CHAPTER 8
INVENTORIES: ADDITIONAL VALUATION ISSUES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. A company should abandon the historical cost principle when the future utility of the
inventory item falls below its original cost.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
2. With regard to inventory, net realizable value is calculated by subtracting the costs of
completion and selling expenses from the selling price.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. A reason for valuing inventory at net realizable value is that sometimes it is too difficult to
obtain the cost figures.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Application of the lower-of-cost-or-market rule results in inconsistency because a
company may value inventory at cost in one year and at market value in the next year.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. The lower-of-cost-or-market method is used for inventory despite being less conservative
than valuing inventory at market value.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
Noe, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. The purpose of the “floor” in lower-of-cost-or-market considerations is to avoid overstating
inventory.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
7. GAAP requires reporting inventory at net realizable value, even if above cost, whenever
there is a controlled market with a quoted price applicable to all quantities.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. In a basket purchase, the cost of the individual assets acquired is determined on the basis
of their relative sales value.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. A basket purchase occurs when a company agrees to buy inventory weeks or months in
advance.
,8-2 Test Bank for Intermediate Accounting, Eighteenth Edition
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. According to GAAP, purchase commitments include only the right to receive assets.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
11. If the contract price on a noncancelable purchase commitment exceeds the market price,
the buyer should record any expected loss on the commitment in the period in which the
market decline takes place.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
12. When a buyer enters into a formal, noncancelable purchase contract, an asset and a
liability are recorded at the inception of the contract.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Noe, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. The gross profit method can be used to approximate the dollar amount of inventory on
hand for interim reporting.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis ad Interpretation, AICPA PC: Noe,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. In most situations, the gross profit percentage is stated as a percentage of cost.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15. A disadvantage of the gross profit method is that it uses past percentages in determining
the markup.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. When the conventional retail method includes both net markups and net markdowns in the
cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.
Ans: F, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. A markup cancellation can exceed the original markup but a markdown cancellation
cannot exceed the original markdown.
Ans: F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis ad Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. In the retail inventory method, abnormal shortages are deducted from both the cost and
retail amounts and reported as a loss.
Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. The inventory turnover is computed by dividing the cost of goods sold by the ending
inventory on hand.
Ans: F, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, Inventories: Additional Valuation Issues 8-3
20. The average days to sell inventory represents the average number of days’ sales for
which a company has inventory on hand.
Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*21. The LIFO retail method assumes that markups and markdowns apply only to the goods
purchased during the period.
Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
22. Which of the following accounts is credited in the loss method of writing-down of inventory
to its net realizable value?
a. Allowance to Reduce Inventory to NRV
b. Loss Due to Decline of Inventory to NRV
c. Cost of Goods Sold
d. Inventory
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
23. Watauga Company has an inventory write-down to record and is deciding whether to use
the loss method or the cost-of-goods-sold method. Compared to the cost-of-goods-sold
method the loss method will report
a. lower gross profit and net income.
b. higher gross profit, but net income will be the same.
c. higher gross profit and lower operating income.
d. lower gross profit, but operating income will be the same.
Ans: B LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
S
24. When the cost-of-goods-sold method is used to reduce the cost of inventory to its net
realizable value,
a. there is a direct reduction in the selling price of the product that results in a loss being
reported on the income statement before the sale.
b. a loss is recorded directly in the inventory account by crediting Inventory and debiting
Inventory Loss.
c. only the portion of the loss attributable to inventory sold during the period is reported
in the financial statements.
d. the net realizable value figure for ending inventory is substituted for cost and the loss
increases Cost of Goods Sold.
Ans: D, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
25. Lower-of-cost-or-net realizable value as it applies to inventory is best described as the
a. method required when inventory’s future utility drops below its original cost.
b. method of determining cost of goods sold.
c. assumption used to determine inventory flow.
d. adjustment of inventory value to market value.
, 8-4 Test Bank for Intermediate Accounting, Eighteenth Edition
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
26. Lower-of-cost-or-net realizable value must be used for companies who use which of the
following inventory methodologies?
a. FIFO
b. Specific identification
c. Weighted average
d. All of the above
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: Non
27. Which of the following is not an acceptable approach in applying the lower-of-cost-or-net
realizable value method to inventory?
a. Inventory location
b. Categories of inventory items
c. Individual items
d. Total inventory
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Which method(s) may be used to record a loss due to a price decline in the value of
inventory?
a. The cost-of-goods-sold method
b. The sales method
c. The loss method
d. Both the cost-of-goods-sold method and the loss method
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Which of the following statements is true of tax rules for applying the lower-of-cost-or- net
realizable value method to inventory?
a. Tax rules do not address the choice of methods in applying the lower-of-cost-or- net
realizable value method to inventory.
b. Tax rules require the use of an individual-item basis if it practicable.
c. Tax rules require the use of the total inventory basis.
d. Tax rules require the use of the method which minimizes the recorded loss.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
30. Which of the following is not a consideration in choosing how to apply the lower-of-cost-
or- net realizable value method to inventory?
a. The method used in previous periods
b. Tax rules
c. The number of end products produced
d. All of these are considerations in choosing how to apply the lower-of-cost-or-net
realizable value method to inventory.
