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402_16_inventories_08

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
When valuing raw materials inventory at lower of cost or market, what is normally the meaning of the term "market"?
a.
Net realizable value.
b.
Net realizable value less a normal profit margin.
c.
Current replacement cost.
d.
Discounted present value.
 

 2. 
Generally, which inventory costing method approximates most closely the current cost for each of the following?

        Cost of               Ending
     goods sold          Inventory
a.
LIFO                  FIFO
b.
LIFO                  LIFO
c.
FIFO                  FIFO
d.
FIFO                  LIFO
 

 3. 
Kahn Co., in applying the lower of cost or market method, reports its inventory at replacement cost.  Which of the following statements are correct?

                                                                    The net realizable
                                                                   value, less a normal
              The original cost                              profit margin, is
             is greater than                                     greater than
           replacement cost                            replacement cost
a.
           Yes                                                     Yes
b.
           Yes                                                      No
c.
            No                                                      Yes
d.
            No                                                       No
 

 4. 
Accruing net losses on firm purchase commitments for inventory is an example of the accounting concept of
a.
Conservatism.
b.
Realization.
c.
Consistency.
d.
Materiality.
 

 5. 
The original cost of an inventory item is above the replacement cost and below the net realizable value.  The net realizable value less the normal profit margin is above the replacement cost and the original cost.  Using the lower of cost or market method the  inventory item should be priced at its
a.
Original cost.
b.
Replacement cost.
c.
Net realizable value.
d.
Net realizable value less the normal profit margin.
 

 6. 
A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices.  What was the result of the change on ending inventory and net income in the year of the change?

     Ending inventory            Net income
a.
Increase              Increase
b.
Increase               Decrease
c.
Decrease               Decrease
d.
Decrease               Increase
 

 7. 
Moore Company carries product A in inventory on December 31, 20X2, at its unit cost of $7.50.  Because of a sharp decline in demand for the product, the selling price was reduced to $8.00 per unit.  Moore's normal profit margin on product A is $1.60, disposal costs are $1.00 per unit, and the replacement cost is $5.30.  Under the rule of cost or market, whichever is lower, Moore's December 31, 20X2, inventory of product A should be valued at a unit cost of
a.
$5.30
b.
$5.40
c.
$7.00
d.
$7.50
 

 8. 
Reporting inventory at the lower of cost or market is a departure from the accounting principle of
a.
Historical cost.
b.
Consistency.
c.
Conservatism.
d.
Full disclosure.
 

 9. 
Bren Co.'s beginning inventory at January 1, 20X3, was understated by $26,000, and its ending inventory was overstated by $52,000.  As a result, Bren's cost of goods sold for 20X3 was
a.
Understated by $26,000.
b.
Overstated by $26,000.
c.
Understated by $78,000.
d.
Overstated by $78,000.
 

 10. 
The primary basis of accounting for inventories is cost.  A departure from the cost basis of pricing the inventory is required only when there is evidence that, when the goods are sold in the ordinary course of business, their
a.
Selling price will be less than their replacement cost.
b.
Utility will be less than their cost.
c.
Replacement cost will be more than their net realizable value.
d.
Replacement cost will be less than their cost.
 



 
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