Which of the following choices are not options when using the inventory ledger- A) Profit evaluation method by markup or margin B) Item assembly costs or adjustment write-off costs C) Accessing inventory lists from the home window or the inventory and services window D) Sort inventory by item and name
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Defining Chapter Terms Terms and phrases relating to concepts discussed in this chapter, along with descriptions of those terms and phrases, follow. Match each term, 1 through 15, with the best description a through o. Key Inventory Terms and Phrases 1. Net realizable value - a. Requires retroactive restatement of financial statements 2. Lower-of-cost-or-market - b. Method for valuing inventory applying to LIFO and retail methods 3. Allowance to reduce inventory to net realizable value - c. Cancellation of additional markup 4. Gross profit method - d. Inventory estimation that is not acceptable under GAAP 5. Estimated loss on purchase commitment - e. Method that approximates lower-of-cost-or-market 6. Change in inventory method from average to FIFO - f. Not usually practical to retroactively restate or adjust financial statements 7. Change from FIFO to LIFO - g. Reduction in original sale price 8. Markdown - h. Selling price net of completion and disposal costs 9. Additional markup cancellation - i. Theft of inventory that exceeds expectations 10. Retail inventory method - Conventional Method - j. Dollar amount required to purchase an inventory item 11. Abnormal casualty loss - k. Recorded when contract price is greater than market price 12. Replacement cost - l. Requires net markups and markdowns in cost-to-retail percentage 13. Average Method - m. Adjusted in accounting records in the period discovered 14. Material error - n. Allows for estimation of inventory values when multiple items are purchased at one price 15. Relative sales value method - o. Contra inventory account
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Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2017, the balance in Garcia's Raw Materials Inventory account was $408,000, and Allowance to Reduce Inventory to Market had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia's May 31, 2017, financial statements for inventory at lower-of-cost-or-market as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Assume Garcia uses LIFO inventory costing. Cost Replacement Cost Sales Price Net Realizable Value Normal Profit Aluminum siding $70,000 $62,500 $64,000 $56,000 $5,100 Cedar shake siding $86,000 $79,400 $94,000 $84,800 $7,400 Louvered glass doors $112,000 $124,000 $186,400 $168,300 $18,500 Thermal windows $140,000 $126,000 $154,800 $140,000 $15,400 Total $408,000 $391,900 $499,200 $449,100 $46,400 (b) Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.
1. The inventory records for Bracken Sales appear below: Inventory Beg. Bal. (20 units @ $40) 800 Purchases No. 1: (100 units @ $60) 6,000 Cost of Goods Sold (150 units @ ?) No. 2: (80 units @ $80) 6,400 Using the average-cost method, what is the weighted-average unit cost? A. $54.67 B. $60.00 C. $66.00 D. $68.89 2. Refer to Question 1. Using the average-cost method, what is the cost of goods sold? A. $9,900 B. $2,870 C. $7,000 D. $9,000 3. Refer to Question 1. What value is assigned to the ending inventory, if using FIFO? A. $9,200 B. $10,600 C. $2,600 D. $4,000 4. Gross profit plus cost of goods sold equals: A. sales revenue. B. purchases. C. beginning inventory. D. ending inventory. 5. The perpetual inventory system: A. is used by few businesses. B. requires an annual count of inventory on hand. C. keeps a periodic record for each inventory item. D. all of the above
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