1. Which of the following statements is correct with regard to the perpetual and periodic inventory systems?
a. Use of a periodic inventory system allows the company to maintain up-to-date inventory records throughout the year.
b. Use of a periodic system typically includes a Purchases account where the cost of purchases is recorded.
c. Use of the perpetual inventory system will result in a higher ending inventory quantity.
d. Use of the perpetual system eliminates the need for taking a physical inventory count.
2. Georgia Company operates in an industry where falling prices are the norm. Which of the following is true for Georgia Company?
a. LIFO cost of goods sold would be higher than FIFO.
b. FIFO net income would be higher than LIFO.
c. LIFO inventory values would be higher than FIFO.
d. All of the choices are correct in a period of falling prices.
3. On December 31, Pitts Manufacturing Company reports the following assets:
What is the total amount of Pitts' inventory at year end?
$ ________
4.
Reid & Company uses the periodic inventory system. On January 1, it had an inventory balance of $250,000. During the year, it made $613,000 of net purchases. At the end of the year, a physical inventory showed it had ending inventory of $140,000. Calculate Reid & Company's cost of goods sold for the year.
5.
Carla Company uses the perpetual inventory system. The following information is available for January of the current year when Carla sold 1,600 units of inventory on January 14.
Using the FIFO method, calculate Carla's cost of goods sold for January and its January 31 inventory.
Cost of goods sold = $ ________
Ending inventory = $ ________
6.
The following information is available regarding each unit of Brown Corporation's inventory:
Based on this information, determine the ceiling and the floor for each unit of Brown's inventory.
Celling $ ________ per unit
Floor $ ________ per unit
7.
Each unit of Blue Corporation's inventory has a ceiling of $2,850, a normal profit margin of $1,000, and a current replacement cost of $1,900. Determine the amount per unit that should be used as the market value to apply the lower of cost or market rule to determine Blue's ending inventory.
$ ________ per unit
8.
Under the lower of cost or market inventory valuation rule, market value of inventory is defined as:
a. The lower of net realizable value or current replacement cost.
b. Current replacement cost.
c. Net realizable value minus a normal profit margin.
d. Net realizable value.
9.
The upper constraint on market value is the _________________ which prevents _________________ .
10.
A company may apply the lower of cost or market method to inventory by applying it to:
Each major inventory category.
Each individual inventory item.
Total inventory.
a. II and III only.
b. I, II, and III.
c. I and II only.
d. I and III only.
11.
What is the major criticism of the lower of cost or market rule?
a. Lack of reliability.
b. Lack of relevance.
c. Lack of consistency.
d. All of the choices are major criticisms of the lower of cost or market rule.
12.
Sienna Company has inventory with a selling price of $100, packaging costs of $5, and transportation costs of $10. Sienna's normal profit margin is $20. However, due to limited supply of the product from the manufacturer, it would cost Sienna $90 to replace the inventory. What amount should be used as the market value?
a. $65
b. $85
c. $90
d. $100
13.
Moore Company carries Product A in inventory on December 31, 2013, 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 lower of cost or market rule, Moore's December 31, 2013, inventory of Product A should be valued at a unit cost of:
a. $7.50
b. $5.30
c. $7.00
d. $5.40
14.
The replacement cost of an inventory item is below the net realizable value and above the net realizable value minus the normal profit margin. The original cost of the inventory item is above the replacement cost and below the net realizable value.
As a result, under the lower of cost or market rule, the inventory item should be valued at the:
a. replacement cost
b. net realizable value
c. original cost
d. net realizable value minus the normal profit margin
15.
Each unit of Black Corporation's inventory has a ceiling of $8,455, a normal profit margin of $1,500, and a current replacement cost of $6,800. Determine the amount per unit that should be used as the market value to apply the lower of cost or market rule to determine Black's ending inventory.
$ ________ per unit