Ch 6 Acct 201A-3 Smart Book

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______. $30,000 $25,000 $15,000 $45,000 $20,000 $5,000

$20,000 Reason: Gross profit = sales-cost of goods sold.

Match the inventory account with the correct description. Raw materials

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

The primary benefit of LIFO is: tax savings lower record-keeping costs higher assets higher income

tax savings

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was: $999 $900 $990 $1,000 $1,010

$990 Reason: The discount is 1% if paid within 7 days or the full amount is due within 30 days.

Which of the following contributes to the importance of properly determining the cost of inventory and the cost of goods sold? Select all that apply Cost of goods sold may be the largest expense on some companies' income statement Inventory is commonly reported incorrectly Cost of goods sold tends to be over or understated Inventory may be the largest asset on some companies' balance sheets

Cost of goods sold may be the largest expense on some companies' income statement Inventory may be the largest asset on some companies' balance sheets

Where is inventory classified in the financial statements? Noncurrent asset in the balance sheet Expense in the income statement Revenue in the income statement Current asset in the balance sheet

Current asset in the balance sheet

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

LIFO

Match each transaction with the correct journal entry. Debit Accounts Receivable, credit Sales Revenue

Sale of inventory on account

True or false: A company may use more than one inventory cost method.

True

Inventory is classified as a revenue. a current asset. a current liability. a noncurrent asset.

a current asset.

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is: incorrect and will cause liabilities to overstated incorrect and will cause assets to be overstated correct incorrect and will cause assets to be understated

correct

Select all that apply Freeze Corporation uses the lower of cost or net realizable value method to write down inventory. Freeze determines that the inventory should be written down by $1,000. The effect on the financial statements is to: increase assets increase net income decrease assets decrease stockholders' equity decrease net income increase stockholders' equity

decrease assets decrease stockholders' equity decrease net income

When inventory is sold, the cost of inventory is recognized as COGS or a(n) ____________________________.

expense

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

first first, earliest, or oldest

The shipping term FOB stands for free on board. freight over board. free onto buyer. freight on board.

free on board.

The shipping term FOB stands for freight over board. freight on board. free onto buyer. free on board.

free on board.

Items held for sale in the normal course of business are referred to as _____________________

inventory

Match each scenario with the type of inventory system. Periodic inventory system

Choice, Shelly Company must first take a physical inventory to determine the cost of inventory still on hand. Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

Match each scenario with the type of inventory system. Perpetual inventory system

Peter Company recognizes cost of goods sold each time it recognizes a sale.

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

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.

"Cost of sales" is another name for which of the following accounts? Sales revenue Cost of goods sold Merchandise inventory

Cost of goods sold

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

Managers may want to report to use FIFO to report higher assets and profitability to satisfy shareholders or increase stock price. True False

True

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be $5,000. $5,667. $5,800.

$5,667. Reason: 5,000 x [(1,000 + 5,800)/6,000] = $5,667

Which of the following methods are not used for inventory costing? (Select all that apply.) Weighted-average FIFO Specific identification LIFO Simple-average NIFO

Simple-average NIFO

A 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: revenue operating expenses inventory gains and losses

inventory

The Work-in-Process inventory account typically includes which costs? (Select all that apply.) raw materials indirect manufacturing costs inventory storage costs direct labor

raw materials indirect manufacturing costs direct labor

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are included in Gerald's inventory. treated as a selling expense. paid by the supplier.

included in Gerald's inventory.

Bernie Corp. uses the FIFO inventory method to calculate cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes? LIFO, FIFO, or weighted-average LIFO and FIFO only FIFO and weighted-average only

FIFO and weighted-average only Reason: The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use LIFO for financial reporting.

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs incurred solely on the balance sheet date. that have not yet been incurred. incurred several years earlier.

incurred several years earlier.

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income? Weighted-average LIFO FIFO

LIFO

When prices increase, the _____________________ inventory method provides the best matching of revenue and expenses.

LIFO

FOB destination means title to the goods passes when they are shipped to the customer. when they arrive at the destination.

when they arrive at the destination.

