Chp. 6 SB

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 Inventory $1,500

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

FIFO

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

FIFO

Which inventory cost flow method approximates the physical flow of inventory items?

FIFO

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

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 balance from FIFO to LIFO by using the

LIFO adjustment

Perpetual inventory system

Neumann Company can determine the cost of inventory still on hand by referring to the inventory account.

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

Perpetual inventory system

Periodic inventory system

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

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

Two

Freight-in

added to the cost of inventory

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

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

Meller purchases inventory on account. As a results, 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 benefits it provides

The formula for inventory turnover is

cost of goods sold divided by average inventory

A periodic inventory system cost of goods sold by estimating the amount of inventory sold.

counting inventory at the end of the period

The shipping term FOB stands for

free on board

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

included in Gerald's inventory.

Purchasing inventory on account:

increases liabilities increases assets

Cost of goods sold divided by average inventory is

inventory turnover.

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

inventory; selling expense

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

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

outdated

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

paid by the supplier.

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

perpetual

Freight-out

recognized as operating expense

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 net income increases total assets increase

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

Which of the following represent reasons why managers closely monitor inventory levels?

-To minimize costs of inventory write-downs due to obsolete inventory. -To ensure that sufficient units are available.

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

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

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

The inventory turnover ratio directly measures ______.

the times per period the average inventory balance is sold

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis

FOB shipping point means title to the goods passes

when they are shipped.