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Multiple Choice Quiz
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Enter the letter corresponding to the response that best completes each of the following statements or questions.

1
When applying the lower-of-cost-or-market rule, market should not be lessthan:
A)Replacement cost.
B)Net realizable value.
C)Selling price.
D)Net realizable value less a normal profit margin.
2
The following information pertains to one item of inventory of the Simon Company:

 Per unit
Cost $180
Replacement cost 150
Selling price195
Disposal costs 5
Normal profit margin 30

Applying the lower-of-cost-or-market rule, this item should be valued at:

A)$150
B)$180
C)$160
D)$190
3
The gross profit method can be used in all of the following situations except:
A)In determining the cost of inventory destroyed in a fire.
B)In the preparation of annual financial statements.
C)In budgeting and forecasting.
D)The gross profit method can be used in all of the above situations.
4
The records of California Marine Products, Inc., revealed the following information related to inventory destroyed in an earthquake:

Inventory, beginning of period $300,000
Purchases to date of earthquake 160,000
Net sales to date of earthquake450,000
Gross profit ratio 30%

The estimated amount of inventory destroyed by the earthquake is:

A)$325,000
B)$145,000
C)$10,000
D)None of the above.
5
The difference in the calculation of the cost-to-retail percentage applying the conventional retail method and the average cost method is that the average cost method:
A)Excludes beginning inventory.
B)Excludes markdowns.
C)Includes markups.
D)Includes markdowns.
6
The difference in the calculation of the cost-to-retail percentage applying the LIFO method and the average cost method is that the average cost method:
A)Excludes beginning inventory.
B)Excludes markdowns.
C)Includes beginning inventory.
D)Includes markdowns.
7
Questions 7, 8, 9, and 10 are based on the following data:

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2006:

 Cost    Retail   
Inventory 1/1/06 $   390,000 $   650,000
Net purchases for the year 1,402,000 1,835,000
Net markups 75,000
Net markdowns 45,000
Net sales 1,845,000

Applying the conventional retail inventory method, Toso's inventory at December 31, 2006, is estimated at:

A)$477,392
B)$469,000
C)$395,159
D)$405,035
8
Applying the average costretail inventory method, Toso's inventory at December 31, 2006, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
9
Applying the LIFOretail inventory method, Toso's inventory at December 31, 2006, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
10
Assume that on 1/1/06 Toso adopted the dollar-value LIFO retail inventory method and that the retail price index at the end of 2006 is 1.02. Toso's inventory at December 31, 2006, is estimated at:
A)$477,392
B)$469,000
C)$395,262
D)$405,035
11
In 2006, the Robinson Company switched its inventory method from FIFO to average cost. Inventories at the end of 2005 were reported in the balance sheet at $22 million. If the average cost method had been used, 2005 ending inventory would have been $20 million. The company's tax rate is 40%. The adjustment to 2006's beginning retained earnings would be:
A)Zero.
B)A $2 million decrease.
C)A $1.2 million increase.
D)A $1.2 million decrease.
12
In the question above, assume that 2006's ending inventory is $23 million using average cost, and would have been $26 million if the company had not switched from the FIFO method. The effect of the change in method on 2006 net income is a:
A)$600,000 decrease.
B)$1,000,000 decrease.
C)$1,800,000 decrease.
D)$3,000,000 decrease.
13
The Jackson Company incorrectly omitted $100,000 of merchandise from its 2006 ending inventory. In addition, a merchandise purchase of $40,000 was incorrectly recorded as a $4,000 debit to the purchases account. As a result of these errors, 2006 before-tax income is:
A)Overstated by $64,000.
B)Understated by $136,000.
C)Understated by $64,000.
D)Overstated by $136,000.





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