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

Manufacturers

How is income tax reported on a multiple-step income statement? Separately after non-operating revenues and expenses Separately before non-operating revenues and expenses As part of cost of goods sold As an extraordinary item As a part of operating income

Separately after non-operating revenues and expenses

A multiple-step income statement reports multiple levels of ______________________________

income

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

manufacturers or manufacturing

Correctly match the shipping costs with the accounting treatment. Freight-in

recognized as operating expense

Service companies _____________________________ revenues when the service is provided to customers.

record

The LIFO inventory method assumes that the units that remain in ending inventory are the oldest units in inventory. the most recent units purchased.

the oldest units in inventory.

Freight-in is a selling expense. treated as a miscellaneous expense. included as a cost of inventory.

included as a cost of inventory.

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______. selling expense; cost of goods sold miscellaneous expenses; selling expense inventory; selling expense

inventory; selling expense

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method. actual cost weighted-average matching unit specific identification

specific identification

Catalina Bookstore pays freight on books shipped to its store. The shipping cost is debited to Inventory. When the books are sold, the freight costs pertaining to the books are included in: revenues selling expenses cost of goods sold liabilities

cost of goods sold

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

higher, greater, more, or larger

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? Weighted-average FIFO LIFO

LIFO

What type of companies recognize revenues when they sell inventory to customers? Service companies Manufacturing companies Merchandising companies

Manufacturing companies Merchandising companies

Which of the following sells inventory to end users? Retailers Wholesalers Service Companies

Retailers

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. The net realizable values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. Using the lower of cost and net realizable value method, CurlZ should report its inventory at: $1,240 $1,040 $1,000 $1,200

$1,000 Reason: The lower of cost and net realizable value method requires the DyeZ boxes be recorded at the lower selling price of $8 instead of the higher cost of $10. Thus, Inventory equals $1,000 = ((200 bottles x $1) + (100 boxes x $8)).

Match the inventory cost flow assumption with the financial statement approach. LIFO

Income statement approach

Beginning inventory is $60,000. Purchases of inventory during the year are $100,000. Cost of goods sold is $120,000. What is ending inventory? $20,000 $60,000 $40,000 $100,000

$40,000 Reason: $60,000 + $100,000 - $120,000 = $40,000.

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

FIFO

Which inventory cost flow method approximates the physical flow of inventory items? FIFO LIFO Weighted-average cost

FIFO

True or false: The inventory cost flow assumption must match the physical flow of inventory units.

False

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 Raw Materials Purchases Cost of Goods Sold

Inventory

When prices rise, which inventory method tends to result in lower income and a lower tax liability? FIFO LIFO NIFO Weighted-average cost

LIFO

Which of the following inventory cost flow assumptions is prohibited under International Financial Reporting Standards? Weighted-average First in, first out Last in, first out

Last in, first out

Correctly match the shipping costs with the accounting treatment. Freight-in

added to the cost of inventory

Inventory not yet sold is classified as a(n) _________________ in the_____________________ ____________________________.

asset; balance sheet

Net sales revenue minus cost of goods sold is earnings before taxes. gross profit. net income. operating income.

gross profit.

The purchase discount term, 2/10, n/30, means that the purchaser ______. has 10 days from the purchase date in which to pay and receive a 2% discount may receive a 10% discount if the invoice is paid within two days of the purchase date may receive a discount between 2% and 10% may receive a discount of 2/10 of the invoice price if paid within 30 days

has 10 days from the purchase date in which to pay and receive a 2% discount

Select all that apply Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to: increase an asset and increase revenue increase an asset and decrease an expense decrease an asset and decrease revenue decrease an asset and increase an expense

increase an asset and increase revenue decrease an asset and increase an expense

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.) inventory. current assets. liabilities. cost of goods sold.

inventory. cost of goods sold.

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company is required to use the LIFO inventory cost flow assumption. is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions. is allowed to use either the FIFO or Weighted-average cost flow assumptions. is required to use the FIFO inventory cost flow assumption.

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.

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

lower, smaller, or less

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

perpetual

______________________ _____________________________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

raw material

Work in process inventory refers to inventory where the manufacturing process is _________________________, whereas finished goods refers to inventory where the manufacturing process is __________________________ .

unfinished, complete

For internal record keeping, most companies carry their inventory using the _____ basis. LIFO specific identification average cost FIFO

FIFO

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

FIFO

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

FIFO Reason: FIFO assumes the inventory costs flow first-in, first-out, which is the same order as the physical flow of inventory.

