accounting ch 7

on may 1, beginning inventory consists of 10 items at a cost of $10 each. on may 3, 10 items are purchased at $12 each. on may 8, 12 items are sold. on may 15, 10 items are purchased at $14 each. using perpetual FIFO, the cost of goods sold for the month ended may 31 equals __________

(10 units x $10) + (2 units x $12) = $124

the costs of carrying inventory include the cost of ________.

production, storage, spoilage, theft, obsolescence, and financing

Which statement is true?

the inventory costing methods determine the amount of the debit to cost of goods sold and credit to inventory. specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods the inventory methods apply to both perpetual and periodic inventory systems

true or false: accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment

true

true or false: specific identification is an inventory method typically used when accounting for expensive and unique inventory items

true

if a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses ____________ to value its inventory.

LIFO

Rank in order, from highest to lowest, the anticipated inventory turnover ratios for the following companies.

Walmart, Tiffany & Co, and Bath Iron Works (sells battle ships to US Gov.)

goods available for sale will ______ when sold.

become cost of goods sold on the income statement

how does the inventory costing methods affect the income statement when costs tend to rise over time?

cost of goods sold on the income statement differs between the methods causing income tax expense to differ.

which of these will require a credit to the inventory account in a perpetual inventory system?

d. Selling inventory for cash e. Selling inventory on account

if the inventory cost is $20,000 and the market value is $18,000, then the company should _______.

debit Cost of Goods Sold and credit Inventory for $2,000

gross profit is ________.

equal to net sales minus cost of goods sold a subtotal on the income statement

True or False: companies that use a perpetual inventory system never need to do a physical count of inventory because in a perpetual system cost of goods sold and inventory are kept up-to-date every time a sale is recorded

false

Beginning inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. using first-in, first-out, the 3 goods sold are assumed to be ______,

from the beginning inventory

if a company uses LIFO for tax reporting purposes, then it __________.

must have used LIFO for financial reporting purposes most likely has been experiencing rising inventory costs

if companies are required to adopt IFRS, companies will ______

no longer be able to use LIFO.

true or false: cost of goods sold may include the write-down of inventory to market even through the goods haven't been sold.

true

beginning inventory consists of 10 items that cost $10 each. on may 3, 10 items are purchased at $12 each. on may 8, 12 items are sold. on may 15, 10 items are purchased at $14 each.using the perpetual weighted average cost, cost of goods sold for the month ended may 31 is ____________.

$132

inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the accounting period is recorded with a decrease to inventory ___________.

Only in a perpetual system.

which of the following would be considered merchandise inventory?

Purchased finished goods.

iris, inc uses FIFO financial reporting purposes and LIFO for its income tax return. Iris accounting treatment of its inventory is _________.

not in accordance with the LIFO Conformity Rule

________ inventory will enter the production process and become _______ inventory. One complete, the goods will become _______ inventory.

raw materials, work in process, finished goods

what causes LIFO and weighted average cost methods to differ when using perpetual versus periodic?

the periodic method assumes all purchases during the period occurred before all sales during the period

In applying the lower of cost or market rule results in inventory being reported at the _____________.

market value if lower than cost

if the inventory cost is $18,000 and the market value is $20000 then the company should __________.

not record any entry because the cost is lower than the market value

companies generally report their accounting method for inventory in the ______.

notes to financial statements

if a company's inventory cost are rising, _______ inventory costing method typically results in a higher income tax expense.

the FIFO

which of these might cause the value of inventory to fall below its original cost?

which of these might cause the value of inventory to fall below its original cost?

at year end, CulZ inc. inventory consits of 200 bottles of cleanz at $1 per bottle and 100 boxes of dyez at $10 per box. market values are $1.20 per bottle for cleanz

$1000

on may 1, beginning inventory consists of 10 items that cost $10 each. on may 3, 10 items are purchased at $12 each. on may 8, 12 items are sold. on may 15, 10 items are purchased at $14 each. using perpetual LIFO, cost of goods sold for the month ended may 31 equals _________

$140

Delta Diamonds had 5 diamonds available for sale this year: june 1-purchased 1 for $500; july 9- purchased 2 for $550 each

$2,200

on may 1, beginning inventory consists of 10 items that cost $10 each. on may 3, 10 items are purchased at $12 each. on may 8, 12 items are sold. on may 15, 10 items are purchased at $14 each. using perpetual LIFO, ending inventory at may 31 equals ________.

$220

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it old 1 of the diamond that was purchased on July 9. Using perpetual specific identification, its Cost of Goods Sold is

$2250

Beginning inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. using first-in, first-out, cost of goods sold equals _______.

$30

which financial statements are needed to calculate the inventory turnover ratio?

. balance sheet . income statement

if a Barry bees, inc. days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals _____ times

5

inventory costing methods allowed by US GAAP include: 1) specific ________ 2) __________ average 3) last in, _____ out and 4) first in,_________ out

Identification weighted first first

when costs to purchase inventory are falling over time, using LIFO leads to reporting _________ cost of goods sold and ________ net income than FIFO.

Lower; Higher

Alpha company brought inventory from omega company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by theta, lnc. in transit exactly half-way between alpha and omega. which company should include these goods in its December 31 inventory?

alpha

the journal entry to record a write-down of inventory from cost to its lower market value includes a _________.

credit to inventory debit to cost of goods sold

the weighted average cost method uses the weighted average cost to calculate the value of __________.

inventory cost of goods sold

goods in transit are --------.

inventory items being transported from a seller to a buyer

if a company were to ignore the fact that the market value of its inventory is lower than its cost, then __________.

it's assets and stockholders' equity would be overstated

A company uses a periodic inventory system. The company had beginning inventory of 3 units that cost $5 each. During the month, 17 units were purchased for $6 each. The company sold 15 units during the month and had 5 remaining in ending inventory. If the company uses FIFO instead of LIFO to calculate cost of goods sold, then cost of goods sold will be:

lower using FIFO, leading to higher gross profit and higher income taxes.

king costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, king costume purchased 40 additional masks for $12 each. at the end of the month, king counted and found that 5 masks remained unsold. if king costume used LIFO periodic, its cost of goods sold for the month is __________.

$510

_______ inventory refers to goods a company is holding on behalf of the actual owner of the goods.

Consignment

FIFO, an inventory costing method, actually describes how to calculate the cost of:

goods sold

inventory is reported on the _______. later, when the inventory is sold, it becomes ________.

balance sheet as a current asset, cost of goods sold on the income statement