ACC 3053 CH 10 Smartbook

Bennett Corporation sells kayaks. At the beginning of the year, there was one kayak in inventory costing $500. Bennett purchased another kayak during the period for $550 and then sold one of the kayaks for $750. How much was the goods available for sale during the period?

$1,050 ($500+$550)

Messer Corporation sells recreational vehicles (RV). At the beginning of the year, they had one RV in inventory costing $40,000. They purchased another RV for $42,000. They sold one of the RVs for $57,500. How much is gross profit using the last-in, first-out (LIFO) method?

$15,500

Messer Corporation sells recreational vehicles (RV). At the beginning of the year, they had one RV in inventory costing $40,000. They purchased another RV for $42,000. They sold one of the RVs for $57,500. How much is gross profit using the first-in, first-out (FIFO) method?

$17,500

Santiago Corporation sells ultra-lite backpacks for backpacking. At the beginning of the year, there was one backpack in inventory costing $200. Santiago purchased another backpack for $250 and then sold one of the backpacks for $375. How much should be allocated to ending inventory using the last-in, first-out method (LIFO)?

$200

Farmville Corporation reported a LIFO reserve of $22,500 at the end of the year. The beginning LIFO reserve was $10,000. The cost of goods sold was $237,500 under LIFO. The cost of goods sold under FIFO should be:

$225,000 ($237,000-increase in LIFO reserve of $12,500)

Santiago Corporation sells ultra-lite backpacks for backpacking. At the beginning of the year, there was one backpack in inventory costing $200. Santiago purchased another backpack for $250 and then sold one of the backpacks for $375. How much should be allocated to cost of goods sold using the last-in, first-out method (LIFO)?

$250

The Daleville Company reported merchandise inventory at LIFO of $375,000 on the year-end financial statements. The company also reported a LIFO reserve of $15,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is

$390,000

Riley Corporation sells bicycles. At the beginning of the year, there was one bicycle in inventory costing $800. Riley purchased another bicycle for $900 and then sold one of the bicycles for $1,100. How much should be allocated to Cost of goods sold using the first-in, first-out method (FIFO)?

$800

Riley Corporation sells bicycles. At the beginning of the year, there one bicycle in inventory costing $800. Riley purchased another bicycle for $900 and then sold one of the bicycles for $1,100. How much is allocated to ending inventory and cost of goods sold using the weighted average method?

$850 is allocated to Ending inventory and $850 to Cost of goods sold.

Riley Corporation sells bicycles. At the beginning of the year, there was one bicycle in inventory costing $800. Riley purchased another bicycle for $900 and then sold one of the bicycles for $1,100. How much should be allocated to ending inventory using the first-in, first-out method (FIFO)?

$900

Which of the following statements are true?

-A mismatching of LIFO layers leads to an impact on reported earnings. -LIFO liquidations can cause reported margins and income trends to be distorted.

Which of the following are true of goods shipped on consignment?

-Consignment goods should be included in the inventory of the consignor. -The consignee acts as an agent for the owner.

The total cost of goods available for sale must be allocated between which of the following accounts?

-Cost of goods sold -Ending inventory

Which of the following are true regarding differences in IFRS and GAAP inventory reporting methods?

-IFRS allows inventory reductions to be reversed if the market recovers. -IFRS requires the disclosure of the amounts of inventory write-downs and recoveries.

Which of the following statements are true?

-If the cost of inventory never changed, all three cost flow assumptions would yield the same financial statement results. -According to GAAP, the cost flow assumption used by companies does not have to correspond to the actual physical flow of inventory.

Which of the following are true of current cost accounting?

-It is allowed by the FASB in voluntary supplemental disclosure. -It overcomes the weakness of inventory holding gains and losses. -It requires a large number of estimates.

Which of the following are true of specific identification?

-It is appropriate for businesses that sell a small number of high-value items. -It makes it relatively easy to manipulate income.

Which of the following are true of the LIFO reserve?

-It must be disclosed at each balance sheet date. -It addresses the issue of comparability between LIFO and FIFO. -It is required by the SEC.

Which of the following are true statements regarding research about inventory choices?

-Several studies found that the potential inventory holding gains are much higher for LIFO firms. -A study found consistent evidence that the market perceives LIFO earnings of higher quality than FIFO earnings.

The size of divergence between FIFO cost of goods sold and replace cost of goods sold depends on which of the following factors?

-The rapidity of physical inventory turnover -The severity of input cost changes

Which of the following are true of vendor allowances?

-Vendor allowances are common in retail sales. -With vendor allowances, manufacturers make payments or credits to their customers. -A slotting fee is an example of a vendor allowance.