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. Weighted-average cost FIFO LIFO

LIFO

True or false: Determining inventory-related amounts is very important because for some companies cost of goods sold represents the largest expense on the income statement.

True

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is: incorrect and will cause assets to be understated correct incorrect and will cause assets to be overstated incorrect and will cause liabilities to overstated

correct

If a company pays freight-in for its inventory, that amount will later be included in revenues. liabilities. selling expenses. cost of goods sold.

cost of goods sold.

Match the inventory account with the correct description. Work-in-process

cost of products that have been started in production but not yet completed

A periodic inventory system measures cost of goods sold by debiting cost of goods sold for all purchases of inventory. making entries to the inventory account for each purchase and sale. counting inventory at the end of the period. estimating the amount of inventory sold.

counting inventory at the end of the period.

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. The net realizable values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. Using the lower of cost and net realizable value method, CurlZ should report its inventory at: $1,040 $1,000 $1,240 $1,200

$1,000 Reason: The lower of cost and net realizable value method requires the DyeZ boxes be recorded at the lower selling price of $8 instead of the higher cost of $10. Thus, Inventory equals $1,000 = ((200 bottles x $1) + (100 boxes x $8)).

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be $1,744. $1,980. $1,760.

$1,760. Reason: ($1,980/900 x 800) = $1,760

Combining operating income with non-operating revenues and expenses yields income before income taxes non-operating income operating income net income

income before income taxes

The estimated selling price of inventory less costs necessary to sell the inventory is referred to as net _______________ ___________________.

Blank 1: realizable, realized, or realize Blank 2: value

True or false: When goods are sold, the cost of the goods is transferred from the Inventory account to the Cost of Goods Sold account.

True

Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses. exceptional operating nonoperating

nonoperating

The LIFO inventory method assumes that the units sold are the most recent units purchased. the units in beginning inventory. the oldest units in inventory.

the most recent units purchased.

The LIFO adjustment is used internally to convert the inventory to the weighted average basis. to the LIFO basis. to the FIFO basis.

to the LIFO basis.

Berta Company's inventory value has declined during the current period. Berta does not expect to sell its inventory during the current year. Berta should recognize the loss in the period when the inventory value declines. is purchased. is sold.

value declines.

Beginning inventory is $20,000. Purchases of inventory during the year are $100,000. Ending inventory is $50,000. What is cost of goods sold? $70,000 $130,000 $170,000 $120,000

$70,000 Reason: $20,000 + $100,000 - $50,000 = $70,000.

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. 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 Sales Revenue $1,500 Debit Accounts Receivable $2,000; credit Inventory $2,000 Debit Inventory $1,500; credit Cost of Goods Sold $1,500 Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Which of the following considerations may influence managers' choice of the FIFO inventory cost flow assumption for a company that experiences rising prices? select all that apply Decreasing the tax liability Increasing stock prices Meeting earnings targets Compensation/bonus tied to reported income

Increasing stock prices Meeting earnings targets Compensation/bonus tied to reported income

Select all that apply Which of the following items may be classified as nonoperating revenues and expenses for a company that manufactures televisions? Interest expense Selling expenses Gain from sale of land Interest revenue

Interest expense Gain from sale of land Interest revenue

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

Inventory

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 balance from FIFO to LIFO by using the LIFO adjustment inventory conversion FIFO adjustment

LIFO adjustment

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes? Weighted-average FIFO only LIFO only LIFO, FIFO or weighted-average

LIFO only

_________________________ resell inventory to retail companies or to professional users, whereas retailers sell inventory to end users.

Wholesalers

Which of the following accounts would be found in the balance sheet of a manufacturing company? Cost of goods sold Work in process Merchandise inventory

Work in process

Meller purchases inventory on account. As a results, Meller's stockholders' equity will decrease. assets will increase. income will decrease. liabilities will decrease.

assets will increase.

Select all that apply Freeze Corporation uses the lower of cost or net realizable value method to write down inventory. Freeze determines that the inventory should be written down by $1,000. The effect on the financial statements is to: decrease stockholders' equity decrease assets increase assets increase stockholders' equity increase net income decrease net income

decrease stockholders' equity decrease assets decrease net income

Match the inventory account with the correct description. Finished goods

items for which the manufacturing process is complete

Freight-in on inventory purchases is typically recognized as selling and administrative expenses. cost of goods sold when paid. part of the cost of purchasing inventory.

part of the cost of purchasing inventory.

