Chapter 9

Question 1

LOWER OF COST OR NET REALIZABLE VALUE: General rule

Answer 1

Historical cost used for inventory except when future ‘utility’ (expected benefit) < original cost

Question 2

Net Realizable Value (NRV)

Answer 2

Selling price - predicted costs of completion, disposal, and transportation

Question 3

When: Benefit < Cost

Answer 3

Write down value of the asset to the benefit received by the company

Question 4

COGS Method

Answer 4

COGS xxx
Inventory xxx

Question 5

Loss Method

Answer 5

DR: Loss due to dec of inventory to NRV
CR : Inventory

Question 6

Allowance Method

Answer 6

DR: loss due to decline of inv to NRV
CR: allowance to reduce inv to NRV

Question 7

Inventory can be written up to NRV if:

Answer 7

1) in a controlled market with a quoted price applicable to all quantities
2) when no significant costs of disposal are involved, AND
3) the product is available for immediate delivery

Question 8

Purchase commitments

Answer 8

No journal entry or disclosure

Question 9

Non-cancelable purchase commitments

Answer 9

Disclosed in FS notes.
Recognize expected losses immediately

Question 10

JE: purchase commitments and refills

Answer 10

1) DR: unrealized holding loss- purchase commitments
CR: est. liability on purchase commitments

2) DR: purchases
DR: ELPC
CR: cash

Question 11

Cost to Retail Ratio

Answer 11

Cost-GAS/Retail-GAS

Question 12

Ending inventory at cost

Answer 12

Cost to Retail Ratio X ending inventory at retail

Question 13

Inventory Cost Equation

Answer 13

Begin Inv + Purchases - COGS = Ending Inventory

Question 14

Markup

Answer 14

Increase in price above original retail price

Question 15

Markup cancellation

Answer 15

Decrease in markup

Question 16

Markdown

Answer 16

Decrease in original sales price (below retail value)

Question 17

Cost method

Answer 17

Considers all markups, markup cancellations, and markdowns

Question 18

Conventional Retail Method

Answer 18

Omits markDOWNS

Values ending inventory more conservatively

Question 19

LIFO retail method assumes:

Answer 19

1) markups and markdowns are incorporated
2) markups and markdowns apply to purchases

Question 20

LIFO retail method Cost to Retail %

Answer 20

1) Beginning inventory
2) adjusted purchases

Question 21

Dollar value lifo retail method

Answer 21

Ending inventory (retail) / inflation factor
—> table

Question 22

Dollar value lifo method table

Answer 22

Ending inventory —> Year —> Layer @ Retail X Price (inflation) Index X Cost to Retail % = Ending Inventory @ LIFO Cost