Connect Access Card for Financial Accounting
9th Edition
ISBN: 9781259738678
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 8MCQ
Which of the following regarding the lower of cost or market rule for inventory are true?
- (1) The lower of cost or market rule is an example of the historical cost principle.
- (2) When the net realizable value of inventory drops below the cost shown in the financial records, net income is reduced.
- (3) When the net realizable value of inventory drops below the cost shown in the financial records, total assets are reduced.
- a. (1)
- b. (2)
- c. (2) and (3)
- d. All three
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Which of the following regarding the lower of cost ormarket rule for inventory are true?(i) The lower of cost or market rule is an example of thehistorical cost principle.(ii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, net income is reduced.(iii) When the market value of inventory drops belowthe original cost of inventory shown in the financialrecords, total assets are reduced.a. (i) only c. (ii) and (iii)b. (ii) only d. All of the above
The original cost of an item of inventory is above its replacement
cost. The item s replacement cost is below its net realizable value
but is higher than its net realizable value minus a normal profit.
Under the lower of cost or market method, the inventory item
should be valued at:
a. Net realizable value.
b. Original cost.
c. Replacement cost.
d. Net realizable value less normal profit margin.
Which one of the following statements is true?
a. Under conditions of rising prices, the LIFO method results in lower income than the FIFO method.
b. In most cases, the LIFO method approximates the physical flow of items in inventory.
c. The LIFO mthod produces a higher ending inventory value than the FIFO method.
d. The FIFO method excludes holding gains from income
Chapter 7 Solutions
Connect Access Card for Financial Accounting
Ch. 7 - Why is inventory an important item to both...Ch. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - Prob. 4QCh. 7 - Prob. 5QCh. 7 - The chapter discussed tour inventory costing...Ch. 7 - Prob. 7QCh. 7 - Contrast the effects of LIFO versus FIFO on...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Prob. 10Q
Ch. 7 - Explain briefly the application of the LCM concept...Ch. 7 - Prob. 12QCh. 7 - Consider the following information: ending...Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a component of the...Ch. 7 - Consider the following information: beginning...Ch. 7 - Consider the following information: beginning...Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - If the ending balance in accounts payable...Ch. 7 - Which of the following regarding the lower of cost...Ch. 7 - Which inventory method provides a better matching...Ch. 7 - Which of the following is false regarding a...Ch. 7 - Prob. 7.1MECh. 7 - Recording the Cost of Purchases for a Merchandiser...Ch. 7 - Identifying the Cost of Inventories for a...Ch. 7 - Inferring Purchases Using the Cost of Goods Sold...Ch. 7 - Prob. 7.5MECh. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Reporting Inventory under Lower of Cost or Market...Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Prob. 7.9MECh. 7 - Prob. 7.1ECh. 7 - Inferring Missing Amounts Based on Income...Ch. 7 - Prob. 7.3ECh. 7 - Inferring Merchandise Purchases Abercrombie and...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Prob. 7.11ECh. 7 - Reporting Inventory at Lower of Cost or Market...Ch. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - (Chapter Supplement A) Analyzing the Effects of a...Ch. 7 - (Chapter Supplement B) FIFO and LIFO Cost of Goods...Ch. 7 - (Chapter Supplement C) Recording Sales and...Ch. 7 - Analyzing Items to Be Included in Inventory Travis...Ch. 7 - Prob. 7.2PCh. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Prob. 7.4PCh. 7 - Evaluating the LIFO and FIFO Choice When Costs Are...Ch. 7 - Evaluating the Income Statement and Cash Flow...Ch. 7 - Evaluating the Effects of Manufacturing Changes on...Ch. 7 - Evaluating the Choice between LIFO and FIFO Based...Ch. 7 - Prob. 7.9PCh. 7 - (Chapter Supplement A) Analyzing LIFO and FIFO...Ch. 7 - Prob. 7.1APCh. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Evaluating the UFO and FIFO Choice When Costs Are...Ch. 7 - Prob. 7.4APCh. 7 - Prob. 7.1CONCh. 7 - Finding Financial Information Refer to the...Ch. 7 - Finding Financial Information Refer to the...Ch. 7 - Comparing Companies within an Industry Refer to...Ch. 7 - Prob. 7.4CPCh. 7 - Using Financial Reports: Interpreting Effects of...Ch. 7 - Making a Decision as a Financial Analyst: Analysis...Ch. 7 - Evaluating an Ethical Dilemma: Earnings, Inventory...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Which of these statements is false? A. If cost of goods sold is incorrect, ending inventory is usually incorrect too. B. C. D.arrow_forwardExplain why, in the traditional view of inventory, carrying costs increase as ordering costs decrease.arrow_forwardWhich of the following is true regarding LIFO and FIFO? A) In a period of decreasing costs, LIFO results in lower total assets than FIFO. B) In a period of decreasing costs, LIFO results in lower net income than FIFO. C) In a period of rising costs, LIFO results in lower net income than FIFO. D) The amount reported for COGS is based on net realizable value of inventory if LIFO is used. E) None of the Abovearrow_forward
- Help with this problemarrow_forwardUnder the lower of cost or market inventory valuation rule, market value of inventory is defined as: a.Net realizable value. b.Net realizable value minus a normal profit margin. c.The lower of net realizable value or current replacement cost. d.Current replacement cost.arrow_forwardSolve this problem with questionarrow_forward
- Which of the following statements related to the application of the lower of cost and net realizable value is true? * A. If the replacement cost of a raw material is less than its cost, the said raw material shall always be presented at its replacement cost B. If the net realizable value of an inventory is lower than its cost, a loss on inventory write-down should be recognized C. The gain on reversal of inventory write-down should not exceed the balance of allowance, and such gain can be netted against cost of goods sold D. The net realizable value of a work-in-process inventory is its selling price, less the normal profit margin and estimated cost to complete E. None of the abovearrow_forwardWhich of the following statements is true regarding the lower of cost or net-realizable value (NRV)? I. Firms have the option whether to apply this accounting method. II. Firms can reduce the cost of inventory but not increase it. III. If the NRV is lower, the entry recorded reduces total assets.arrow_forwardIf the ending inventory is overstated, what is the effect on net income? a) Net income is overstated b) Net income is understated c) Net income is not affected d) Net income is reducedarrow_forward
- 48)The situation that requires a departure from the cost basis of accounting to the lower-of- cost-or-net-realizable-value basis in valuing inventory is necessitated by A)a desire for more profit. B)an increase in the value of the inventory. C)a decline in the value of the inventory. D)an increase in selling price.arrow_forward1.Which of the following may not result to the amount of cost of sales? a.Net purchases less net increase in inventory b.Net decrease in inventory plus net purchases c.Total goods available for sale less beginning inventory d.Total goods available for sale less ending inventoryarrow_forwardWhich of the following statements about the use of the FIFO assumption is NOT true? a. The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account. b. The FIFO assumption is not affected by the inventory control method. c. In periods of rising prices it produces a higher profit than LIFO. d. The FIFO assumption produces inventory asset values that are based on older purchase costs.arrow_forward
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