Question : 11) The lower-of-cost-or-market rule based the accounting principle of: A) disclosure. B) : 1230187

11) The lower-of-cost-or-market rule is based on the accounting principle of:

A) disclosure.

B) materiality.

C) conservatism.

D) revenue.

12) The lower-of-cost-or-market rule requires a company to report inventories at the lower of:

A) historical cost or current sales price.

B) historical cost or current replacement cost.

C) current replacement cost or sales invoice price.

D) FIFO cost or LIFO cost.

13) When applying the lower-of-cost-or-market rule, market value generally refers to:

A) FIFO cost using the periodic method.

B) LIFO cost using the periodic method.

C) current sales price of the inventory.

D) current replacement cost of the inventory.

14) Which of the following is a correct statement about the lower-of-cost-or market rule?

A) Under GAAP, once inventory has been written down to market value, the write-downs can be reversed in future periods.

B) Under GAAP, the lower-of-cost-or-market rule is optional.

C) Under IFRS, inventory can exceed its original cost.

D) Under IFRS, “market” is defined as “net realizable value.”

15) Purr Company’s ending inventory was $106,700 at cost and $113,500 at replacement cost. Before consideration of the lower-of-cost-or-market rule, the company’s cost of goods sold was $60,000. Which of the following statements reflect the correct application of the lower-of-cost-or-market rule?

A) The Ending Inventory balance will be $106,700, and Cost of Goods Sold will be $60,000.

B) The Ending Inventory balance will be $113,500, and Cost of Goods Sold will be $60,000.

C) The Ending Inventory balance will be $106,500, and Cost of Goods Sold will be $66,800.

D) The Ending Inventory balance will be $113,500, and Cost of Goods Sold will be $53,200.

16) Company A has inventory at the end of the year with a cost of $75,000. Under the LCM rules, the value of the inventory is $72,600.The journal entry to record the write-down to LCM will:

A) increase cost of goods sold and increase ending inventory.

B) increase cost of goods sold and decrease ending inventory.

C) decrease cost of goods sold and decrease ending inventory.

D) decrease cost of goods sold and increase ending inventory.

17) Bronx Company’s ending inventory (at cost) was less than the market value of the ending inventory. What adjusting entry is required to account for this difference?

A) Debit Cost of Goods Sold and credit Sales

B) Debit Inventory and credit Cost of Goods Sold

C) Debit Cost of Goods Sold and credit Inventory

D) No journal entry is needed.

18) The Army Store has an ending inventory of $630,000. The current replacement cost of the inventory is $608,000. Before any adjustments at the end of the period, the cost of goods sold account has a balance of $900,000.

Required:

1.What journal entry if any, should The Army Store make?

2.At what amount should The Army Store report inventory on its balance sheet?

3.At what amount should The Army Store report cost of goods sold on the income statement?

4.What accounting principle(s) is or are most relevant to this situation?

19) The Picture Store has an ending inventory of $832,500. The current replacement cost of the inventory is $833,000. Before any adjustments at the end of the period, the cost of goods sold account has a balance of $1,508,200.

Required:

1.What journal entry if any, should The Picture Store make?

2.At what amount should The Picture Store report inventory on its balance sheet?

3.At what amount should The Picture Store report cost of goods sold on the income statement?

4.What accounting principle is most relevant to this situation?

20) It is the end of the year and Credit Company is applying the lower-of-cost-or-market (LCM) rule to inventory. The company has obtained the following information before any year-end adjustments:

Cost of goods sold$500,000

Historical cost of ending inventory$120,000

Replacement cost of ending inventory$105,000

Required:

1.Journalize any required entry.

2. Indicate what the company will report for ending inventory and cost of goods sold and the financial statements where these accounts will appear.