Spiceland C9 SolutionsWord文档下载推荐.docx

1、Questions for Review of Key TopicsQuestion 9-1 GAAP generally require the use of historical cost to value assets, but a departure from cost is necessary when the utility of an asset is no longer as great as its cost. The utility or benefits from inventory result from the ultimate sale of the goods.

2、This utility could be reduced below cost due to deterioration, obsolescence, or changes in price levels. To avoid reporting inventory at an amount greater than the benefits it can provide, the lower-of-cost-or-market approach to valuing inventory was developed. This approach results in the recogniti

3、on of losses when the value of inventory declines below its cost, rather than in the period in which the goods are ultimately sold.Question 9-2 The designated market value in the LCM rule is the middle number of replacement cost （RC）, net realizable value （NRV） and net realizable value less a normal

4、 profit margin （NRV-NP）. This is the amount compared with cost to determine LCM.Question 9-3 The LCM determination can be made based on individual inventory items, on logical categories of inventory, or on the entire inventory.Question 9-4 The preferred method is to record the loss from the write-do

5、wn of inventory as a separate item in the income statement rather than including the write-down in cost of goods sold. A less desirable alternative is to include the loss in cost of goods sold.Question 9-5 The gross profit method estimates cost of goods sold, which is then subtracted from cost of go

6、ods available for sale to obtain an estimate of ending inventory. The estimate of cost of goods sold is found by multiplying sales by the historical ratio of cost to selling prices. The cost percentage is the reciprocal of the gross profit ratio.Question 9-6 The key to obtaining accurate estimates w

7、hen using the gross profit method is the reliability of the cost percentage. If the cost percentage is too low, cost of goods sold will be understated and ending inventory overstated. Cost percentages usually are based on relationships of past years, which arent necessarily representative of the cur

8、rent relationship. Failure to consider theft or spoilage also could cause an overstatement of ending inventory.Answers to Questions （continued）Question 9-7 The retail inventory method first determines the amount of ending inventory at retail by subtracting sales for the period from goods available f

9、or sale at retail. Ending inventory at retail is then converted to cost by multiplying it by the cost-to-retail percentage.Question 9-8 The main difference between the gross profit method and the retail inventory method is in the determination of the cost percentage used to convert sales at selling

10、prices to sales at cost. The retail inventory method uses a cost percentage, called the cost-to-retail percentage, which is based on a current relationship between cost and selling price. The gross profit method relies on past data to reflect the current cost percentage.Question 9-9 Initial markup O

11、riginal amount of markup from cost to selling price.Additional markup Increase in selling price subsequent to initial markup.Markup cancellation Elimination of an additional markup.Markdown Reduction in selling price below the original selling price.Markdown cancellation Elimination of a markdown.Qu

12、estion 9-10 When using the retail method to estimate average cost, the cost-to-retail percentage is determined by dividing total cost of goods available for sale by total goods available for sale at retail. By including beginning inventory in the calculation of the cost-to-retail percentage, the per

13、centage reflects the average cost/retail relationship for all inventories, not just the portion acquired in the current period.Question 9-11 The lower-of-cost-or-market （LCM） retail variation combined with the average cost method is called the conventional retail method. The LCM rule is incorporated

14、 into the retail inventory estimation procedure by excluding markdowns from the calculation of the cost-to-retail percentage.Question 9-12 When applying LIFO, if inventory increases during the year, none of the beginning inventory is assumed sold. Ending inventory includes the beginning inventory pl

15、us the current years layer. To determine layers, we compare ending inventory at retail to beginning inventory at retail and assume that no more than one inventory layer is added if inventory increases. Each layer carries its own cost-to-retail percentage that is used to convert each layer from retai

16、l to cost.Question 9-13Freight-in is added to purchases in the cost column. Net markups are added in the retail column before the calculation of the cost-to-retail percentage. Normal spoilage is deducted in the retail column after the calculation of the cost-to-retail percentage. If sales are recorded net of employee dis