Select all that apply What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory) stockholders' equity increases stockholders' equity decreases total assets increase total assets decrease net income increases

stockholders' equity increases total assets increase net income increases

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be what? Note: this question is asking for the ending inventory value, not cost of goods sold. $620. $640. $636. $600.

$640. Reason: $2,880/900 x 200 = $640 Note: this question is asking for the ending inventory value, not cost of goods sold.

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? LIFO FIFO Weighted-average

FIFO

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

merchandising

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be $2,560. $2,540. $2,400. $2,544.

$2,540. Reason: 800 units have been sold. 100 units from beginning inventory at $300 plus 700 units from the 900 units purchased for $2,880. ($2,880/900 x 700) = $2,240 + $300 = $2,540

Prather Inc. has sales of $100,000, sales returns of $5,000, cost of goods sold of $60,000, and selling expenses of $3,000. Calculate gross profit. $35,000 $40,000 $32,000 $33,000

$35,000 Reason: Net sales is $95,000 ($100,000 - 5,000). Net sales of $95,000 less cost of goods sold of $60,000 = $35,000.

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be $420. $440. $436.

$420. Reason: ($1,980/900 x 100) +$200 = $420

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be $440. $436. $420.

$420. Reason: ($1,980/900 x 100) +$200 = $420

Which of the following statements is correct? A company must apply one cost flow assumption to at least 80% of the inventory. A company can apply more than one inventory cost flow assumption. A company must apply the same cost flow assumption to all its inventory.

A company can apply more than one inventory cost flow assumption.

Select all that apply Which of the following items are reported in operating income? Advertising expenses Investment income Selling expenses Interest expense Revenues

Advertising expenses Selling expenses Revenues

Match the inventory cost flow assumption with the financial statement approach. FIFO

Balance sheet approach

Where is inventory reported in the financial statements? Balance sheet as a noncurrent asset Statement of cash flows as an investing activity Income statement as revenue Balance sheet as a current asset

Balance sheet as a current asset

Select all that apply Which of the following items are included in calculating operating income? (Select all that apply.) Gain on the sale of investments Cost of goods sold Utility expense General and administrative expenses

Cost of goods sold Utility expense General and administrative expenses

Which inventory account consists of the cost of items for which the manufacturing process is complete? Finished goods inventory Raw materials inventory Work-in-process inventory Merchandise inventory

Finished goods inventory

Janex Company manufactures refrigerators. Which of the following items is classified as nonoperating expense Interest expense Cost of goods sold Rent expense General and administrative expenses

Interest expense

The definition of inventory includes which of the following items? Select All that Apply: Materials used currently in the production of goods to be sold Items held for resale Items currently in production for future sale Items held for use or disposal

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

Match each transaction with the correct journal entry. Debit Inventory, credit Accounts Payable

Purchase of inventory on account

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production. Merchandise inventory Work-in-process inventory Finished goods inventory Raw materials inventory

Raw materials inventory

Match each scenario with the type of inventory system. Periodic inventory system

Sherman Company recognizes cost of goods sold after completing a physical inventory.

Select all that apply At year end, CurlZ Inc.'s inventory consists of 100 bottles of CleanZ with a cost of $1, and a selling price of $0.80 per bottle. It also has 100 boxes of DyeZ with a cost of $10, and a selling price of $11 per box. Using the lower of cost and net realizable value method, the year-end Inventory balance should include which of the following amounts? The selling price of $80 for the CleanZ bottles. The cost of $1,000 for the DyeZ boxes. The cost of $100 for the CleanZ bottles. The selling price of $1,100 for the DyeZ boxes.

The selling price of $80 for the CleanZ bottles. The cost of $1,000 for the DyeZ boxes.

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

Two Reason: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

Which of the following methods are available for costing inventory? (Select all that apply.) Weighted-average Specific identification NIFO FIFO Simple-average LIFO

Weighted-average Specific identification FIFO LIFO

Which of the following accounts would be found in the balance sheet of a manufacturing company? Work in process Cost of goods sold Merchandise inventory

Work in process

_____ inventory refers to the products that have been started in production, but are still incomplete. Raw materials Finished goods Work-in-process

Work-in-process

The weighted average cost method assum es that ending inventory consists of the most recently purchased units. a mixture of all the goods available for sale. the oldest units in inventory.

a mixture of all the goods available for sale.

