Ch. 8 Inventories: Measurement

Ownership of inventory at the end of the accounting period is determined for (Select all that apply.)

goods shipped to customers. & goods shipped by suppliers.

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2016, Pernell's ending inventory would have been?

$150,000 higher if it had used FIFO.

Which inventory system allocates cost of goods available for sale only at the end of each reporting period?

periodic inventory system

A(n) _____ inventory system adjusts for each change caused by a purchase, a sale, or a return of merchandise.

perpetual

A _____ inventory system recognizes cost of goods sold each time a sale occurs; a _____ inventory system decreases inventory each time a sale occurs.

perpetual; perpetual

A periodic inventory system (Select all that apply.)

does not continuously track the cost of merchandise sold. & does not continuously track the quantity of merchandise.

The cost of inventory includes (Select all that apply.)

expenditures to acquire the inventory & the cost to bring inventory to its desired location

True or false- A periodic inventory system allows management to determine the amount of goods on hand without having to take a physical count.

false

The FIFO method assumes that units sold are the _________ units acquired and that units remaining in ending inventory are the ________ units purchased.

first; last

At the end of an accounting period, it is important to ensure proper inventory _____ to determine the ownership of goods in transit.

cutoff

A LIFO liquidation occurs when inventory quantities ______.

decrease

What method of inventory valuation matches each unit on hand at the end of the period with its actual cost?

specific identification

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

inventory

Chase Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Rounding to the nearest percent, the company's gross profit ratio would be?

50%; Reason- Gross profit ratio is computed as gross profit/NET SALES. Be sure to use the net sales number, not gross sales. ($7 million -$3.5 million)/$7 million

The inventory turnover ratio is computed as cost of goods sold divided by _____.

average inventory

Which inventory costing method assumes that items sold are those that were acquired first?

FIFO

Which inventory costing method assumes that items in ending inventory are the most recently acquired?

FIFO (First-In, First-Out)

If a company uses _____ to measure taxable income, they must use the same method for external financial reporting.

LIFO

Which inventory costing method assumes that the units sold are the most recent units purchased?

LIFO

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

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

LIFO; Reason- In a period of rising prices, LIFO results in goods with the highest cost being sold first resulting in higher cost of goods sold and lower income.

The goods a wholesale company purchases in finished form are referred to as what?

Merchandise inventory

Which of the following are disadvantages of unit LIFO? (Select all that apply.)

Possibility of LIFO liquidation & Significant recordkeeping costs

Which of the following situations would result in a LIFO liquidation for a company that has 200 units in beginning inventory and sales of 1,000 units?

The company purchases 950 units during the year.

What is included in the cost of merchandise inventory? (Select all that apply.)

The purchase price of the goods. & Necessary costs incurred to get the goods in location for sale.

The average cost method assumes that cost of goods sold consists of

a mixture of all the goods available for sale.

The average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale.

In a perpetual inventory system the inventory account is

continually adjusted.

Inventory cost flow assumptions can be used to assign dollar amounts to (Select all that apply.)

goods sold. & ending inventory.

Parker Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Its inventory balance was $150,000 at the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closest to?

20; Reason: $3.5 million/($150,000+$200,000/2)

Finished goods is a type of inventory found on a _____ company's balance sheet.

manufacturing

The specific identification method (select all that apply)

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

A _____ company resells goods while a _____ company produces goods.

merchandising; manufacturing

The gross profit ratio is computed as gross profit divided by _____.

net sales

High recordkeeping costs and possible LIFO liquidation are disadvantages of?

unit LIFO

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

work in process

Gerhard Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased at least 1,200 units, COGS would have been?

$2000 higher

What type of expenditures should be included in the cost of inventory of a manufacturing company? (Select all that apply.)

Expenditures necessary to acquire inventory. & Expenditures necessary to bring inventory to sales location.

Assuming that prices rise over time, which inventory cost flow assumption will result in the highest cost of goods sold?

LIFO; Reason; In a period of rising prices, LIFO results in goods with the highest cost being sold first resulting in higher cost of goods sold.

Cost flow _____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.

assumptions

The definition of inventory includes which of the following items? (Select all that apply.)

items currently in production for future sale, items held for resale, & items used currently in the production of goods to be sold

The LIFO inventory method assumes that the units sold are

the most recent units purchased.

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased 1,200 units, pretax income would have been?

$2000 lower; Reason- Currently cost of goods sold ($22,000) is computed using the 1,000 units at $20 plus 200 units at $10 ((1,000 x $20) + (200 x $10))so the units from beginning inventory are liquidated. If they had purchased at least 1,200 units, cost of goods sold would have been $24,000 (1,200 x $20); $2,000 higher; resulting in lower pretax income of $2,000.

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's cost of goods sold for the 2016 fiscal year would have been?

$50,000 lower if it had used FIFO.