Question : Learning Objective 5-5 1) The accountants for QEE Systems use the : 1253251

 

Learning Objective 5-5

 

1) The accountants for QEE Systems use the lower of cost or market (LCM) method to value inventory on the balance sheet in accordance with GAAP. The accountants have gathered the following information:

 

Inventory recorded in the company’s accounting records

$150,000

Inventory selling (market) value per managers

$180,000

Replacement value

$135,000

Gross profit percentage

30%

 

At what amount will inventory will be reported on the balance sheet?

A) $150,000

B) $180,000

C) $135,000

D) $126,000

2) The accountants for Q-Logic Integrated Systems use the lower of cost or market (LCM) method to value inventory on the balance sheet in accordance with GAAP rules. The accountants have gathered the following information:

 

Inventory recorded in the company’s accounting records

$400,000

Inventory selling (market) value per managers

$900,000

Replacement value

$410,000

Gross profit percentage

30%

 

At what amount will inventory will be reported on the balance sheet?

A) $400,000

B) $900,000

C) $410,000

D) $630,000

 

3) Which statement below is TRUE regarding the lower of cost or market rule?

A) Inventory should be reported on the balance sheet at the lower of the replacement value or historical cost.

B) Inventory should be revalued at the end of each period to its market value.

C) Inventory should be reported on the balance sheet at whatever amount management honestly believes it is worth.

D) The LCM rule is based on the cost principle.

 

4) Niteco Company ended its fiscal year with inventory recorded at its cost of $10,000. Niteco believes it will be able to sell the inventory for approximately $12,000.  Due to changes in the market, Niteco would be able to replace this inventory for $9,000.  How much should Niteco show for inventory on its year-end balance sheet?

A) $10,000

B) $12,000

C) $9,000

D) $2,000

 

5) Inventory is reported at its replacement cost when the ________.

A) inventory’s historical cost is higher

B) gross profit is lower

C) market value is higher

D) prices are rising

6) After a lower-of-cost-or-market write down, Inventory will ________.

A) increase by the difference between the historical cost and the replacement cost

B) decrease by the difference between the historical cost and the replacement cost

C) the same

D) decrease by the replacement cost

 

7) In times of rising prices, ________ will be more apt to result in a lower-of-cost-or-market write down.

A) the LIFO method

B) the FIFO method

C) the Weighted average cost method

D) Each method is as likely to result in a lower-of-cost-or-market write down as the others are.

 

8) The main objective of the lower-of-cost-or-market rule is to ________.

A) not overstate revenues

B) report a conservative inventory balance

C) not overstate cost of goods sold

D) report a conservative gross profit

 

9) Inventory must be reported at its market value at the end of the period.

 

10) In times of rising prices, a lower-of-cost-or-market write down is more likely if LIFO is used.

 

11) In times of rising prices, a lower-of-cost-or-market write down is more likely if FIFO is used.