Select all that apply If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____. (Answer from the viewpoint of the buyer.) credit to Accounts Receivable debit to Purchase Returns credit to Cash credit to Inventory. debit to Accounts Payable

credit to Inventory. debit to Accounts Payable Reason: When the goods were purchased, Inventory was increased with a debit and Accounts Payable was increased with a credit. When goods are returned, Accounts Payable is reduced with a debit and Inventory is decreased with a credit. Reason: The Purchase Returns account is used only with a periodic system.

____________________ _________________________ inventory consists of items for which the manufacturing process is complete.

finished goods

Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies. manufacturing merchandising intermediary service

merchandising

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. single-step classified current multiple-step

multiple-step

The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when the inventory is purchased. the inventory is sold. the value declines below cost

the value declines below cost.

The LIFO adjustment is used internally to convert the inventory to the LIFO basis. to the weighted average basis. to the FIFO basis.

to the LIFO basis.

Weighted-average unit cost is determined by dividing cost of goods available for sale by quantity most recently purchased. total quantity available for sale. quantity in beginning inventory. quantity in ending inventory.

total quantity available for sale.

Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be: the financial statements are correct understated assets, retained earnings, and net income understated assets; overstated retained earnings and net income

understated assets, retained earnings, and net income

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be $1,760. $1,744. $1,980.

$1,760. Reason: ($1,980/900 x 800) = $1,760

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be $2,544. $2,400. $2,560. $2,540.

$2,540. Reason: 800 units have been sold. 100 units from beginning inventory at $300 plus 700 units from the 900 units purchased for $2,880. ($2,880/900 x 700) = $2,240 + $300 = $2,540

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______. $45,000 $20,000 $25,000 $30,000 $5,000 $15,000

$20,000 Reason: Gross profit = sales-cost of goods sold.

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be what? Note: this question is asking for the ending inventory value, not cost of goods sold. $636. $620. $640. $600.

$640. Reason: $2,880/900 x 200 = $640 Note: this question is asking for the ending inventory value, not cost of goods sold.

Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be: overstated net income the financial statement will be correct understated assets, retained earnings, and net income overstated assets, retained earnings and net income

*overstated net income the financial statement will be correct Reason: net income is too high because beginning inventory balance is too low understated assets, retained earnings, and net income Reason: effect on current year statements not the following year statements. overstated assets, retained earnings and net income Reason: the balance sheet is correct because the effect of the error counterbalanced; net income is too high because the beginning balance is too low.

Which of the following companies would be most likely to utilize the specific identification method? Barny Company purchases and sells a large quantity of interchangeable units. Adams Company produces one-of-a-kind products. Carmen Company produces its products in 100,000-unit batches.

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

Freight charges are ___________________ to the cost of inventory, while purchase returns and purchase discounts are _______________ from the cost of inventory by most companies.

Blank 1: added Blank 2: deducted or subtracted

The lower of cost and net realizable value method represents a(n) __________________ approach in accounting.

Blank 1: conservatism or conservative

Which of the following concepts or principles is especially relevant to the lower of cost and net realizable value rule? Full disclosure Going concern Periodicity Conservatism

Conservatism

Where is inventory classified in the financial statements? Expense in the income statement Noncurrent asset in the balance sheet Current asset in the balance sheet Revenue in the income statement

Current asset in the balance sheet

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold? Debit Accounts Receivable $2,000; credit Inventory $2,000 Debit Cost of Goods Sold $1,500; credit Inventory $1,500 Debit Inventory $1,500; credit Cost of Goods Sold $1,500 Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Select all that apply Clark uses the perpetual inventory system. Clark sells goods to a customer on 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 Cost of Goods Sold $1,000; credit Inventory $1,000 Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000

Debit Cost of Goods Sold $700; credit Inventory $700 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000

Select all that apply Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required? Debit Cost of Goods Sold $1,000; credit Inventory $1,000 Debit Cost of Goods Sold $700; credit Inventory $700 Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000

Debit Cost of Goods Sold $700; credit Inventory $700 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following? Debit Accounts Payable Debit Purchases Debit Sales Revenue Debit Inventory

