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Multiple Choice Quiz
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1
Inventory is valued at:
A)Replacement cost.
B)Net realizable value.
C)Cost.
D)The lower of cost and net realizable value.
2
The following information pertains to one item of inventory of the Simon Company:

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Applying the lower of cost and net realizable value rule, this item should be valued at:
A)$150
B)$180
C)$160
D)$195
3
Using the data in question 2, what should be the book value of Simon's inventory if the company prepares its financial statements according to International Financial Reporting Standards?
A)$150
B)$180
C)$160
D)$195
4
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 these situations.
5
The records of California Marine Products, Inc., revealed the following information related to inventory destroyed in an earthquake:

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The estimated amount of inventory destroyed by the earthquake is:
A)$325,000
B)$145,000
C)$10,000
D)All of these answer choices are incorrect.
6
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.
7
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.
8
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2016:

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Applying the conventional retail inventory method, Toso's inventory at December 31, 2016, 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, 2016:

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Applying the average cost retail inventory method, Toso's inventory at December 31, 2016, 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, 2016:

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Applying the LIFO retail inventory method, Toso's inventory at December 31, 2016, is estimated at:
A)$477,392
B)$469,000
C)$395,159
D)$405,035
11
The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2016:

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Assume that on 1/1/16 Toso adopted the dollar-value LIFO retail inventory method and that the retail price index at the end of 2016 is 1.02. Toso's inventory at December 31, 2016, is estimated at:
A)$477,392
B)$469,000
C)$395,262
D)$405,035
12
In 2016, the Robinson Company switched its inventory method from FIFO to average cost. Inventories at the end of 2015 were reported in the balance sheet at $22 million. If the average cost method had been used, 2015 ending inventory would have been $20 million. The company's tax rate is 40%. The adjustment to 2016'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.
13
In the question above, assume that 2016'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 2016 net income is a:
A)$600,000 decrease.
B)$1,000,000 decrease.
C)$1,800,000 decrease.
D)$3,000,000 decrease.
14
The Jackson Company incorrectly omitted $100,000 of merchandise from its 2016 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, 2016 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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