Question :
41. When the market value of inventory items has declined below : 1224928
41. When the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP?
A. Weighted average
B. LIFO
C. Lower-of-cost-or-market
D. FIFO
42. When inventories are written down due to the application of the lower-of-cost-or-market (LCM) rule, which of the following is usually increased?
A. Cost of goods sold
B. Inventories
C. Operating expenses
D. Accumulated depreciation–inventory
43. Which of the following statements regarding the application of the lower-of-cost-or-market method is true?
A. Generally, historical cost is lower than the market value so the lower-of-cost-or-market rule is applied.
B. When the lower-of-cost-or-market method is used, inventories are valued at their selling price.
C. The lower-of-cost-or-market method is most commonly applied on a total inventory basis because it is a more conservative approach.
D. The lower-of-cost-or-market method is an exception to the historical cost principle.
44. The lower-of-cost-or-market rule applies to the write-down of inventory values when market value exceeds cost. Why does this rule not allow for write-ups in inventory value?
A. Write-ups in inventory value are more uncertain than write-downs.
B. The most prudent approach to preparing financial statements involves avoidance of pessimistic projections regarding the company’s future prospects.
C. Writing up inventory to market value would be inconsistent with the conservatism principle.
D. Write-ups in inventory value are inconsistent with the matching principle.
45. If the cost of an item of inventory is $50 and the market value is $57, the amount included in inventory according to the lower-of-cost-or-market is:
A. $7.
B. $50.
C. $57.
D. $107.
46. If the cost of an item of inventory is $60 and the market value is $50, the amount included in inventory according to the lower-of-cost-or-market is:
A. $7.
B. $50.
C. $57.
D. $60.
47. Stephan, Inc.
Stephan, Inc. has an inventory turnover rate of 8 times.
Refer to the information provided for Stephan, Inc. If its cost of goods sold is $150,000, then the company:
A. will report sales of $1,200,000.
B. will report gross margin of $1,200,000.
C. will have average inventory of $18,750.
D. sells its inventory 1,200 times per year.
48. Stephan, Inc.
Stephan, Inc. has an inventory turnover rate of 8 times.
Refer to the information provided for Stephan, Inc. Calculate the company’s days-in-inventory ratio.
A. 365 days
B. 150 days
C. 120.75 days
D. 45.625 days
49. Medina Enterprises
The following selected financial information is available for Medina for the year ended December 31, 2012.
Net sales
$450,000
Inventory, 1/1/12
$48,400
Cost of goods sold
299,500
Inventory, 12/31/12
49,670
Refer to the information provided for Medina Enterprises. What is the inventory turnover ratio for 2012?
A. 6.188 times
B. 6.030 times
C. 6.108 times
D. 9.177 times
50. Medina Enterprises
The following selected financial information is available for Medina for the year ended December 31, 2012.
Net sales
$450,000
Inventory, 1/1/12
$48,400
Cost of goods sold
299,500
Inventory, 12/31/12
49,670
Refer to the information provided for Medina Enterprises. Calculate Medina’s days-in-inventory ratio.
A. 58.98 days
B. 60.53 days
C. 39.77 days
D. 59.76 days