Debit Inventory

Maier Company purchases inventory from Kunze Corporation and debits inventory and credits accounts payable to record the transaction. Which of the following journal entries would Kunze make to record the sale? Debit sales revenue, credit accounts receivable Debit sales revenue, credit accounts payable Debit accounts receivable, credit cost of goods sold Debit accounts receivable, credit sales revenue

Debit accounts receivable, credit sales revenue

Select all that apply Which of the following costs are recognized in work in process for a manufacturing company? Direct labor Interest expense Overhead Cost of goods sold Raw materials

Direct labor Overhead Raw materials

How is cost of goods sold classified in the financial statements? Current asset in the balance sheet Revenue in the income statement Expense in the income statement Noncurrent asset in the balance sheet

Expense in the income statement

How is cost of goods sold classified in the financial statements? Expense in the income statement Current asset in the balance sheet Revenue in the income statement Noncurrent asset in the balance sheet

Expense in the income statement

The __________________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

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

FIFO

True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.

False

Select all that apply Consistent with International Financial Reporting Standards, which of the following cost flow assumptions are currently permitted? First in, first out Weighted-average Last in, first out

First in, first out Weighted-average

Select all that apply To calculate the amount in the inventory account, which of the following occurs? Selling expense is added to the cost of inventory Purchase returns are added to the cost of inventory Freight-in is added to the cost of inventory Freight-in is deducted from the cost of inventory Purchase discounts are subtracted from the cost of inventory Purchase discounts are added to the cost of inventory Purchase returns are subtracted from the cost of inventory

Freight-in is added to the cost of inventory Purchase discounts are subtracted from the cost of inventory Purchase returns are subtracted from the cost of inventory

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods. Select all that apply Sales Revenue Inventory Cost of Goods Sold Purchases

Inventory Cost of Goods Sold

The cost of goods not yet sold is recorded in the ______ account, whereas the cost of goods that are sold to customers is recorded in _____. Cash; Inventory Cost of Goods Sold; Inventory Inventory; Cost of Goods Sold Cost of Goods Sold; Sales Revenue

Inventory; Cost of Goods Sold

Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces? LIFO FIFO Weighted-average Specific identification

LIFO

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

LIFO reserve

Which disclosure allows financial statement users to compare companies that use LIFO to companies that use FIFO? LIFO reserve FIFO reserve Lower of cost and net realizable value disclosure Specific-Identification disclosure

LIFO reserve

Gross Profit is Net Sales Revenue minus Cost of Goods Sold. Beginning Inventory plus Purchases minus Ending Inventory. Revenue minus Inventory. Revenue minus Expenses.

Net Sales Revenue minus Cost of Goods Sold.

Which of the following costs are recognized in work in process for a manufacturing company? Cost of goods sold Interest expense Overhead Raw materials Direct labor

Overhead Raw materials Direct labor

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

Provides better matching of current revenues with current inventory cost

Which of the following accounts are typically reported in the balance sheet of a manufacturing company? Raw materials Finished goods Work in process Cost of goods sold

Raw materials Finished goods Work in process

Match the inventory cost flow assumption with the financial statement effects. FIFO

The amount reported on the balance sheet approximates current cost of inventory.

Match the inventory cost flow assumption with the financial statement effects. LIFO

The amount reported on the income statement approximately matches current cost with current revenue.

Select all that apply At year end, CurlZ Inc.'s inventory consists of 100 bottles of CleanZ with a cost of $1, and a selling price of $0.80 per bottle. It also has 100 boxes of DyeZ with a cost of $10, and a selling price of $11 per box. Using the lower of cost and net realizable value method, the year-end Inventory balance should include which of the following amounts? The selling price of $80 for the CleanZ bottles. The selling price of $1,100 for the DyeZ boxes. The cost of $1,000 for the DyeZ boxes. The cost of $100 for the CleanZ bottles.

The selling price of $80 for the CleanZ bottles. The cost of $1,000 for the DyeZ boxes. Reason: Selling price less selling costs are only used when they are lower than the purchase price. Reason: Lower of cost and net realizable value method requires the CleanZ bottles be reported at the lower net selling price of $0.80 per bottle.

