CH 8

perpetual inventory

A _____inventory system provides a means for generating up-to-date records related to inventory quantities.

FIFO

A major advantage of the ____ inventory method is that the ending inventory is stated in terms of an approximate current cost figure.

include

A packing case containing a product costing $3,400 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked "Hold for shipping instructions." Your investigation revealed that the customer's order was dated December 18, 2014, but that the case was shipped and the customer billed on January 10, 2015. The product was a stock item of your client.; include in inventory or not?

merchandise inventory

For a merchandising business, the cost assigned to unsold units left on hand, but ready for sale. Only one inventory account, Inventory, appears in a merchandiser's financial statements.

inventory on the balance sheet

Freight charges on goods purchased are considered ____ on the ____ ___

not reported not reported

Goods held on consignment from another company are considered ____ on the ____ ___

buyer's

Goods in transit at the end of the period, shipped f.o.b. shipping point, should be included in the _____ ending inventory.

inventory on the balance sheet

Goods out on consignment at another company's store are considered ____ on the ____ ___

not reported and not

Goods purchased f.o.b. destination that are in transit at December 31 are considered ____ on the ____ ___

Inventory on the balance sheet

Goods purchased f.o.b. shipping point that are in transit at December 31 are considered ____ on the ____ ___

inventory on the balance sheet

Goods sold f.o.b. destination that are in transit at December 31 are considered ____ on the ____ ___

cost of goods sold on the income statement

Goods sold f.o.b. shipping point that are in transit at December 31 are considered ____ on the ____ ___

Cost of goods sold on the income statement

Goods sold on an installment basis (bad debts can be reasonably estimated) are considered ____ on the ____ ___

Inventory on the balance sheet

Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory are considered ____ on the ____ ___

cost of goods sold on the income statement

Goods sold where large returns are predictable are considered ____ on the ____ ___

net sales - cost of goods sold

Gross profit =

received

If goods are shipped f.o.b. destination, they belong to the seller until _____ by the buyer.

1) the physical goods to be included in inventory 2) the costs to be included in inventory 3) the cost flow assumption to be used.

The process of computing cost of goods sold is complicated by the determination of 3 factors:

(a) sales with a buy back agreement (b) sales with high rates of return.

Two common special agreements are 1) sales with a ____ ___ agreement 2) sales with a high rate of ____

periodic basis

Under LIFO when inventory records are kept on a _____ ____, the ending inventory is priced by using the total units as a basis of computation, disregarding the exact dates of purchases.

LIFO

Under _____ when inventory records are kept on a periodic basis, the ending inventory is priced by using the total units as a basis of computation, disregarding the exact dates of purchases.

perpetual inventory

Under this inventory system, data are available at any time relative to the quantity of material or type of merchandise on hand and the related cost.

LIFO

Use of the ____ inventory method assumes that the most recent inventory costs are the first costs recognized as goods manufactured or sold.

periodic

When inventory is accounted for on a ____ inventory system, the acquisition of inventory is debited to a Purchases account.

Purchases

When inventory is accounted for on a periodic inventory system, the acquisition of inventory is debited to a ______ account.

expense

When purchases are recorded net of discounts, failure to pay within the discount period results in the treatment of lost discounts as a financial ____.

Product costs

costs include freight charges on goods purchased, other direct costs of acquisition, and labor and other production costs incurred in processing the goods up to the time of sale

Beginning inventory + Net purchases - ending inventory _____________________ = cost of goods sold

formula to calculate cost of goods sold under periodic system

physical inventory

involves counting all inventory items and comparing the amount counted with the amount shown in the detailed inventory records.

Cost of goods available for sale -Ending Inventory ____________________________ = COGS

periodic system COGS =

Merchandise inventory

refers to the goods held for resale by a merchandising concern.

Supplies inventory

would include such items as machine oils, nails, cleaning material, and the like—supplies that are used in production but are not the primary materials being processed.

include

A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on December 31, 2014. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2015; include in inventory or not?

inventories

Asset items that a company holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold.

Revenue x (1-Gross profit rate) _______________________ = COGS

COGS formula based on gross profit rate:

Beginning inventory +net purchases _________________________________ = cost of goods available to sell - ending inventory _________________________________ = Cogs

Cogs formula

acquiring and converting

Cost in terms of inventory acquisition includes all expenditures necessary in ____ the goods and ___ them to a saleable condition.

Goods available for sale(sum of period) - ending inventory __________________ = COGS

Cost of goods sold formula based on goods available for sale

inventory on the balance sheet

Costs identified with units completed by a manufacturing firm but not yet sold are considered ____ on the ____ ___

advertising expense on the income statement

Costs incurred to advertise goods held for resale are considered ____ on the ____ ___

FIFO

Disadvantage of ____ inventory method tends to reflect current costs on the balance sheet, a basic disadvantage of this method is that current costs are not matched against current revenues on the income statement.

physical count

Ending inventory is determined by a _____ _____ at the end of the year under a periodic inventory system.

inventory on the balance sheet

Factory supplies are considered ____ on the ____ ___

Under-statement of inventory Under-statement of A/P = Balance sheet effects Understatement of purchases Understatement of inventory = income statement no effect on net income

If merchandise was not recorded as a purchase nor counted in the ending inventory: (effects on BS, IS, and NI)

gross method

If the ___ ___ is used, purchase discounts should be reported as a deduction from purchases on the income statement.

purchases on the income statement

If the gross method is used, purchase discounts should be reported as a deduction from ______ on the ____ ___.

financial expense in the other expenses and losses section of the income statement

If the net method is used, purchase discounts lost should be considered a financial _____ and reported in the "____ ___ and _____" section of the ____ ____.

