Week 2 Theory of Accounts Part 2 – LOWER COST AND NRV QUIZ

30mins / 20 Items

Net realizable value is the general rule for valuing which inventory?

Select one:
a. Commodities held by broker-traders.
b. Inventories priced on an item by item basis
c. Computer components held for sale
d. All of these are measured at net realizable value

How should trade discounts be dealt with when valuing inventory at LCNRV?

Select one:
a. Ignored
b. Added to cost
c. Deducted in arriving at net realizable value
d. Deducted in arriving at cost

Which statement is correct regarding LCNRV?

Select one:
a. Entities use an allowance account to reduce inventory to net realizable value
b. Net realizable value is the selling price less estimated cost to complete and estimated cost of
disposal.
c. One of two methods may be used to record the income effect of valuing inventory at net
realizable value.
d. In most situations, entities measure inventory on total inventory basis.

Commodity broker-trades

Select one:
a. Hold inventory primarily sell in the near term and generate profit from price fluctuation
b. All of the choices are correct regarding broker-traders.
c. Produce commodities such as rice, corns or precious metals
d. Measure inventories at the lower of cost and net realizable value

The credit balance that arises when a loss on a purchase commitment is recognized should be

Select one:
a. Subtracted from ending inventory.
b. presented as current liability
c. Presented in the income statement
e. Presented as component of other comprehensive income

How should sales staff commission be dealt with when valuing inventory or LCNRV?
Select one:
a. Deducted in arriving at net realizable value.
b. Ignored
c. Deducted from cost
d. Added to cost

LCNRV of inventory

Select one:
a. Should always be equal to net realizable value.
b. Is always either the net realizable value or cost
c. May sometimes be less than net realizable value
d. Should always be equal to estimated selling price less cost to complete.

When portion of inventory has been pledged as security for a loan

Select one:
a. The cost of the pledged inventory should be transferred from current asset to noncurrent asset.
b. An equal amount retained earnings should be appropriated.
c. The value of the inventory pledged should be deducted from debt.
d. The fact should be disclosed but the amount of current assets should not be affected.

Commodities of broken-traders are measured at

Select one:
a. Fair value
b. Cost
c. Fair value less cost of disposal
d. Current replacement cost

Which method may be used to record a loss due to a price decline in the value of inventory?

Select one:
a. Loss method
b. Cost of goods sold method
c. Sales method
d. Loss method and cost of goods sold method

Which of the following statement is true regarding inventory writedown?

Select one:
a. Separate reporting of reversal of inventory writedown is required.
b. Entities are required to record writedown in separate loss account.
c. All of the choices are correct.
d. Reversal of inventory writedown is prohibited.

Inventories are usually written down to net realizable value

Select one:
a. By total
b. By segment
c. By classification
d. Item by item

Lower of cost and net realizable value as it applies to inventory is best described as the

Select one:
a. Method of determining cos of goods sold.
b. Change in inventory value to net realizable value.
c. Reporting of a loss when there is a decrease in future utility below the original cost.
d. Assumption to determine inventory flow.

Lower of cost and net realizable value

Select one:
a. Gives the lowest valuation if applied to the total inventory.
b. Gives the lowest valuation if applied to individual item of inventory.
c. Gives the lowest valuation if applied to major group of inventory.
d. Must be applied to major group.

How should prompt payment discount be dealt with when valuing inventory at LCNRV?

Select one:
a. Added to cost
b. Deducted in arriving at net realizable value
c. Ignored
d. Deducted from cost

When the cost of goods sold method is used to record inventory at net realizable value

Select one:
a. A loss is recorded directly in the inventory account by debiting loss.
b. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost
of goods sold.
c. There is a direct reduction in the selling price.
d. Only the portion of the loss attributable to inventory sold is recorded.

Which of the following is not an acceptable method of applying LCNRV?

Select one:
a. Total inventory
b. Inventory location
c. Group inventory
d. Individual item
Which of the following financial attributes would not be used to measure inventory?

Select one:
a. Historical cost
b. Present value of future cash flows
c. Net realizable value
d. Current replacement cost

Inventory should be measured at

Select one:
a. Lower of cost and net selling price
b. All of these are used in measuring inventory
c. Lower of cost and net realizable value
d. Lower of cost and fair value

If a material amount of inventory has been ordered through a formal purchase contract at the end of the
reporting period for future delivery at firm prices

Select one:
a. An appropriation of retained earnings is necessary.
b. Disclosure is required only if prices have since risen substantially.
c. Disclosure is required only if prices have declined since the date of the order.
d. This fact must be disclosed.