Select all that apply Which of the following items are included in calculating operating income? (Select all that apply.) Utility expense Gain on the sale of investments Cost of goods sold General and administrative expenses

Utility expense Cost of goods sold General and administrative expenses

The weighted average cost method assumes that cost of goods sold consists of . the oldest units in inventory. a mixture of all the goods available for sale. the most recently purchased units.

a mixture of all the goods available for sale.

Select all that apply Using the perpetual inventory system, what is the effect of a sale of inventory on assets? assets increase by the cost of the inventory assets decrease by the cost of the inventory assets increase by the sales price of the inventory assets decrease by the sales price of the inventory

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

The lower of cost and net realizable value method was developed to provide an alternative to the FIFO, LIFO, and weighted-average methods. prevent the company from selling the inventory below its original cost. avoid reporting inventory at an amount that exceeds the benefits it provides.

avoid reporting inventory at an amount that exceeds the benefits it provides.

Select all that apply Which of the following items are readily available from an inventory account under the perpetual inventory system? freight-out beginning inventory balance individual purchases sales revenue cost of units sold ending inventory balance

beginning inventory balance individual purchases cost of units sold ending inventory balance

The LIFO difference (sometimes called LIFO reserve) helps investors predict the future profitability of a company using LIFO. predict the future profitability of a company using FIFO. compare the performance of companies that use different cost flow assumptions.

compare the performance of companies that use different cost flow assumptions.

Some companies refer to "cost of goods sold" as cost of products sold product costs cost of sales cost of inventory cost of merchandise sold

cost of products sold cost of sales cost of merchandise sold

Select all that apply When a company adjusts its own FIFO inventory records at year-end to a LIFO basis for financial statements, the company must: credit cost of goods sold debit LIFO adjustment credit inventory debit cost of goods sold credit LIFO adjustment debit inventory

credit inventory debit cost of goods sold

Select all that apply Recording a write-down of inventory from cost to its lower net realizable value includes: debit to Inventory credit to Inventory debit to Cost of Goods Sold credit to Sales Revenue debit to Sales Revenue

credit to Inventory debit to Cost of Goods Sold

Schoen Corporation internally accounts for its inventory using the FIFO cost flow assumption, but uses LIFO for external reporting. Its current year inventory ending balance under FIFO is $15,000; under LIFO, the ending balance would be $11,000. The journal entry to adjust FIFO to LIFO is: debit cost of goods sold and credit inventory for $4,000 debit inventory and credit cost of goods sold for $4,000 debit cost of goods sold and credit inventory for $11,000 debit inventory and credit cost of goods sold for $11,000

debit cost of goods sold and credit inventory for $4,000 Reason: cost of goods sold is higher under LIFO than FIFO as deduced from the balances given. Reason: $15,000 - $11,000

Net sales revenue minus cost of goods sold is operating income. earnings before taxes. net income. gross profit.

gross profit.

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

higher

Select all that apply Purchasing inventory on account: increases equity increases liabilities decreases assets decreases equity increases assets

increases liabilities increases assets

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.) inventory. current assets. cost of goods sold. liabilities.

inventory. cost of goods sold.

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide. cost-benefit; greater lower of cost and net realizable value; greater cost-benefit; smaller lower of cost and sales revenue; smaller lower of cost and net realizable value; smaller lower of cost and sales revenue; greater

lower of cost and net realizable value; greater

The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as: net realizable value gross profit replacement cost net sales revenue full cost

net realizable value

The FIFO inventory method assumes that units remaining in ending inventory are the __________________________ units purchased. Note: this question is asking about ending inventory.

newest

Income before income taxes is calculated by combining operating income with cost of goods sold operating expenses revenues non-operating income

non-operating income

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

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are treated as a selling expense. Deducted from Ronald's inventory. paid by the supplier.

paid by the supplier.

Select all that apply A company is most likely to utilize the specific identification method if its inventory consists of very expensive products. mass-produced products. unique products.

very expensive products. unique products.

FOB shipping point means title to the goods passes when they are shipped. when they arrive at the destination.

when they are shipped.

The specific identification method (select all that apply): would be beneficial to a company that makes fine jewelry is not an acceptable method of accounting would be beneficial to a company that makes inexpensive products with high sales volume matches each unit of inventory with its actual cost

would be beneficial to a company that makes fine jewelry matches each unit of inventory with its actual cost