INVENTORY LCNRV

1. Which of the following would not be reported as inventory? 1. How should sale staff commission be dealt with when valuing
a. Land acquired for resale by a real estate firm inventory at LCNRV?
b. Agricultural produce held by a farm a. Added to cost
c. Partially completed goods held by a manufacturing company b. Ignored
d. Machinery acquired by a manufacturing company for use in c. Deducted in arriving net realizable value
the production process d. Deducted from cost

2. Goods on consignment should be included in the inventory of 2. How should trade discounts be dealt with when valuing
a. the consignor but not the consignee inventory at LCNRV?
b. the consignee but not the consignor a. Added to cost
c. both the consignor and consignee b. Ignored
d. neither the consignor nor the consignee c. Deducted in arriving net realizable value
d. Deducted from cost
3. When using the periodic inventory method, which of the following
generally would not be separately accounted for in the computation 3. How should prompt payment discount be dealt with when
of cost of goods sold? valuing inventory at LCNRV?
a. Trade discounts applicable to purchases during the period a. Added to cost
b. Cash (purchase) discounts taken during the period b. Ignored
c. Purchase returns and allowances of merchandise during the period c. Deducted in arriving net realizable value
d. Cost of transportation – in for merchandise purchases during the d. Deducted from cost
period
4. How should import duties be dealt with when valuing
4. Which of the following inventory costing methods reports most inventory at LCNRV?
closely the current cost of inventory on the statement of financial a. Added to cost
position? b. Ignored
a. First in, first out c. Deducted in arriving net realizable value
b. Specific identification d. Deducted from cost
c. Last in, first out
d. Weighted average 5. Inventory should be measured at
a. Lower of cost and fair value
5. In a period of rising prices, the inventory cost allocation method that b. Lower of cost and net realizable value
tends to result in the highest reported net income is c. Lower of cost and net selling price
a. first in, first out d. All of these are used in measuring inventory
b. specific identification
c. moving average 6.Net Realizable Value is:
d. last in, first out a. Current replacement cost
b. Estimated Selling Price
6. The retail inventory method would include which of the following in c. Estimated selling price less estimated cost to complete
the calculation of the goods available for sale at both cost and d. Estimated selling price less estimated cost to complete
retail? and estimated cost of disposal
a. purchase returns
b. sales returns 7. Inventories are usually written down to net realizable value:
c. markdowns a. Item by item
d. markups b. By classification
c. By total
7. When using the moving average method of inventory valuation, a d. By segment
new unit cost must be computed after each
a. purchase 8. Which of the following is not an acceptable method of
b. issuance from inventory applying the LCNRV?
c. purchase and issuance from inventory A. Inventory location
d. month – end B. Group method
C. Individual item
8. In periodic inventory system that uses the weighted average cost flow D. Total inventory
method, the beginning inventory is
a. net purchases minus the ending inventory 9. Which statement is incorrect regarding LCNRV?
b. net purchases minus the cost of goods sold A. Net realizable value is the selling price less estimated
c. total goods available for sale minus the net purchases cost to complete and estimated cost of disposal
d. total goods available for sale minus the cost of goods sold B. In most situations, entities measure inventory on a
total inventory basis
9. The use of the gross profit method assumes C. One of two methods may be used to record the income
a. the amount of gross profit is the same as in prior years effect of valuing inventory at net realizable value
b. sales and cost of goods sold have not changed from previous year D. Entities use an allowance account to reduced inventory
c. inventory values have not increased from previous years to net realizable value
d. the relationship between sales price and cost of goods sold is
similar in prior years. 10. Which of the following statements is true regarding inventory
writes down and reversal of write down?
10. The average retail method is based on the assumption that the A. Reversal of inventory write down is prohibited
a. ratio of gross margin to sales is approximately the same each B. Separate reporting of reversal of inventory write
period down is required
b. ratio of cost to retail changes at a constant rate C. Entities are required to record write down in a separate
c. beginning inventory and the cost of goods sold contain the same loss account
proportion of high – cost and low – cost ratio goods D. All of the choices are correct
d. the gross margin percentage applicable to ending inventory
and to the goods sold during the period is the same
11. LCNRV of inventory
A. Is always either the net realizable value or cost
B. Should always be equal to net realizable value
C. May sometimes be less than net realizable value
D. Should always be equal to estimated selling price less
cost to complete

12. Lower of cost and net realizable value

A. Gives the lowest valuation if applied to the total
inventory
B. Gives the lowest valuation if applied to major group of
inventory
C. Gives the lowest valuation if applied to individual
item of inventory
D. Must be applied to major group

13. Lower of cost and net realizable value as it applies to inventory is

best describes as the
A. Reporting of a loss when there is a decrease in the
future utility below the original cost
B. Method of determining cost of goods sold
C. Assumption to determine inventory flow
D. Change in inventory value to net realizable value

14. Which method may be used to record a loss due to a price decline in
the value of inventory?
A. Loss method
B. Sales method
C. Cost of goods sold method
D. Loss method and cost of goods sold method

15. When the cost of goods sold method is used to record inventory at
net realizable value
A. There is a direct reduction in the selling price
B. A loss is recorded directly in the inventory account by
debiting loss
C. Only the portion of the loss attributable to inventory sold
is recorded
D. The net realizable value for ending inventory is
substituted for cost and the loss is buried in the cost of
goods sold

16. If a material amount of inventory has been ordered through a formal

purchase contract at the end of reporting period for future delivery at
firm prices
A. This fact must be disclosed
B. Disclosure is required only if prices have declined since
the date of the order
C. Disclosure is required only if prices have since risen
substantially
D. An appropriation of the retained earnings is necessary

17. Commodities of broker-traders are measured at

A. Fair value
B. Fair value less cost of disposal
C. Cost
D. Current replacement cost

18. Commodity broker-traders

A. Produce commodities such as rice, corn or precious
metals
B. Hold inventory primarily to sell in the near term and
generate a profit from price fluctuation
C. Measure inventories at the lower of cost and net
realizable value
D. All of the choices are correct regarding broker-traders
B. Hold inventory primarily to sell in the near term and
generate a profit from price fluctuation

19. Which of the following financial attributes would not be used to

measure inventory?
A. Historical cost
B. Current replacement cost
C. Net realizable value
D. Present value of future cash flows