Question 1

Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when cost is lower than market value.

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Question 2

The lower of cost or market rule for inventory valuation is always applied to individual units separately rather than to major categories of inventory or to the entire inventory.

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Question 3

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

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Question 4

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to
$223,000.

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Question 5

The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.

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Question 6

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

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Question 7

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

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Question 8

Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when market value is lower than cost.

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Question 9

Damaged and obsolete goods that can be sold:

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Question 10

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

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Question 11

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

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Question 12

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

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Question 13

Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is
$145,000, then estimated ending inventory at cost is $207,143.

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Question 14

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

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Question 15

A company's cost of inventory was $219,500. Due to phenomenal demand the market value of its inventory increased to $221,700. This company should record the inventory at its market value.

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Question 16

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

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Question 17

Under FIFO, the most recent costs are assigned to ending inventory.

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Question 18

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

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Question 19

The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.

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Question 20

In the retail inventory method of inventory valuation, the retail amount of inventory refers to its dollar amount measured using selling prices of inventory items.

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Quiz 6: Inventories and Cost of Sales