Cost of Goods Sold

In a perpetual inventory system a . A ____ of ___ _____ account is used to accumulate the issuances from inventory.

they occur

In a perpetual inventory system, purchases and sales of goods are recorded directly in the Inventory account when: ?

FIFO

In all cases where _____ is used, the inventory and cost of goods sold will be the same amount at the end of the month whether a perpetual or periodic system is used.

Interest expense on the income statement

Interest costs incurred for inventories that are routinely manufactured are considered ____ on the ____ ___

cost

Inventories are recorded at ____ when acquired.

balance sheet and income statement

Inventories effect which two statements directly?

costs and physical flow of inventory

Inventory cost flow assumptions relate to the flow of _____ and not the physical flow of ______ items into and out of the company.

consignor's

Inventory out on consignment belongs to the _____inventory.

Periodic inventory system

Inventory system in which a company uses a Purchases account to record purchases of inventory during the period. The Inventory account represents the beginning inventory amount throughout the period; at the end of the accounting period, the company adjusts the Inventory account by closing out the beginning inventory amount and recording the ending inventory amount, which is determined by a physical count of the items on hand, valued at cost or at the lower-of-cost-or-market.

prices and revenues faster than costs

LIFO is generally preferable to FIFO when: 1) selling prices and revenues have been increasing faster than _____, and (b) LIFO has been traditional, such as its use by department stores and industries where a fairly constant "base stock" is present.

raises

LIFO method ______ reported earnings in times of rising prices

liquidation

LIFO method creates involuntary ____ problems

revenue

LIFO method encourages proper matching of recent costs with current ____

poor buying

LIFO method invites _____ ___habits.

physical

LIFO method is contrary to normal _____ flow

outdated

LIFO method reports _____ costs on balance sheet

cash flow and future earnings hedge

LIFO method results in improved cash _____ and future earnings _____

benefits

LIFO method results in tax ______

inventory on the balance sheet

Materials on hand not yet placed into production by a manufacturing firm are considered ____ on the ____ ___

do not include

Merchandise costing $2,800 was received on January 3, 2015, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2014, f.o.b. destination.; include in inventory or not?

do not include

Merchandise costing $720 was received on December 28, 2014, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked "on consignment."; include in inventory or not?

include

Merchandise received on January 6, 2015, costing $680 was entered in the purchases journal on January 7, 2015. The invoice showed shipment was made f.o.b. supplier's warehouse on December 31, 2014. Because it was not on hand at December 31, it was not included in inventory.; include in inventory or not?

received

Normally, goods are included in inventory when they are ____ from the supplier

office supplies on the balance sheet

Office supplies are considered ____ on the ____ ___

inventory

Period costs, such as selling expenses and general and administrative expenses, are not considered ______costs

1)Purchases of merchandise for resale or raw materials for production are debited to Inventory 2) Freight-in is debited to Inventory 3) Purchase returns and allowances and purchase discounts are credited to Inventory 4)Cost of goods sold is recorded at the time of each sale by debiting Cost of Goods Sold and crediting Inventory

Perpetual inventory system characteristics: 1) Purchases of merchandise for resale or raw materials for production are debited to _____ 2) Freight-in is debited to ______ 3) Purchase returns and allowances and purchase discounts are credited to _____ 4) Cost of goods sold is recorded at the time of each sale by debiting _____ of _____ ___ and crediting _______

inventory

Product costs are those costs that "attach" to the inventory and are recorded in the ____account.

Inventory on the balance sheet

Raw materials on which a manufacturing firm has started production but which are not completely processed are considered ____ on the ____ ___

short-term investments on the balance sheet

Short-term investments in stocks and bonds that will be resold in the near future are considered ____ on the ____ ___

Internal use or discrete= interest capitalized Frequent and repetitive= interest not capitalized

The accounting profession allows for the capitalization of interest costs related to assets constructed for internal use or assets produced as discrete projects (such as ships or real estate projects) for sale or lease. However if it is produced in large quantities repetitively then interest is ______

perpetual

The balance in the Inventory account at the end of the year should represent the ending inventory cost is a characteristic of the _____ inventory system

raw materials inventory

The cost assigned to goods and materials on hand but not yet placed into production. Raw materials can be traced directly to the end product.

Work in process inventory

The cost of partially processed units in a continuous production process, consisting of the raw material for these unfinished units, plus the direct labor cost applied specifically to this material and a ratable share of manufacturing overhead costs

finished goods inventory

The costs identified with the completed but unsold units on hand at the end of the fiscal period. This category of inventory appears on the balance sheets of manufacturing companies.

1. raw materials 2. work in process 3. finished goods

The inventory of a manufacturing firm is composed of three separate accounts representing stages of completion: 3

Product costs

____ ____ are those costs that "attach" to the inventory and are recorded in the inventory account.

Cost of goods sold

____ of ____ ___ must be calculated when a periodic inventory system is in use. The computation of cost of goods sold is made by adding beginning inventory to net purchases and then subtracting ending inventory.

FIFO

_____ inventory method assumes that the first goods purchased are the first used or sold.

LIFO

_____ inventory method would not be preferable when: (a) prices tend to lag behind costs, (b) specific identification is traditional, and (c) unit costs tend to decrease as production increases, thereby nullifying the tax benefit that LIFO might provide.

Specific identification

______ ____ calls for identifying each item sold and each item in inventory.

period

___costs are unrelated to the immediate production process and not included in inventory

special sale agreements

a few exceptions exist regarding the general rule that inventory is recorded by the company that has legal title to the merchandise which is known as

Inventories

are asset items that a company holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold.