Question : 91.The logic behind the lower-of-cost-or-market rule is: A. Inventory gradually becomes obsolete. B. Inventory : 1237664

 

 

91.The logic behind the lower-of-cost-or-market rule is:   

A. Inventory gradually becomes obsolete.

 

B. Inventory that is unsalable should be written down to zero (or its scrap value).

 

C. An asset is not worth more than it would cost the owner to replace it.

 

D. Inventory that is unsalable should be written down to its replacement cost.

 

 

 

 

92.Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:   

A. Is obsolete.

 

B. Has been written down to a carrying value below cost.

 

C. Is shown at the lesser of cost or sales value.

 

D. Is valued at current replacement cost or historical cost, whichever is less.

 

 

 

 

93.The lower-of-cost-or-market rule:   

A. Is used in conjunction with any inventory cost flow assumptions.

 

B. Cannot be used if LIFO or FIFO is also used.

 

C. Can be used in conjunction with LIFO but not FIFO.

 

D. Can only be used with the specific identification.

 

 

 

 

94.Goods in transit between the buyer and the seller belong to:   

A. The seller.

 

B. The buyer.

 

C. The freight company.

 

D. The answer depends upon whether the goods were shipped F.O.B. shipping point or F.O.B. destination.

 

 

 

 

95.In a periodic inventory system, recording a sale on account involves debiting which of the following accounts?   

A. Only Accounts Receivable.

 

B. Accounts Receivable and Inventory.

 

C. Accounts Receivable and Cost of Goods Sold.

 

D. Accounts Receivable, Cost of Goods Sold, and Inventory.

 

 

 

 

96.In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?   

A. Only Sales.

 

B. Sales and Inventory.

 

C. Sales and Cost of Goods Sold.

 

D. Sales, Inventory, and Cost of Goods Sold.

 

 

 

 

97.In a periodic inventory system, the cost of goods sold is determined as follows:   

A. Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year.

 

B. Net sales, less the balance in the Gross Profit account.

 

C. Cost of goods available for sale during the year, less the ending inventory.

 

D. A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.

 

 

 

 

Harding Systems, Inc. uses a periodic inventory system. The purchases of a particular product during the year are shown below:  At December 31 the ending inventory consisted of 1,500 units.

 

98.Refer to the information above. Compute the cost of the ending inventory based on the LIFO method of inventory valuation.   

A. $12,500.

 

B. $27,650.

 

C. $10,975.

 

D. $29,175.

(1,100 × $7.25) + (400 × $7.50) = $10,975

 

 

 

99.Refer to the information above. Compute the cost of goods sold for the current year based on the LIFO method of inventory valuation.   

A. $12,500.

 

B. $29,175.

 

C. $10,975.

 

D. $27,650.

$40,150 – $10,975 = $29,175

 

 

 

100.Refer to the information above. Compute the cost of the ending inventory based on the FIFO method of inventory valuation.   

A. $12,500.

 

B. $29,175.

 

C. $10,975.

 

D. $27,650.

(1,000 × $8.50) + (500 × $8) = $12,500