INTACC - CHAPTER 14 Flashcards
An advantage of the retail inventory method is that it
a. Permits entities to avoid taking an annual physical inventory.
b. Yields a more accurate measurement of inventory
c. Hides costs from customers and employees.
d. Provides a method for inventory control and facilitates determination of the periodic inventory.
d. Provides a method for inventory control and facilitates determination of the periodic inventory.
To produce an inventory valuation which approximates the lower of cost and NRV using the retail method, the computation of the ratio of cost to retail should
a. Include markup but not markdown
b. Include markup and markdown
c. Ignore both markup and markdown
d. Include markdown but not markup
a. Include markup but not markdown
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of cost to retail ratio because
a. There may be no markdowns during the year.
b. This tends to give a better approximation of the lower of average cost and net realizable value.
c. Markups are also ignored.
d. This tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
b. This tends to give a better approximation of the lower of average cost and net realizable value.
The retail inventory method would include which of the following in the calculation of the goods available for sale at both cost and retail?
a. Freight in
b. Purchase return
c. Markup
d. Markdown
b. Purchase return
With regard to the retail inventory method, which is the most accurate statement?
a. Generally, accountants ignore net markups and net markdowns in computing the cost ratio.
b. Generally, accountants exclude net markups and include net markdowns in computing cost ratio.
c. The retail method results in a lower ending inventory if net markups are included but net markdowns are excluded in computing the cost ratio.
d. It is not adaptable to FIFO costing.
c. The retail method results in a lower ending inventory if net markups are included but net markdowns are excluded in computing the cost ratio.
The conventional retail method produces an ending inventory that approximates
a. Lower of average cost and net realizable value
b. Lower of FIFO cost and net realizable value
c. Lower of LIFO cost and net realizable value
d. Lower of cost and net realizable value
a. Lower of average cost and net realizable value
If the conservative retail inventory method is used, which of the following calculations would include or exclude net markdowns?
Cost ratio, Ending inventory at retail
a. Include, Include
b. Include, Exclude
c. Exclude, Include
d. Exclude, Exclude
a. Include, Include
Which of the following is not a reason why the retail inventory method is used widely?
a. As a control measure in determining inventory shortage
b. For insurance information
c. To permit the computation of net income without a physical count of inventory
d. To defer income tax liability
d. To defer income tax liability
An inventory method designed to approximate inventory valuation at the lower of average cost and net realizable value is
a. Average retail method
b. FIFO retail
c. Conservative retail method
d. LIFO retail
c. Conservative retail method
The retail method is based on the assumption that
a. Final inventory and the total goods available for sale contain the same proportion of high cost and low cost ratio of goods.
b. Gross margin is the same each period.
c. Ratio of cost to retail changes at a constant rate.
d. Proportions of markup and markdown are the same.
a. Final inventory and the total goods available for sale contain the same proportion of high cost and low cost ratio of goods.
