Chapter 9 Inventory Intermidaiate Acc 2

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Fred Company sells product BB for $60 per unit. The cost of one unit of BB is $54, and the replacement cost is $52. The estimated cost to dispose of a unit is $12, and the normal profit is 50%. At what amount per unit should product BB be reported, applying lower-of-cost-or-market? |

Selected Answer: |  $48. |

Correct Answer: |  $48. |

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* Question 2

The following information is available for October for Albert Company.

Beginning inventory                               $250,000

Net purchases                                          750,000

Net sales                                               1,500,000

Percentage markup on cost                66.67% 

A fire destroyed all of Albert Company’s October 31 inventory leaving nothing salvable.  Using the gross profit method, the estimated ending inventory destroyed by fire is

Selected Answer: |  $100,000. |

Correct Answer: |  $100,000. |

Question 3

How is the gross profit method used as it relates to inventory valuation?

Selected Answer: |  Verify the accuracy of the perpetual inventory records.

Correct Answer: |  Verify the accuracy of the perpetual inventory records. |

* Question 4

| To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should

Selected Answer: |  include markups but not markdowns. |

Correct Answer: |  include markups but not markdowns. |

* Question 5

What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? | | | |

| Selected Answer: |  Increases the cost-to-retail ratio. |

Correct Answer: |  Increases the cost-to-retail ratio. |

* Question 6

| The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result,...