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On April 1Robert LLC purchased two units of inventory A and B The cost of unit A

On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit A was $650, and the cost of unit B was $625. On April 30, Robert LLC had not sold the inventory. The market value of unit A was now $685 while the market value of unit B was $550. The adjustment associated with the lower-of-cost-or-market method on April 30 will be:

a. Cost of Goods Sold40

        Inventory40

 

b. Inventory40

        Cost of Goods Sold40

 

c. Cost of Goods Sold75

        Inventory75

 

d. Inventory75

        Cost of Goods Sold75

 

 

103. Consider the following information pertaining to OldWest’s inventory:

 

Product

Quantity

Cost

Market Value

Revolvers

16

$120

$150

Spurs

23

  27

22

Hats

12

56

40

 

At what amount should OldWest report its inventory?

a. $3,213.

b. $3,386.

c. $2,996.

d. $2,906.

 

 

104. Under the principle of lower-of-cost-or-market, when a company has 10 units of inventory A with market value of $50 and a cost of $60, what is the adjustment?

a. Debit Inventory $100; credit Cost of Goods Sold $100.

b. Debit Inventory $500; credit Cost of Goods Sold $500.

c. Debit Cost of Goods Sold $100; credit Inventory $100.

d. Debit Cost of Goods Sold $500; credit Inventory $500.

 

 

105. Northern Town Equipment has four types of products in its inventory.  Northern applies the rules under lower-of-cost or market (LCM) to its inventory at the end of each year as shown below:

 

Product

Quantity

Cost

Market

A

15

$  7

$  8

B

10

  15

14

C

20

   8

   6

D

15

11

10

 

The year-end adjustment based upon the information above would include a:

a. Debit to Cost of Goods Sold $65.

b. Credit to Inventory $50.

c. Debit to Inventory $65.

d. Debit to Cost of Goods Sold $50.

 

 

106. At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000.  What would be the effect(s) of the adjustment to write down inventory to market value? 

a. Decrease total assets.

b. Decrease net income.

c. Increase retained earnings.

d. a and b.

 

 

107. Using the information below, determine the ending inventory value applying the lower-of-cost-or-market method.

Inventory ItemQuantityCostMarket

Cutlets   200        $12       $14

  Chops   400$16       $14

  Shanks   300        $15       $12

a. $13,300.

b. $12,000.

c. $11,600.

d. $13,700.

 

 

108. What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the company’s financial statements?

a. An increase to assets.

b. An increase to stockholders’ equity.

c. A decrease to revenue.

d. An increase to expense.

 

 

109. The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?

a. Matching principle.

b. Revenue recognition.

c. Conservatism.

d. Materiality.

 

 

110. After applying the lower-of-cost-or-market method, the accountant prepares a year-end adjustment. That adjustment would:

a. Decrease the company’s cost of goods sold.

b. Reduce the company’s stockholders’ equity.

c. Increase the company’s inventory.

d. Increase the company’s total assets.

 

 

111. Consider the following inventory data for two companies:

 

Nichols, Inc.Winters, Inc.

 

Beginning inventory$120,000        $150,000  

Ending inventory    80,000          100,000

Purchases                     240,000   310,000

 

Which of these companies had the higher inventory turnover ratio?

a. Nichols.

b. Winters.

c. The ratios are the same for both companies.

d. Cannot determine with the information given.

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