Learning Plan 9 Comprehensive Practice Exam Part VII

Lower of Cost or Market (Chapter 9)

Presented below is data relative to the 12/31/14 inventory of Lance Company:
Item
A
B
C
D
E
Total

Item

Number Units
In Inventory
5,000
5,000
5,000
5,000
5,000
25,000

Upper
Limit
("Ceiling")

1.80

Original Cost
Per Unit
$1.09
1.30
1.50
1.60
1.80

Lower
Limit
("Floor")
1.10

Total
Original Cost
$5,450
6,500
7,500
8,000
9,000
$36,450

Designated
Market
1.10

Current
Replacement Cost
$1.08
1.25
1.05
1.65
1.50

Appropriate
Inventory
Valuation
(Totals)
5,450

1.80

1.10

1.25

5,750

1.80

1.10

1.10

5,500

1.80

1.10

1.65

8,000

1.80

1.10

1.50

8,500

Total

33,200

Additional Data:
Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is
35% of selling price.
Instructions
Complete the last four columns above.

Continued on next page

Conventional and LIFO Retail Method.* (Chapter 9)

*Note * Part B is based on Appendix 9-A.
A. Landmark Book Store uses the conventional retail method.
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on
hand at 12/31/14.
Cost
$ 28,900
366,600
9,000
7,000

Inventory 1/1/14
Purchases
Purchases Returns
Purchase Discounts
Sales (Gross)
Sales Returns
Employee Discounts
Freight-in
Freight-out
Loss from Breakage
Markups
Markup Cancellations
Markdowns
Markdown Cancellations

Retail
$ 40,000
610,000
20,000
605,000
15,000
5,000

23,500
50,000
2,500
38,000
18,000
13,500
8,500

B. Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/15.
Instructions
Prepare a schedule showing the computation of the 12/31/15 inventory under the LIFO retail method adjusted
for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A
above, assume that the 12/31/14 inventory computed under the LIFO Retail method was $40,000 and $27,500
at retail and cost, respectively, for purposes of this requirement. Data for 2015 follows:
Cost
Retail
Purchases (net)
$360,000
$485,000
Sales (net)
420,000
Markups (net)
30,000
Markdowns (net)
15,000
2014 Price Index
100
2015 Price Index
120

A. Beginning Inventory
Purchases
Purchase Returns
Purchase Discounts
Freight-In
Markups
Markup Cancellations
Goods Available
Cost Ratio = 62%
Sales
Sales Returns
Employee Discounts

Cost
$ 28,900
366,600
(9,000)
(7,000)
23,500

$403,000
$605,000
(15,000)

Retail
$ 40,000
610,000
(20,000)

38,000
(18,000)
650,000

(600,000)
(5,000)

Goods Broken
Markdowns
Markdown Cancellations
Ending Inventory @ Retail
Est. Ending Inventory @ Cost (62% $37,500)

(2,500)
13,500
(8,500)

*B.
Inventory, December 31, 2012
Net purchases
Net markups
Net markdowns
Total (excluding beginning inventory)
Total (including beginning inventory)
Net sales
Inventory, December 31, 2013, at retail
Cost to retail percentage ($360,000 $500,000)
12/31/13 inventory at base ($138,000 1.20)
12/31/12 inventory at base
Increase at base
Increase at current prices, at cost ($75,000 1.20 .72)
12/31/13 inventory at LIFO cost

Exam continuation next page

(5,000)
$ 37,500
$ 23,250
Cost
$ 27,500
360,000

360,000
$387,500

Retail__
$ 40,000
485,000
30,000
(15,000)
500,000
540,000
(402,000)
$ 138,000

72%
$ 27,500
64,800
$ 92,300

$ 115,000
(40,000)
$ 75,000

Multiple Choice Inventory (Chapter 9)

For each of the following questions, select the letter of the statement which best answers the question and write it on the line to the left
of the question.
C __1.Wade Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of
markup on cost is 25%. The following account balances are available:
Inventory, March 1
Purchases during March
Purchase returns
Sales during March

$2,000,000
1,000,000
52,000
1,700,000

The estimate of the cost of inventory at March 31 would be

a. $1,248,000.
b. $1,360,000.
c. $1,588,000.
d. $1,673,000.
C __2.Most methods of pricing inventories are in accord with generally accepted accounting principles and generally are permissible for
income tax purposes. The method that must be used for financial reporting purposes if used for tax purposes is
a. moving average.
b. weighted average.
c. LIFO.
d. FIFO.
B __3.A company has been using the FIFO cost method of inventory valuation since it was started 10 years ago. Its 2014 ending
inventory was $180,000, but it would have been $130,000 if LIFO had been used. Thus, if LIFO had been used, this
company's income before taxes would have been
a. $50,000 less in 2014.
b. $50,000 less over the 10-year period.
c. $50,000 greater over the 10-year period.
d. $50,000 greater in 2014.
A _

4.

Why are inventories included in the computation of net income?

a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.

D __5.On December 31, 2014, Hill Company, which sells only one product, adopted the periodic last-in, first-out method of inventory
valuation. The inventory was valued at $40,000 on the December 31, 2014 balance sheet. The number of items in its
inventory remained constant during 2015. The December 31, 2015 inventory valuation would be
a. less than $40,000 if prices were steadily decreasing.
b. less than $40,000 if prices were steadily increasing.
c. greater than $40,000 if prices were steadily increasing.
d. $40,000 regardless of any price changes.
B _ *6.Kramer Company values its inventory by using the retail method (LIFO basis, stable prices). The following information is
available for the year 2014.
Beginning inventory
Purchases
Freight-in
Markups (net)
Markdowns (net)
Sales revenue

Cost
$ 78,000
368,000
16,000

At what amount would Kramer Company report its ending inventory?

a. $95,700.
b. $96,000.
c. $100,300.
d. $102,000.

Retail
$140,000
628,000
18,000
6,000
610,000