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Exam 9: Inventories: Additional Issues

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Question 71

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Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements is correct?

A) NRV is greater than replacement cost.
B) Cost is less than net realizable value.
C) Cost is greater than net realizable value.
D) Cost is less than NRV minus a normal profit margin.

E) A) and B)
F) None of the above

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Question 72

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Data related to the inventories of Kimzey Medical Supply are presented below: - In applying the lower of cost or market rule, the inventory of rehab supplies would be valued at:

A) $122.
B) $158.
C) $162.
D) $155.

E) B) and D)
F) All of the above

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Question 73

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In 2018, the internal auditors of Blooper Inc. discovered that goods costing $12 million that were shipped f.o.b. shipping point in December of 2017 were in transit on December 31. The goods were recorded as a purchase in December of 2017 but were not included in the 2017 year-end inventory. Required: Prepare the journal entry needed in 2018 to correct the error. Also, briefly describe any other measures Blooper would take in connection with correcting the error. (Ignore income taxes.)

Briefly explain the financial reporting required when a company changes to or from the LIFO inventory method.

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: -In applying the lower of cost or net realizable value rule, the inventory of apparel would be valued at:

Novelli's Nursery has developed the following data for lower of cost or market for its products. The individual types of trees are separated as to their categories: The costs to sell are 10% of the selling price, and the normal profit margin on all trees is 20% of the selling price. -Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to individual tree products.

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: - In applying the lower of cost or net realizable value rule, the inventory of boots would be valued at:

Data related to the inventories of Costco Medical Supply are presented below: $\begin{array} { l c c c r } & \text { Surgical } & \text { Surgical } & \text { Rehab } & \text { Rehab } \\& \text { Equiprnent } & \text { Supplies } & \text { Equipment } & \text { Supplies } \\\text { Selling price } & \$ 260 & \$ 100 & \$ 340 & \$ 165 \\\text { Cost } & 170 & 90 & 250 & 162 \\\text { Costs to sell } & 30 & 15 & 25 & 10\end{array}$ - In applying the lower of cost or net realizable value rule, the inventory of surgical supplies would be valued at:

Novelli's Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees. The costs to sell are 10% of selling price. -Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to individual trees.

For companies that use LIFO, inventory is valued at the lower of cost or net realizable value at the end of the reporting period.

Billingsly Products uses the conventional retail method to estimate its ending inventories. The following data has been summarized for the year 2018: Required: Estimate the ending inventory as of December 31, 2018.

Marilee's Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2018: The average cost-to-retail percentage is:

Under the conventional retail method, the denominator in the cost-to-retail percentage includes:

Trask Inc. uses the average cost retail method to estimate its ending inventory. Partial information at June 30, 2018, is as follows: Required: Assuming Trask's cost-to-retail = 60%, compute Trask's beginning inventory at retail.

Madison Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information pertaining to that inventory is as follows: What should be the reported value of Madison's inventory?

When using the gross profit method to estimate ending inventory, it is not necessary to know:

The cost-to-retail percentage used in the retail method to approximate average cost incorporates both markdowns and markups.

Data related to the inventories of Kimzey Medical Supply are presented below: - In applying the lower of cost or market rule, the inventory of rehab equipment would be valued at:

Briefly explain the difference between the LIFO retail method and the dollar-value LIFO retail method.

In the following questions, inventory errors are noted for 2018. Assume that the errors are not discovered until 2019, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = Understated; O = Overstated; NE = No effect - $\begin{array} { | l | l | l | } \hline { \text { Eiror } } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { The company ignored its purchase of } & & \\\text { inventory that was bought FOB shipping point } & & \\\text { and was in transit at year end } & & \\\hline\end{array}$