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Listed below are a list of key special valuation issuesinventory terms. Following the list is a series of definitons.Required: Match each key term with its appropriate definiiton.

- A. B. C. D. E. F. G. H.

Gross Profit Method
- A. B. C. D. E. F. G. H.

Mark-down Cancellation
- A. B. C. D. E. F. G. H.

Allowance Method
- A. B. C. D. E. F. G. H.

Additional Mark-up
- A. B. C. D. E. F. G. H.

Net Realizable Value
- A. B. C. D. E. F. G. H.

Conventional Retail Method
- A. B. C. D. E. F. G. H.

Mark-up
- A. B. C. D. E. F. G. H.

Net Additional Mark-up
A.

Increase above the original sales price
B.

The loss is recorded in a separate inventory account
C.

Also known as the 'Retail Inventory Method'
D.

Increase in selling price after there has already been aMark-down
E.

Estimated selling price less costs of completion and/ordisposal
F.

Total mark-up less mark-up cancellations
G.

Cost to selling price
H.

Can be used by an auditor to verify an estimate of the cost ofinventory

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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1. How should the balances of Progress Billings and Constructionin Progress be shown at reporting dates prior to completion of along-term contract

a. Progress billings as income, construciton in progress asinventory

b. Net , as income from construction if credit balance, and lossfrom construction if debit balance

c. Progress Billings as deferred income, Construction inProgress as a current asset

d. Net, as a current asset if debit balance and currentliability if credit balance

3. the competed-contract method of accounting for long-termconstruction-type contracts is preferable when

a. a contractor is involved in numerous projects

b. the contracts are of a relatively long duration

c. estimates of costs to complete and extent of progress towardcompletion are reasonably dependable

d. there are inherent uncertainties in the contract beyondnormal business risks

4. C & J Construction has consistently used the percentageof completion method of recognizing income. Last year C & Jstarted work on a $4,500,000 constuction contract, which wascompleted this year, the accounting records desclosed the followingdata for the last year

Progress billings - $1,650,000

Costs incurred - 1,350,000

Collections - 1,050,000

Estimated cost to complete - 2,700,000

How much income should C & J have recognized on thiscontract last year?

a. 105,000

b. 150,000

c. 300,000

d. 350,000

6. The use of the gross profit assumes

a. the amount of gross profit is the same as in prior years

b. sales and cost of goods sold have not changed from previousyears

c. inventory values have not increased from previous years

d. the relationship between selling price and cost of goods soldis similar to prior years

7. the gross profit method of inventory valuation is not validwhen

a. there is substantial increase in the quantity of inventoryduring the year

b. there is substantial increase in the cost of inventory duringthe year

c. the gross margin percentage changes significantly during theyear

d. all ending inventory is destroyed by dire before it can becounted

8. When the current year's ending inventory amount isoverstated,

a. the current year's cost of goods sold is overstated

b. the current year's total assets are understated

c. the current year's net income is overstated

d. the next year's income is overstated

9. If the ending inventory balance is understated, net income ofthe same period

a. will be overstated

b. will be understated

c. will be unaffected

d. cannot be determined from the above information

10. An overstatement of ending inventory in Period 1 wouldresult in income of Period 2 being

a. overstated

b. understated

c. correctly stated

d. the answer cannot be determined from the informationgiven

11. what is the maximum amount at which inventory can be valuedwhen the goods have experienced a permanent decline in value

a. historical cost

b. sales price

c. net realizable value

d. net realizable value reduced by a normal profit margin

12. Net realizable value can be defined as

a. selling price

b. selling price less costs to complete and sell

c. selling price plus costs to complete and sell

d. acquisition cost plus costs to complete and sell

13. Miller company needs an estimate of its ending inventorybalance. The following information is available

Cost Retail

sales revenue - 180,000

beginning inventory - 35,000 62,000

net purchases - 100,000 135,000

gross margin percentage - 30%

Given this information, when using the gross margin estimationmethod, ending inventory is approx

a. 1,000

b. 9,000

c. 19,000

d. 11,650

14. Which of the following would not be reported asinventory?

a. land acquired for resale by a real estate firm

b. stocks and bonds held for resale by a brokerage firm

c. partially completed goods held by a manufacturing company

d. machinery acquired by a manufacturing company for use in theproduction process

