Accounting Smart Book chp.6

Beginning inventory is $60,000. Purchase of invetory during the years are $100,000. Cost of goods sold is $120,000. What is ending inventory?

$40,000

Beginning inventory is $20,000. Purchades of inventory during the year are $100,000. Ending inventory is $50,000. What is cost of goods sold?

$70,000

Inventory is classified as

A current asset

Where is inventory reported in the financial statement?

Balance sheet as a current asset

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit inventory

For internal record keeping, most companies carry their inventory using the ___________ basis.

FIFO

The _______ inventory flow assumption most closely approximates the actual physical flow of inventory.

FIFO

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?

FIFO

Match the inventory cost flow assumptions on the left with the scenario on the right

FIFO- Most closely approximates the actual physical flow of inventory LIFO- Provides better matching of current revenues with current inventory cost

_________ ___________ inventory consists of items for which the manufacturing process if complete.

Finished goods

Which inventory account consists of the cost of items for which the manufacturing process is complete?

Finished goods inventory

The FIFO method assumes that units sold are the ___________ units acquired.

First

A multiple-step income statement reports multiple levels of _________.

Income

Major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

Inventory

Margot Inc. which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

Inventory

Freight-in is recorded as part of ________, whereas freight out is often recorded as ________.

Inventory; selling expense

The _______ cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

The primary benefit for choosing this method is that it tends to save taxes.

LIFO

When prices increase, the LIFO inventory method tends to decrease a company's tax liability during a particular fiscal period.

LIFO

Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory from FIFO to LIFO by using the

LIFO adjustment

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a _________ income statement.

Multiple-step

Gross profit is

Net Revenue minus Cost of Goods Sold

Freight-in on inventory purchases is typically recognized as

Part of the cost of purchasing inventory

Under the ___________ inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.

Perpetual

The LIFO adjustment is used internally to convert the inventory

To the LIFO basis

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

Two

Killian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a sepreate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statement in the following year will be:

Understated assets, retained earnings, and net income

FOB shipping point means title to the goods passes

When they are shipped

Freight destination means title to the goods passes

When they arrive at the destination

Which of the following accounts would be found in the balance sheet of a manufacturing company?

Work-in-process

_______ inventory refers to the products that have been started in production, but are still incomplete.

Work-in-process

The specific identification method

. Matches each unit of inventory with its actual cost . Would be beneficial to a company that makes fine jewelry

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements?

. Stockholder's equity increase . Total assets increase . Net income increases

When prices increase, the _________inventory method provides the best matching if revenue and expenses.

LIFO

The _________ method of valuing inventory was developed to avoid reporting inventory at an amount that is _________ than the benefits it can provide.

Lower of cost and net realizable value; greater

What type of company purchases raw materials and makes goods to sell?

Manufacturers

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as __________ revenues and expenses.

Nonoperating

Raw materials, direct labor, and manufacturing ___________ are the three costs related to the manufacturing of products.

Overhead

Major differences between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

. Inventory . Cost of goods sold

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

Incurred several years earlier

Companies that serve as intermediaries between manufactures and end uses typically are referred to as ________ companies.

Merchandising

Revenues and expenses arising from activities that are not oart of the company's operations are classified as ___________ revenues and expenses.

Nonoperating

Killian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a sepreate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statement in the following year will be:

Overstated net income

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

Paid by the supplier

Clark uses the perpetual inventory system. Clark sells goods to a customer in account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

. Debit cost of goods sold $700; credit inventory $700 . Debit accounts receivable $1,000; credit sales revenue $1,000

Correctly match the shipping costs with the accounting treatment.

. Freight in- added to the cost of inventory . Freight out- recognized as operating expense

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

. Included in Gerald's inventory

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

. Increase an asset and increase revenue . Decrease an asset and increase an expense

Purchasing inventory on account:

. Increases assets . Increases liabilities

The work-in-progress inventory account typically includes which costs?

. Indirect manufacturing costs . Direct labor . Raw materials

_______ companies purchase inventory that is primarily in finished form and ready for resale to customers.

Merchandising

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _________ method.

Specific identification

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods

. Inventory . Cost of goods sold

A company is mostl likely to utilize the specific identification method if its inventory consists of

. Very expensive products . Unique products

Assuming that priced rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

When prices rise, which inventory method tends to result in lower income and lower tax liability?

LIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

The FIFO inventory method assumes that units remaining in ending inventory are the _______________ units purchased.

Last

In times of rising prices, ending inventory determined using LIFO inventory assumption will be ___________ than ending inventory determined using the FIFO inventory assumption.

Lower

Companies that produce the inventory they sell are referred to as ___________.

Manufacturing

______ ___________ inventory included the cost of components that will become part of the finished product but have not yet been used in production.

Raw materials

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production?

Raw materials inventory

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO ______________.

Reserve

The primary benefit of LIFO is:

Tax savings

Using the perpetual inventory system, what is the effect of a sale of inventory in assets?

. Assets increase by the sales price of the inventory . Assets decrease by the cost of the inventory

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for...?

. Cost of goods sold . Inventory

Which of the following items are readily available from an inventory account under the perpetual inventory system?

. Cost of units sold . Individual purchases . Beginning inventory balance . Ending inventory balance

Which of the following methods are available for costing inventory?

. FIFO . Weighted-average . Specific identification . LIFO

The definition of inventory includes which of the following...

. Materials used currently in the production of goods to be sold . Items held for resale . Items currently in production for future sale

Which of the following methods are not used for inventory costing?

. NIFO . Simple-average

Match each scenario with the type of inventory system.

. Perpetual inventory system- Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. . Periodic inventory system- Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

Which of the following costs are recognized in work in process for a manufacturing company?

. Raw materials . Direct labor . Overhead

Which of the following accounts would be found in the balance sheet of a manufacturing company?

. Raw materials . Work in process . Finished goods

Which of the following companies would be most likely to utilize the specific identification method?

Adams Company produces one-of-a-kind products.

Meller purchases inventory in account. As a result, Meller's

Assets will increase

The lower of cost and net realizable value method was developed to

Avoid reporting inventory at an amount that exceeds the benefit it provides.

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,00. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit cost of goods sold $1,500; credit inventory $1,500

Generally, if a company wants its inventory cost flows to be the same as inventory's physical flows, what inventory method would it use?

FIFO

Net sales revenue minus cost of goods sold is

Gross profit

In times of rising prices, costs of goods sold determines using the LIFO inventory assumption typically will be ___________ than cost of goods determined the FIFO inventory assumption.

Higher

Items held for sale in the normal course of business are referred to as________.

Inventory

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?

Perpetual inventory system