Chapter 9 Flashcards Preview

Intermediate Accounting II > Chapter 9 > Flashcards

Flashcards in Chapter 9 Deck (22):
1

What is net realizable value (NRV)?

Net realizable value (NRV) is selling price less any costs of completion, disposal, and transportation.

2

What is an advantage of the retail inventory and gross profit methods?

A physical inventory is not necessary.

3

Taking a "big bath" tends to impair a company's __________ and __________.

net income
earnings quality

4

Accounting errors must be corrected:

as soon as they are discovered

5

The gross profit method allows companies to approximate __________.

ending inventory

6

A company applies the __________ concept when it applies the same accounting principles from period to period.

consistency

7

In the retail inventory method, a __________ ratio is used to estimate ending inventory and cost of goods sold.

cost-to-retail

8

Under the LIFO Retail Method, a new layer at retail is calculated by:

subtracting beg. inventory at retail from ending inventory at retail

9

___________ permits the reversal of LCM write-downs, while __________ does not.

IFRS
U.S. GAAP

10

Before we can determine whether there is a "real" increase in inventory quantity, we need to eliminate the effect of any __________ changes.

price

11

Consistent with IFRS, inventory write-downs typically are credited to a __________ account.

allowance

12

Note disclosures relating to the correction of prior-year errors include information about:

1. the nature of the error
2. the effect on earnings per share
3. the effect on net income
4. the effect on income before extraordinary items

13

The ending inventory balance determined using the gross profit method is __________.

approximated

14

A net decrease in inventory quantity will result in a __________ of LIFO layers.

liquidation

15

Ending inventory at _________ is always the same regardless of the cost flow assumption used.

retail

16

Consistent with IFRS, the LCM rule is typically applied to __________ inventory items.

individual

17

LIFO layers are added to ending inventory when there is a net increase in __________.

inventory quantity

18

The conventional retail method __________ the LCM average cost method.

estimates

19

Under the retail inventory method, sales discounts are not deducted from sales because it would cause inventory to be __________.

overstated

20

When a company switches form a non-LIFO method to LIFO, its income and taxes typically __________.

decrease

21

Application of the LCM rule will yield the same results under IFRS and U.S. GAAP:

only if the replacement cost exceeds net realizable value (NRV)

22

Inventory is valued at the __________ and __________.

lower of cost or market (LCM)
net realizable value (NRV)