15. Cost of goods sold is equal to

a. the cost of inventory on hand at the end of a period plus netpurchases minus the cost of inventory on hand at the beginning

b. the cost of inventory on hand at the beginning of a periodminus net purchases plus the cost of inventory on hand at the endof a period

c. the cost of inventory on hand at the beginning of a periodplus net sales minus the cost of inventory on hand at the end of aperiod

d. the cost of inventory on hand at the beginning of a periodplus net purchases minus the cost of inventory on hand at the endof a period

17. In a period of falling prices, the use of which of thefolliwng inventory cost flow methods would typically result inhighest cost of goods sold?

a. FIFO

b. LIFO

c. Weighted average cost

d. Specific identification

18. In a period of rising prices, the inventory cost allocationmethod that tends to result in the lowest reported net incomeis

a. LIFO

b. FIFO

c. Moving average

d. Weighted average

19. The LIFO inventory cost flow method may be applied to whichof the following inventory systems?

Periodic Perpetual

a. no no

b. no yes

c. yes yes

d. yes no

MULTIPLECHOICEQUESTIONS - Choose the BESTanswer for the following questions.

_____ 1. Thedifference between implied and book value may be allocated to:

a. any assets or liabilities on S’sbooks.

b. any assets or liabilities on P’sbooks.

c. only to S’s land.

d. only to P’s land.

_____2. When the partialor complete equity methods are used, where is P’s share of S’sincome

recorded in P’s books?

a. Dividend income

b. Equity in S income

c. Investment income

d. It is not recorded

_____3. What is thesignificant difference between the partial equity and the completeequity entries on P’s books?

a. P records only its share of S’sdividends in the partial equity method.

b. P records only its share of S’sdividends in the complete equity method.

c. P records only its share of S’sdividends and reported income in the partial equity method

d. P records only its share of S’sdividends and income in the complete equity method.

_____4. When a specificasset has a fair value less than its book value, the allocation ofthe difference between implied and book value:

a. ignores the asset.

b. writes the asset up by its proportionateshare of the difference.

c. decreases the asset by the excess ofbook value over fair value.

d. decreases P’s cost of investment.

_____ 5. What is theSEC’s position on push down accounting?

a. The SEC requires that push downaccounting be used for all business combinations.

b. The SEC requires that push downaccounting be used for business combinations where P buys 80percent or more of S.

c. The SEC requires that push downaccounting be used for business combinations where P buys 95percent or more of S.

d. The SEC is silent as to push downaccounting.

MATCHING

Match the terms in the list to the definitions below. Each termmay be used only once.

A. Difference between implied and bookvalue F. Complete equity method

B. Excess of fair value over bookvalue G. Allocation of difference

C. Excess of fair value over impliedvalue H. Push down accounting

D. Excess of implied value over fairvalue I. Cost method

E. Partial equitymethod J. Goodwill

_____1. A technique usedto assign the difference between implied and book value to S’sassets and liabilities

_____ 2. What Ppays for S’s net assets is more than the fair value of thoseassets

_____ 3. Precords its share of S’s income and dividends on its books

_____ 4. Srecords the difference between implied and book value on itsbooks

_____ 5. [P’spurchase price divided by its share of S] minus book value of Sequity

_____6. There is apositive difference between what S has on its books for the valueof its assets and the market value of those assets

_____ 7. Precords only its share of S’s dividends

_____ 8. P haspaid less than fair value for S’s net assets

_____ 9. Anaccount used when the fair value of S’s net assets is less than thecost paid by P

_____10. P records its share ofS’s income and dividends, and also an entry to record theamortization and depreciation of the difference between implied andbook value.

Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.

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