM) is a conservative inventory valuation method where inventory is reported at the lower of its cost or its market value. For market value, the replacement cost of inventory is used, which is the cost that would be incurred to replace the inventory in the current market. Therefore, option B, current replacement price, is the correct choice for valuing inventory at lower-of-cost-or-market. Options A, C, and D are incorrect as they do not consider the replacement cost of inventory.

Question 20

Which of the following assets must be reported at the lower-of-cost-or-market?

Accepted Answer

Inventory is the only asset listed that must be reported at the lower-of-cost-or-market. This is due to the fact that the value of inventory may decline from its original cost and therefore must be reported at the lower of its cost or market value. Accounts receivable should be reported at their full value, prepaid insurance should be reported at its prepaid amount, and cash should be reported at its actual cash value.

Quiz 6: Merchandising Inventory

When a company uses the perpetual inventory method,which of the following would be the entry to adjust inventory to lower-of-cost-or-market?

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.How would the Gross profit be affected by the adjusting entry needed under lower-of-cost-or-market?

Which of the following amounts would be reported for Inventory on the balance sheet if the cost of an item is $80,the current selling price is $100 and the current replacement cost is $75?

If the historical cost of inventory falls below replacement cost,the business must write down the inventory cost.

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.What amount would be reported as Inventory on the balance sheet?

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $11.00.What amount would be reported as Inventory on the balance sheet?

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.How would the Cost of goods sold be affected by the adjusting entry needed under lower-of-cost-or-market?

Twenty units of inventory on hand at the end of the year are recorded at their cost of $5.00 per unit using FIFO.Current replacement cost is $4.50 per unit.What amount would be reported as inventory on the balance sheet?

Which of the following is used for market when valuing inventory at lower-of-cost-or-market?

Which of the following assets must be reported at the lower-of-cost-or-market?