ACCT 2010 CH. 7
Specific identification method
A method of assigning costs to inventory that identifies the cost of each specific item purchased and sold.
Which of the following statements are true? Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business. Using a different inventory accounting method leads to reporting a different amount for cost of goods sold. GAAP require that all companies in the same industry use the same method of accounting for inventory. It doesn't matter which method you use to account for inventory as long as it mimics the actual physical flow of goods.
Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business. Using a different inventory accounting method leads to reporting a different amount for cost of goods sold.
days to sell
Measure of the average number of days from the time inventory is bought to the time it is sold.
data visualization
Presenting large quantities of data in maps, charts, and graphs, to reveal important relationships and trends within the data.
Which statements are true? (Select all that apply.)
The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods. A grocery store may use the Last-in, First-out inventory method.
inventory turnover
The process of buying and selling inventory
Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchased 3 more at $12 each. What is the weighted average cost per unit?
The weighted average cost is $11.20 (=((2 x $10) + (3 x $12))/5).
Weighted average cost
Uses the weighted average unit cost of goods available for sale for calculations of both the cost of goods sold and ending inventory.
lower of cost market/net realizable value (LCM/NRV)
Valuation method departing from the cost principle; recognizes a loss when inventory value drops below cost.
Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______.
balance sheet as a current asset; Cost of Goods Sold on the income statement
LIFO uses the ______ unit costs for Cost of Goods Sold on the income statement and the ______ unit costs for Inventory on the balance sheet.
newest ; oldest
FIFO uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.
oldest ; newest
On May 1, there were 4 inventory items that cost $30 each. On May 5, 2 items were purchased for $35 each. Given one item from the beginning inventory and one from the May 5 inventory were sold, under the__________ ______________ inventory method, cost of goods sold would equal $75.
specific identification
Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using periodic specific identification, its Cost of Goods Sold is ______.
$550
Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.
(10 gadgets x $5) + (42 gadgets x $6) = $302
An understatement of the 2019 ending inventory will affect ______.
2020 Cost of Goods Sold 2020 Beginning Inventory 2019 Cost of Goods Sold
Which of the following statements are true? (Check all that apply.) Multiple select question. An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory.
An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory. An increased inventory balance is desirable if management is building up stock in anticipation of higher sales.
First-In, First-Out (FIFO)
Assumes that the first goods purchased (the first in) are the first goods sold. Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold.
Last-In, First-Out (LIFO)
Assumes that the most recently purchased units (the last in) are sold first. Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.
Which of the following income statement line items are affected by the inventory method chosen?
Income Tax Expense Income before Income Tax Expense Net Income Gross Profit Income from Operations
Which of these might cause the value of inventory to fall below its original cost?
Increased competition Damage Obsolescence from going out of style
Which of these inventory accounting methods are acceptable under US GAAP?
LIFO Weighted average Specific identification FIFO
Merchandise inventory ______.
consists of products acquired in a finished condition that are available for sale is reported as a current asset on the balance sheet
In a perpetual inventory system, Inventory is initially recorded at ______.
cost
When using the specific identification inventory method, cost of goods sold equals the ______.
cost of the actual item sold
Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit ____________
decreases
Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, the 3 goods sold are assumed to be ______.
from the beginning inventory
Applying the lower of cost or market rule results in inventory being reported at the ______.
market value if lower than cost
The inventory turnover ratio directly measures ______.
the times per period the average inventory balance is sold
The costs of carrying inventory include the costs of ______.
theft storage obsolescence spoilage
True or false: The inventory method selected by management does not have to correspond to the physical flow of goods to be in accordance with GAAP.
true
