Chapter 8 pt 1 Flashcards
In 2025, 3M Manufacturing signed a contract with a supplier to purchase raw materials for delivery in 2026 for $700,000. Before the December 31, 2025 balance sheet date, the market price for the materials dropped to $510,000. The journal entry to record this decline in cost at December 31, 2025, will result in a credit that should be reported
as a current liability on the balance sheet
Watauga Company has an inventory write-down to record and is deciding whether to use the loss method or the cost-of-goods-sold method. Compared to the cost-of-goods-sold method the loss method will report
higher gross profit, but net income will be the same.
Brady Inc. has selected specific identification as its inventory costing method. At December 31, 2025, it has the following information for its finished goods:
Replacement value $6,500
Cost $4,000
Expected selling price $6,000
Normal profit margin 10%
Selling costs 20% of expected selling price
At what amount should Brady value its inventory at December 31, 2025?
$4,000
A physical count of Irick Company’s valued the December 31, 2025 inventory on hand at $990,000. Irick Company had the following additional information at December 31, 2025:
Inventory Amount
Merchandise out on consignment at sales price
(including markup of 40% on selling price) $60,000
Goods purchased, in transit (shipped f.o.b. shipping point) 48,000
Goods held on consignment by Irick 62,000
Based on the above information, the ending inventory value at December 31, 2025, should be decreased by
$86,000 ((60,000-24,000)+48,000)
Turner Corporation acquired two inventory items at a lump-sum cost of $120,000. The acquisition included 3,000 units of product LF and 7,000 units of product 1B. LF normally sells for $30 per unit and 1B for $10 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize?
$7,500
Designated market value
is always what?
is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.
Marzan Company uses LIFO and a perpetual inventory system for its leading product, Z. Given the acquisition cost of product Z is $27, the net realizable value for product Z is $24, the normal profit for product Z is $2, and the market value (replacement cost) for product Z is $25, what is the proper per unit inventory value for product Z applying LCM?
$24
Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40% of the selling price. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
$16
Zahler Company uses a periodic inventory system and the average cost method. At December 31, 2025, the following information has been compiled for its finished goods inventory:
Replacement value $13,000
Cost $14,500
Expected selling price $15,000
Normal profit margin 15%
Selling costs 5% of expected selling price
After applying LCNRV, Zahler, which uses the cost of goods sold method to record inventory write-downs, will make an entry
debit Cost of Goods Sold for $250
LF Corporation, a manufacturer of Mexican foods, contracted in 2025 to purchase 2,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2026. By 12/31/25, the price per pound of the spice mixture had dropped to $4.70 per pound. In 2025, LF should recognize
a loss of $600
During the current fiscal year, Jeremiah Corp. signed a long-term non-cancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $2.0 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.6 million. What is the journal entry at the end of the current fiscal year?
Debit Loss on Purchase Commitments for $400,000 and credit Estimated Liability on Purchase Commitment for $400,000
Robertson Corporation acquired two inventory items at a lump-sum cost of $96,000. The acquisition included 3,000 units of product CF and 7,000 units of product 3B. CF normally sells for $27 per unit and 3B for $9 per unit. If Robertson sells 1,000 units of CF, what amount of gross profit should it recognize?
$9,000
1. each FV: total units x sell
2. ratio (FV CF/FV both)
3. ratio x cost = cogs for all of CF
Reyes Company had a gross profit of $620,000, total purchases of $840,000, and an ending inventory of $480,000 in its first year of operations as a retailer. Reyes’s sales in its first year were
$980,000
In 2025, Larue Co., a manufacturer of chocolate candies, contracted to purchase 250,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2026. Because a record harvest is predicted for 2026, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2025.
Of the following journal entries, the one which would properly reflect in 2025 the effect of the commitment of Larue Co. to purchase the 250,000 pounds of cocoa is
Loss on Purchase Commitments 175,000; Estimated Liability on Purchase Commitments 175,000
Muckenthaler Company sells product 2005WSC for $30 per unit and uses the LIFO method. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40% of the selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
$24
If the value of a unit of inventory has declined below its original cost, but the replacement cost exceeds net realizable value, the amount to be used for purposes of inventory valuation is
net realizable value
During the prior fiscal year, Jeremiah Corp. signed a long-term non-cancellable purchase commitment with its primary supplier to purchase $2.0 million of raw materials. Jeremiah paid the $2.0 million to acquire the raw materials when the raw materials were only worth $1.6 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?
Debit Inventory for $1,600,000, debit Estimated Liability on Purchase Commitments for $400,000 and credit Cash for $2,000,000
Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 2?
$0.24