Identify the correct statement regarding the first-in, first-out (FIFO) inventory method.

A deficiency of the FIFO method is that it charges oldest costs against revenues on the income statement.

Which of the following statements is true?

A periodic inventory system does not keep a running record of the dollar amount of inventory on hand.

Which of the following are not true of goods shipped on consignment?

Consignment goods should be included in the consignee's inventory.

Riley Corporation sells bicycles. At the beginning of the year, there was one bicycle in inventory costing $500. Riley purchased another bicycle during the period for $600 and then sold one of the bicycles for $850. Identify the true statement.

Ending inventory is $550 using the weighted average method.

True or false: Current cost accounting must be used under GAAP to overcome the weaknesses in recording holding gains and losses.

False

Bennett Corporation sells kayaks. At the beginning of the year, there was one kayak in inventory costing $300. During the period, Bennett purchased another kayak for $325 and sold one of the kayaks for $475. Identify the true statement.

Goods available for sale during the period was $625.

Identify the correct statement regarding differences in IFRS and GAAP inventory reporting methods.

IFRS rules allow inventory reductions to be reversed if the market recovers.

Research evidence consistently shows that ______ adopters have lower levels of inventory fluctuations and lower leverage in comparison with other inventory method adopters.

LIFO

U.S. tax rules specify that if LIFO is used for tax purposes, the external financial statements must also use LIFO. This is known as the ___ ___ rule.

LIFO conformity

The conversion of a LIFO inventory to approximate the inventory at FIFO is calculated as

LIFO inventory + LIFO reserve = FIFO inventory

A disclosure required by the SEC to report the dollar magnitude of the difference between LIFO and FIFO inventory costs is the ___ ___.

LIFO reserve

Which of the following is not included in the cost of inventory?

Sales commissions

Identify the incorrect statement regarding the last-in, first-out method of inventory.

The LIFO method matches the oldest costs against revenues.

True or false: Generally accepted accounting principles do not require the cost flow assumption to correspond to the physical flow of inventory.

True

True or false: The carrying cost of inventory will include the purchase cost, sales tax, transportation costs, insurance costs, storage costs, and any other costs required to obtain the merchandise and make it ready for sale.

True

Identify the correct statement regarding the two different methods for determining inventory quantities.

Using the perpetual inventory system, purchases are debited to the inventory account.

Current ratio distortion under LIFO inventory costing may be adjusted by

adding the LIFO reserve to current assets.

Under LIFO-LCM, market should not exceed the inventory's net realizable value (NRV). This is known as the ___.

ceiling

The LCNRV method can be applied to

either individual inventory items, classes of inventory or the inventory as a whole.

Goods available for sale must be allocated between ___ inventory and cost of goods sold.

ending

Inventory that represents the total costs of completed but unsold units is called

finished goods inventory

Under LIFO-LCM, market should not be less than the inventory's NRV reduced by an allowance for an approximately normal profit margin. This is known as the ___.

floor

The use of the lower of cost or net realizable value (LCNRV) method to value inventory for reporting purposes is a departure from the accounting principle of

historical cost.

The LIFO conformity rule states that

if LIFO is used for tax purposes, it must also be used for external financial statements.

LIFO ___ can have a large impact on reported earnings due to a mismatching of LIFO layers carried at "old" costs with current period revenues.

liquidations

LIFO ___ can have a large impact on reported earnings due to a mismatching of LIFO layers carried at "old" costs with current period revenues. Listen to the complete question

liquidations

Costs that are not inventoried but are treated as expenses when incurred are called ___ costs.

period

The method of inventory that accumulates purchases in a separate income statement account is the ___ inventory system.

periodic

The inventory method that keeps a running record of the amount of inventory on hand is known as the

perpetual inventory system.

Costs that are assigned to inventory and treated as assets until the inventory is sold are ___ costs.

product

Inventory that consists of components that will be used in a completed product is called

raw materials inventory

Firms that use FIFO inventory cost assumptions always include some realized holding gains in reported income in periods of

rising prices.

The inventory method that measures cost of goods sold using the actual units sold is known as the ___ ___ method.

specific identification

The inventory turnover ratio can be distorted due to a LIFO reserve because

the numerator of the ratio, cost of goods sold, is predominantly current costs.

Under both IFRS and U.S. GAAP, the cost of direct labor and overhead costs include

variable costs and fixed costs.

Costs that change in proportion to the level of production are

variable costs.

A practice in retail sales in which manufacturers of products provide cash payments and/or credits to their customers is known as

vendor allowances.

Inventory that contains the cost of units that have been started but not completed as of the balance sheet date is called

work-in-process inventory