Accouting 7 ex
Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______. Multiple choice question.
302
Which of these would explain an increase in a company's inventory turnover ratio?
An increase in the demand for the company's products A decrease in total inventory
Which statement are true?
Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods. The inventory costing methods determine the amount of the debit to Cost of Goods Sold and credit to Inventory. The inventory methods apply to both perpetual and periodic inventory systems.
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 last-in, first-out, the 3 goods sold are ______.
from the purchases made during the month
As inventory quality increases, its cost usually _____
increases
If a company were to ignore the fact that the market value of its inventory is lower than its cost, then ______.
its assets and stockholders' equity would be overstated
Which of the following may occur with a higher inventory turnover ratio?
Reduction in obsolescence Reduction in inventory storage costs
When using the specific identification inventory method, cost of goods sold equals the ______.
cost of the actual item sold
Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) _______.
decrease in assets decrease in stockholders' equity
Gross Profit is ______.
equal to Net Sales minus Cost of Goods Sold a subtotal on the income statement
The inventory turnover ratio directly measures ______.
the times per period the average inventory balance is sold
True or false: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.
True Reason: Specific identification requires keeping track of each specific unit and is a cumbersome method for inexpensive, high-volume inventory items.
Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.
$12.10 Reason: Weighted average=((80 x $12) + (20 x $12.50))/100
Which of the following statements are true?
An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory. An increased inventory balance is desirable if management is building up stock in anticipation of higher sales.
If a company's inventory costs are rising, ______ inventory costing method(s) typically results in a higher income tax expense.
FIFO Reason: When costs are rising, cost of goods sold will be lower using FIFO because it assumes the older, less expensive items are sold first. A lower cost of goods sold results in a higher net income and hence higher income taxes.When costs are rising, cost of goods sold will be higher using LIFO because it assumes the newer, more expensive items are sold first. A higher cost of goods sold results in a lower net income and hence lower income taxes.
When costs are rising, ______ produces a larger Inventory balance (making the balance sheet appear to be stronger) and smaller Cost of Goods Sold (resulting in a larger Gross Profit) which makes the company look more profitable.
FIFO Reason: When prices are rising, FIFO assumes the older, less expensive items are sold 1st making CGS smaller on the income statement leaving the more expensive items in Inventory on the balance sheet
A 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 Reason: FIFO cost of goods sold includes the older units purchased at lower prices. Lower cost means higher profit and higher taxes.
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 Reason: When prices are falling, using LIFO assumes the newer, less expensive inventory is sold first, resulting in a lower cost of goods sold and higher net income.
Applying the lower of cost or market rule results in inventory being reported at the ______.
market value if lower than cost
LIFO uses the ______ unit costs for Cost of Goods Sold on the income statement and the ______ unit costs for Inventory on the balance sheet.
newest; oldest
Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List from top to bottom, in order of highest ending inventory to lowest ending inventory value.
1. FIFO 2. Weighted average 3. LIFO
Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.
10 Inventory turnover ratio=cost of goods sold/average inventory or $10,000/ (($800 + $1,200)/2).
If Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be ______. Multiple choice question.
73 days
Risen, Inc. has beginning inventory of $16 which consists of 2 units at $8 each. It purchased 10 units at $10 each. It sold 5 units for $20 each. Which would result in the higher Gross Profit, FIFO or LIFO and why? Multiple choice question.
FIFO because the older, less expensive units are assumed to be sold first making Cost of Goods Sold lower and Gross Profit higher than LIFO
Which of the following income statement line items are affected by the inventory method chosen?
Gross Profit Income from Operations Income before Income Tax Expense Income Tax Expense Net Income
The weighted average cost method uses the weighted average cost to calculate the value of ______.
Inventory Cost of Goods Sold
Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet?
LIFO Reason: FIFO assumes the older items are sold first as Cost of Goods Sold and the newer items remain in Inventory.
The weighted average cost method uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet. Multiple choice question.
average; average
Companies generally report their accounting method for inventory in the ______.
notes to the financial statements
FIFO uses the ______ unit costs for Cost of Goods Sold on the income statement and the ______ unit costs for Inventory on the balance sheet.
oldest; newest Reason: This answer is for FIFO which assumes the older items are sold first as Cost of Goods Sold and the newer items remain in Inventory.
The costs of carrying inventory include the costs of ______.
spoilage obsolescence storage theft
If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO? (Check all that apply.)
Cost of Goods Sold will be higher. Gross Profit will be lower. Income Tax Expense will be lower. Reason: When prices are rising, LIFO assumes the higher costing goods are sold first. Thus, cost of goods sold will be higher causing gross profit to be lower. Since taxes are based on profits, a lower profit will result in lower income taxes.
What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the ______.
Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income
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.
Merchandise inventory ______.
consists of products acquired in a finished condition that are available for sale is reported as a current asset on the balance sheet
When costs to purchase inventory are falling over time, using LIFO leads to reporting ______ than FIFO.
higher Inventory on the balance sheet Reason: When prices are falling, using LIFO assumes the newer, less expensive inventory is sold first and the older, higher priced inventory is left in Inventory on the balance sheet.
How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?
Only the items that have market values lower than the costs will be written down.