INVENTORIES: ADDITIONAL VALUATION ISSUES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. A company should abandon the historical cost principle when the future utility of the
inventory item falls below its original cost.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
2. With regard to inventory, net realizable value is calculated by subtracting the costs of
completion and selling expenses from the selling price.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
3. A reason for valuing inventory at net realizable value is that sometimes it is too difficult to
obtain the cost figures.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
4. Application of the lower-of-cost-or-market rule results in inconsistency because a
company may value inventory at cost in one year and at market value in the next year.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. The lower-of-cost-or-market method is used for inventory despite being less conservative
than valuing inventory at market value.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
Noe, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. The purpose of the “floor” in lower-of-cost-or-market considerations is to avoid overstating
inventory.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
7. GAAP requires reporting inventory at net realizable value, even if above cost, whenever
there is a controlled market with a quoted price applicable to all quantities.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Measurement, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
8. In a basket purchase, the cost of the individual assets acquired is determined on the basis
of their relative sales value.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. A basket purchase occurs when a company agrees to buy inventory weeks or months in
advance.
,8-2 Test Bank for Intermediate Accounting, Eighteenth Edition
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. According to GAAP, purchase commitments include only the right to receive assets.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
11. If the contract price on a noncancelable purchase commitment exceeds the market price,
the buyer should record any expected loss on the commitment in the period in which the
market decline takes place.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
12. When a buyer enters into a formal, noncancelable purchase contract, an asset and a
liability are recorded at the inception of the contract.
Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Noe, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. The gross profit method can be used to approximate the dollar amount of inventory on
hand for interim reporting.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis ad Interpretation, AICPA PC: Noe,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. In most situations, the gross profit percentage is stated as a percentage of cost.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15. A disadvantage of the gross profit method is that it uses past percentages in determining
the markup.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. When the conventional retail method includes both net markups and net markdowns in the
cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.
Ans: F, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. A markup cancellation can exceed the original markup but a markdown cancellation
cannot exceed the original markdown.
Ans: F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis ad Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. In the retail inventory method, abnormal shortages are deducted from both the cost and
retail amounts and reported as a loss.
Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. The inventory turnover is computed by dividing the cost of goods sold by the ending
inventory on hand.
Ans: F, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
, Inventories: Additional Valuation Issues 8-3
20. The average days to sell inventory represents the average number of days’ sales for
which a company has inventory on hand.
Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
*21. The LIFO retail method assumes that markups and markdowns apply only to the goods
purchased during the period.
Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
MULTIPLE CHOICE—Conceptual
22. Which of the following accounts is credited in the loss method of writing-down of inventory
to its net realizable value?
a. Allowance to Reduce Inventory to NRV
b. Loss Due to Decline of Inventory to NRV
c. Cost of Goods Sold
d. Inventory
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
23. Watauga Company has an inventory write-down to record and is deciding whether to use
the loss method or the cost-of-goods-sold method. Compared to the cost-of-goods-sold
method the loss method will report
a. lower gross profit and net income.
b. higher gross profit, but net income will be the same.
c. higher gross profit and lower operating income.
d. lower gross profit, but operating income will be the same.
Ans: B LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
S
24. When the cost-of-goods-sold method is used to reduce the cost of inventory to its net
realizable value,
a. there is a direct reduction in the selling price of the product that results in a loss being
reported on the income statement before the sale.
b. a loss is recorded directly in the inventory account by crediting Inventory and debiting
Inventory Loss.
c. only the portion of the loss attributable to inventory sold during the period is reported
in the financial statements.
d. the net realizable value figure for ending inventory is substituted for cost and the loss
increases Cost of Goods Sold.
Ans: D, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
25. Lower-of-cost-or-net realizable value as it applies to inventory is best described as the
a. method required when inventory’s future utility drops below its original cost.
b. method of determining cost of goods sold.
c. assumption used to determine inventory flow.
d. adjustment of inventory value to market value.
, 8-4 Test Bank for Intermediate Accounting, Eighteenth Edition
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
26. Lower-of-cost-or-net realizable value must be used for companies who use which of the
following inventory methodologies?
a. FIFO
b. Specific identification
c. Weighted average
d. All of the above
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: Non
27. Which of the following is not an acceptable approach in applying the lower-of-cost-or-net
realizable value method to inventory?
a. Inventory location
b. Categories of inventory items
c. Individual items
d. Total inventory
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Which method(s) may be used to record a loss due to a price decline in the value of
inventory?
a. The cost-of-goods-sold method
b. The sales method
c. The loss method
d. Both the cost-of-goods-sold method and the loss method
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Which of the following statements is true of tax rules for applying the lower-of-cost-or- net
realizable value method to inventory?
a. Tax rules do not address the choice of methods in applying the lower-of-cost-or- net
realizable value method to inventory.
b. Tax rules require the use of an individual-item basis if it practicable.
c. Tax rules require the use of the total inventory basis.
d. Tax rules require the use of the method which minimizes the recorded loss.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC:
None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
30. Which of the following is not a consideration in choosing how to apply the lower-of-cost-
or- net realizable value method to inventory?
a. The method used in previous periods
b. Tax rules
c. The number of end products produced
d. All of these are considerations in choosing how to apply the lower-of-cost-or-net
realizable value method to inventory.
