Accounting SB CH 6

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company?

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.

Where is inventory reported in the financial statements?

Balance sheet as a current asset

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

LIFO

companies purchase inventory that is primarily in finished form and ready for resale to customers.

Merchandising, Merchant, Retail, Wholesale, or Merchandise

The shipping term FOB stands for

free on board.

Purchasing inventory on account:

increases liabilities increases assets

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

The FIFO inventory method assumes that units remaining in ending inventory are the ________ units purchased.

newest, recent, last, latest, or new

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

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

The LIFO inventory method assumes that the units sold are

the most recent units purchased.

The LIFO inventory method assumes that the units that remain in ending inventory are?

the oldest units in inventory.

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)

inventory. cost of goods sold.

Periodic inventory system matches

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

When inventory is sold, the cost of inventory is recognized as a?

Expense

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

FIFO

For internal record keeping, most companies carry their inventory using the _____ basis.

FIFO

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

FIFO

True or false: The inventory cost flow assumption must match the physical flow of inventory units.

False

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be________________ than cost of goods sold determined using the FIFO inventory assumption.

Higher, greater

The definition of inventory includes which of the following items?

Items currently in production for future sale Items held for resale Items used currently in the production of goods to be sold

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

LIFO

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

Perpetual inventory system matches

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

Which of the following methods are not used for inventory costing? (Select all that apply.)

Simple-average NIFO

A company may use more than one inventory cost method. t or F

True

True or false: A company may use more than one inventory cost method.

True

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

The FIFO method assumes that units sold are the____________ units acquired.

first, earliest, or oldest

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be___________than cost of goods sold determined using the FIFO inventory assumption.

higher, greater, more, or larger

A multiple-step income statement reports multiple levels of

income

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be________________ than ending inventory determined using the FIFO inventory assumption.

lower, smaller, or less

Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies.

merchandising

FOB shipping point means title to the goods passes

when they are shipped.