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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 less than:
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 price

195

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 earthquake

450,000

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
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2009:

Cost

Retail

Inventory 1/1/09

$  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, 2009, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
8
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2009

Cost

Retail

Inventory 1/1/09

$  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 average cost retail inventory method, , Toso's inventory at December 31, 2009, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
9
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2009:

Cost

Retail

Inventory 1/1/09

$  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 LIFOretail inventory method, Toso's inventory at December 31, 2009, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
10
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2009:

Cost

Retail

Inventory 1/1/09

$  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

Assume that on 1/1/09 Toso adopted the dollar-value LIFO retail inventory method and that the retail price index at the end of 2009 is 1.02. Toso's inventory at December 31, 2009, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
11
In 2009, the Robinson Company switched its inventory method from FIFO to average cost. Inventories at the end of 2008 were reported in the balance sheet at $22 million. If the average cost method had been used, 2008 ending inventory would have been $20 million. The company's tax rate is 40%. The adjustment to 2009's beginning retained earnings would be:
A)Zero.
B)A $2 million decrease in income.
C)A $1.2 million increase in income.
D)A $1.2 million decrease in income.
12
In the question above, assume that 2009'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 2009 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 2009 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, 2009 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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