Intermediate Accounting 1 - D03 - WGU
Intermediate Accounting 1 - D03 - WGU
Study online at https://quizlet.com/_bxoydr
1. Which statement accurately describes the fair Fair value is generally more relevant
value principle? than histori
Fair value is generally more relevant than histor-
ical cost.
Fair value is a cost-based measure.
Measurements based on fair value decrease the
subjectivity in financial reporting.
Measurements by generally accepted account-
ing principles (GAAP) require fair value for equi-
ty accounts.
2. Which basic objective is associated with the con- Decision Usefulness
ceptual framework for financial reporting?
Compliance
Efficiency
Decision usefulness
Full disclosure
3. In the lower of cost or market rule, what is re- Ceiling:
ferred to by the net realizable value? The term net realizable value (NRV)
refers to the net amount that a com-
pany expects to realize from the sale
of inventory. This is the ceiling - the
most that company can possibly re-
alize upon the sale of the inventory.
(ie: the selling price less costs asso-
ciated with finishing or delivering the
inventory to the customer).
4. Generally, what does the the term "market" in Replacement cost:
the phrase "lower of cost or market" mean? The term "market" refers to the
amount the company would pay to
, Intermediate Accounting 1 - D03 - WGU
Intermediate Accounting 1 - D03 - WGU
Study online at https://quizlet.com/_bxoydr
purchase the same inventory - or the
replacement cost.
5. Muckenthaler Company sells product 2005WSC $24
for $30 per unit. The cost of one unit of 2005WSC Correct. First, determine the ""mar-
is $27, and the replacement cost is $26. The ket"" value - use the middle value of
estimated cost to dispose of a unit is $6, and the ceiling (NRV), replacement cost,
the normal profit is 40% of selling price. At what and Floor (NRV less normal profit
amount per unit should product 2005WSC be margin). Second, determine which
reported, applying lower-of-cost-or-market? is lower: the historical cost of the
item or the ""market"" value of the
item. For Product 2005WSC: Ceiling:
$30-$6 = $24; Replacement Cost:
$26; Floor: $24 less ($30 x 40%) =
$12. Market value is $24. Historical
Cost is $27. The product is valued at
$24.
6. When the cost-of-goods-sold method is used to Cost of Goods Sold:
adjust cost to "net realizable value" in the low- Using the cost-of-goods-sold
er-of-cost-and-net-realizable-value (LCNRV) ap- method to adjust inventory, the cor-
proach, what account is debited? rect entry is: Debit Cost of Goods
Sold, Credit Inventory. (Under the
loss method: Debit Loss Due to De-
cline of Inventory to NRV, Credit In-
ventory)
7. In applying Lower-of-Cost-or-Market, what is The middle value of replacement
the correct designated market value? cost, net realizable value and net re-
alizable value less a normal profit
margin:
The designated market value is al-
Intermediate Accounting 1 - D03 - WGU
Study online at https://quizlet.com/_bxoydr
1. Which statement accurately describes the fair Fair value is generally more relevant
value principle? than histori
Fair value is generally more relevant than histor-
ical cost.
Fair value is a cost-based measure.
Measurements based on fair value decrease the
subjectivity in financial reporting.
Measurements by generally accepted account-
ing principles (GAAP) require fair value for equi-
ty accounts.
2. Which basic objective is associated with the con- Decision Usefulness
ceptual framework for financial reporting?
Compliance
Efficiency
Decision usefulness
Full disclosure
3. In the lower of cost or market rule, what is re- Ceiling:
ferred to by the net realizable value? The term net realizable value (NRV)
refers to the net amount that a com-
pany expects to realize from the sale
of inventory. This is the ceiling - the
most that company can possibly re-
alize upon the sale of the inventory.
(ie: the selling price less costs asso-
ciated with finishing or delivering the
inventory to the customer).
4. Generally, what does the the term "market" in Replacement cost:
the phrase "lower of cost or market" mean? The term "market" refers to the
amount the company would pay to
, Intermediate Accounting 1 - D03 - WGU
Intermediate Accounting 1 - D03 - WGU
Study online at https://quizlet.com/_bxoydr
purchase the same inventory - or the
replacement cost.
5. Muckenthaler Company sells product 2005WSC $24
for $30 per unit. The cost of one unit of 2005WSC Correct. First, determine the ""mar-
is $27, and the replacement cost is $26. The ket"" value - use the middle value of
estimated cost to dispose of a unit is $6, and the ceiling (NRV), replacement cost,
the normal profit is 40% of selling price. At what and Floor (NRV less normal profit
amount per unit should product 2005WSC be margin). Second, determine which
reported, applying lower-of-cost-or-market? is lower: the historical cost of the
item or the ""market"" value of the
item. For Product 2005WSC: Ceiling:
$30-$6 = $24; Replacement Cost:
$26; Floor: $24 less ($30 x 40%) =
$12. Market value is $24. Historical
Cost is $27. The product is valued at
$24.
6. When the cost-of-goods-sold method is used to Cost of Goods Sold:
adjust cost to "net realizable value" in the low- Using the cost-of-goods-sold
er-of-cost-and-net-realizable-value (LCNRV) ap- method to adjust inventory, the cor-
proach, what account is debited? rect entry is: Debit Cost of Goods
Sold, Credit Inventory. (Under the
loss method: Debit Loss Due to De-
cline of Inventory to NRV, Credit In-
ventory)
7. In applying Lower-of-Cost-or-Market, what is The middle value of replacement
the correct designated market value? cost, net realizable value and net re-
alizable value less a normal profit
margin:
The designated market value is al-
