QUESTIONS
1. Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?
2. Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
3. What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why?
4. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases using LCNRV.
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5. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.
6. Explain the rationale for the ceiling and floor in the lower-of-cost-or-market method of valuing inventories.
7. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule.
…
8. What factors might call for inventory valuation at sales prices (net realizable value or market price)?
9. Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?
10. At December 31, 2017, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at $6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2017, is $5.90, how would you treat this situation in the accounts?
11. What are the major uses of the gross profit method?
12. Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331/3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 331/3% and 60%.
13. Adriana Co., with annual net sales of $5 million, maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?
14. A fire destroys all of the merchandise of Assante Company on February 10, 2017. Presented below is information compiled up to the date of the fire.
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What is the approximate inventory on February 10, 2017?
15. What conditions must exist for the retail inventory method to provide valid results?
16. The conventional retail inventory method yields results that are essentially the same as those yielded by the lower-of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.
17. (a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data…
(b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inferences would you draw?
18. Deere and Company reported inventory in its balance sheet as follows.
Inventories $1,999,100,000
What additional disclosures might be necessary to present the inventory fairly?
19. Of what significance is inventory turnover to a retail store?
* 20. What modifications to the conventional retail method are necessary to approximate a LIFO retail flow?
2. Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
3. What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why?
4. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases using LCNRV.
…
5. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.
6. Explain the rationale for the ceiling and floor in the lower-of-cost-or-market method of valuing inventories.
7. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule.
…
8. What factors might call for inventory valuation at sales prices (net realizable value or market price)?
9. Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?
10. At December 31, 2017, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at $6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2017, is $5.90, how would you treat this situation in the accounts?
11. What are the major uses of the gross profit method?
12. Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331/3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 331/3% and 60%.
13. Adriana Co., with annual net sales of $5 million, maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?
14. A fire destroys all of the merchandise of Assante Company on February 10, 2017. Presented below is information compiled up to the date of the fire.
…
What is the approximate inventory on February 10, 2017?
15. What conditions must exist for the retail inventory method to provide valid results?
16. The conventional retail inventory method yields results that are essentially the same as those yielded by the lower-of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.
17. (a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data…
(b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inferences would you draw?
18. Deere and Company reported inventory in its balance sheet as follows.
Inventories $1,999,100,000
What additional disclosures might be necessary to present the inventory fairly?
19. Of what significance is inventory turnover to a retail store?
* 20. What modifications to the conventional retail method are necessary to approximate a LIFO retail flow?
