Chapter 10 - Inventory

Question 1

LCNRV is used with what method?

Answer 1

any but LIFO

Question 2

LCM is used with what method?

Answer 2

LIFO

Question 3

LCNRV write-down effects

Answer 3

reduce reported inventory, reduce net income

Question 4

LCM write-down effects

Answer 4

reduce reported inventory, reduce net income

Question 5

NRV equation

Answer 5

= estimated selling price - costs for completion, disposal, and transportation

Question 6

(LCNRV) if NRV is lover than cost,

Answer 6

we need to adjust

Question 7

adjusting entry for LCNRV when the write-down is common

Answer 7

debit COGS, credit inventory (or allowance)

Question 8

adjusting entry for LCNRV when the write-down is not common

Answer 8

debit loss on write down, credit inventory (or allowance)

Question 9

LCM ceiling is

Answer 9

NRV

Question 10

LCM floor is

Answer 10

NRV - normal profit margin

Question 11

NRV ceiling equation

Answer 11

= selling price -estimated selling costs

Question 12

NRV - NPM (floor) =

Answer 12

NRV - normal profit margin

Question 13

in LCM, you choose the lower between…

Answer 13

cost or market

Question 14

gross profit margin is _____ under GAAP

Answer 14

unacceptable

Question 15

usual method of calculation uses EI from what?

Answer 15

a physical count

Question 16

gross profit method of calculation uses EI from what?

Answer 16

estimated

Question 17

common uses for gross profit method

Answer 17

test reasonableness, estimate EI for interim financial reports, estimate the cost of inventory destroyed by an accident

Question 18

the retail inventory method is used by…

Answer 18

high volume retailers selling items at a low price

Question 19

step one RIM

Answer 19

estimate the amount of ending inventory at retail price

Question 20

amount of ending inventory (at retail) =

Answer 20

goods available for sale (at retail) - retail sales

Question 21

step 2 RIM

Answer 21

cost to retail %

Question 22

cost to retail % =

Answer 22

goods available for sale (at COST) / goods available for sale (at retail)

Question 23

when applying lifo to the retail method, we assume

Answer 23

the retail prices of goods remained stable during the period

Question 24

when there is a net increase in the inventory quantity, LIFO results in a EI that…

Answer 24

includes BI as well as additional layers

Question 25

when there is a net decrease in IQ, LIFO results that…

Answer 25

LIFO layers are liquidated

Question 26

in the conventional approach…

Answer 26

exclude markdowns from the calculation of cost-to-retail %