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1 the lower of cost and net realizable value rule is a good example of conservatism 4300734

 

1) The lower-of-cost-and-net-realizable-value rule is a good example of conservatism in accounting.

 

2) When applying the lower-of-cost-and-net-realizable-value rule to ending inventory valuation, net realizable value generally refers to the company's expected selling price for its inventory net of any selling costs.

3) When the sales value of the inventory subsequently increases after a write down to net-realizable-value the reported value may be increased to the the limit of the original cost.

 

4) Using the lower-of-cost-and-net-realizable-value rule of valuing inventory allows the accountant to attain:

A) consistency.

B) conservatism.

C) matching.

D) full disclosure.

 

5) If the cost of an item of inventory is $80 and the current selling price is $75, the amount shown in inventory on the balance sheet under the lower-of-cost-and-net realizable-value rule is:

A) $75.

B) $80.

C) $100.

D) $75 or $80.

 

6) Ending inventory for Commodity X consists of 20 units. Under the FIFO method, the cost of the 20 units is $5 each. Current net realizable value is $4.75 per unit. Using the lower-of-cost-and-net -realizable-value rule to value inventory, the balance sheet would show ending inventory of:

A) $5.00.

B) $4.75.

C) $95.00.

D) $100.00.

7) Piggly Wiggly Sales had six CD players in inventory on December 31. They were purchased in November for $170 each. A quoted price received from the supplier on December 31 shows the CD players now cost $175 each. Piggly Wiggly has marked each player to sell for $320. Using the lower-of-cost-and-net-realizable-value rule, the ending inventory of CD players should be shown at:

A) $1,050.

B) $1,920.

C) $1,020.

D) $900.

 

8) Piggly Wiggly Sales had six CD players in inventory on December 31.  The players were purchased in November for $170.  Price lists from Piggly Wiggly Sales' supplier indicate that the same CD player would now cost the company $168.  The current sales price for each of the CD players is $320. Using the lower-of-cost-and-net-realizable-value rule, the ending inventory of CD players should be shown at:

A) $1,008.

B) $1,035.

C) $1,020.

D) $1,920.

 

9) For the current year, Heedy's Department Store reported the following data:

 

Goods available for sale

$1,074,450

December 31, inventory balance

85,430

 

The current net realizable value of the inventory on the balance sheet date is $91,730. Using the lower-of-cost-and-net-realizable-value rule, what is cost of goods sold for Heedy's Department Store?

A) $989,020

B) $982,720

C) $897,290

D) $1,080,750

10) Given the following data:

 

Ending inventory at cost

$23,600

Ending inventory at net realizable value

24,000

Cost of goods sold (before consideration of the

     lower-of-cost-and-net-realizable-value rule)

37,000

 

Which of the following depicts the proper account balance after the application of the lower-of-cost-and-net-realizable-value rule?

A) Ending inventory will be $24,000.

B) Cost of goods sold will be $36,400.

C) Cost of goods sold will be $37,400.

D) Ending inventory will be $23,600.

 

 

 

 

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