Acc 304 Week 3 Quiz 2 Essays

2671 Words Mar 31st, 2016 11 Pages
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ACC 304 Week 3 Quiz 2 – STR NEW
ACC 304 Week 3 Quiz 2
All Questions Included TRUE-FALSE—Conceptual 1. A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost. 2. The lower-of-cost-or-market method is used for inventory despite being less conservative than valuing inventory at market value. 3. The purpose of the “floor” in lower-of-cost-or-market considerations is to avoid overstating inventory. 4. Application of the lower-of-cost-or-market rule results in
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14. A disadvantage of the gross profit method is that it uses past percentages in determining the markup. 15. When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation. 16. In the retail inventory method, the term markup means a markup on the original cost of an inventory item. 17. In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.
18. The inventory turnover ratio is computed by dividing the cost of goods sold by the ending inventory on hand. 19. The average days to sell inventory represents the average number of days’ sales for which a company has inventory on hand. *20. The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.

MULTIPLE CHOICE—Conceptual 21. Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these. 22. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
a. selling price will be less

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