acct 301 ch 8

On January 1, Bern Company has 100 units costing $100 in beginning inventory. On January 2, Bern purchases an additional 400 units for $1.50 per unit, and sells 300 units. On January 3, the company sells an additional 100 units. On January 4, Bern purchases 200 additional units for $1.60 per unit. If Bern utilizes a perpetual LIFO system, per unit cost of goods sold for the January 3 sale will be

$1.50.

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the periodic LIFO method, ending inventory will be

$420

Smith Company has 150 units costing $450 in beginning inventory. During the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, ending inventory will be

$660

What is required at the end of a reporting period in a periodic inventory system?

A physical count of the period's ending inventory so an adjustment can be made.

Which of the following are included in inventory?

Assets a retail company acquires for resale. Goods that manufacturers produce for sale.

Which of the following correctly reflects the determination of cost of goods sold in a periodic inventory system?

Beginning inventory + net purchases - ending inventory

Which of the following could motivate a company that uses LIFO for external reporting to use another method for internal recordkeeping?

Contractual agreements such as bonus contracts. The high recordkeeping cost of LIFO.

What is the first step in measuring inventory and cost of goods sold?

Determining the physical quantities of goods.

What type of expenditures should be included in the cost of inventory of a manufacturing company?

Expenditures necessary to acquire inventory. Expenditures necessary to bring inventory to sales location.

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

FIFO

Which inventory costing method assumes that items in ending inventory are the most recently acquired?

FIFO

The LIFO reserve shows how ending inventory would have differed if the company had utilized Blank______ or Blank______, instead of LIFO.

FIFO weighted-average

Many companies maintain their internal records using Blank______ or the average cost method, but use Blank______ for external reporting and income tax purposes.

FIFO; LIFO

Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?

How units of goods and their associated costs flow through the system.

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

LIFO

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

LIFO

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

LIFO

Another name for the LIFO reserve account is

LIFO allowance

Which of the following are disadvantages of unit LIFO?

Significant recordkeeping costs Possibility of LIFO liquidation

Advantages of using LIFO inventory pools include which of the following?

Simplify recordkeeping Reduce the risk of LIFO layer liquidations

Which inventory costing method matches each unit sold with its actual cost?

Specific identification

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on January 4, which units would be assumed to have been sold in a periodic FIFO system?

The units in beginning inventory.

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

To minimize costs of ordering and carrying inventory. To ensure that sufficient units are available.

The average cost method assumes that cost of goods sold consists of

a mixture of all the goods available for sale.

Under the DVL approach, cost indexes are used to determine whether

a real increase in inventory quantity has occurred.

The dollar-value LIFO (DVL) inventory method

allows a broader range of goods to be included in pools.

cost flow ________ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.

assumptions

A periodic inventory system allocates cost of goods available for sale Blank______; a perpetual inventory system allocates cost of goods available for sale Blank______.

at the end of the period; each time goods are sold

Periodic LIFO applies the last-in, first-out concept Blank______ and perpetual LIFO applies the last-in, first-out concept Blank______ resulting in different cost of goods sold and inventory amounts.

at the end of the period; every time a sale is made

Which inventory costing method assumes that cost of goods sold and ending inventory consist of a mixture of all the goods available for sale?

average cost

The measurement of inventory and cost of goods sold starts with determining the physical quantities of goods in which of the following systems?

both the periodic and perpetual inventory system

The dollar-value LIFO method extends the concept of inventory pools by allowing companies to

combine a large variety of goods in one pool.

Smith Company arranges for Tucker and Associates to sell their products. If Tucker is unable to sell the products, they will return the goods to Smith. This is an example of what?

cosigning

When the DVL method is used, a LIFO layer is added when

current period ending inventory at base-year cost has increased.

At the end of an accounting period, it is important to ensure proper inventory Blank______ to determine the ownership of goods in transit.

cutoff

A periodic inventory system

does not continuously track the quantity of merchandise. does not continuously track the cost of merchandise sold.

Periodic LIFO applies the last-in, first-out concept to total sales and total purchases at the ______ of the reporting period, while perpetual LIFO applies the concept after every purchase is made

end

True or false: A periodic inventory system allows management to determine the amount of goods on hand without having to take a physical count.

false

True or false: Goods shipped f.o.b. destination are included in the purchaser's inventory while the goods are in transit.

false

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

fifo

The FIFO method assumes that units sold are the Blank______ units acquired and that units remaining in ending inventory are the Blank______ units purchased.

first; last

Ownership of inventory at the end of the accounting period is determined for

goods shipped to customers. goods shipped by suppliers.

Inventory cost flow assumptions can be used to assign dollar amounts to

goods sold. ending inventory.

Under the DVL method, a layer may only be added during the current year if inventory at base-year cost has Blank______.

increased

Items held for sale in the normal course of business are referred to as

inventory

The definition of inventory includes which of the following items?

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

The Blank______ inventory method assumes that the units in ending inventory were the items acquired first.

last-in, first-out

The layer year cost index is calculated by dividing the cost in Blank______ year by the cost in Blank______year.

layer; base

If goods are shipped f.o.b. shipping point, at time of shipment

legal title passes to the buyer.

Use of LIFO inventory pools reduces the chance of unintentional LIFO layer

liquidation

Finished goods is a type of inventory found on a Blank______ company's balance sheet.

manufacturing

The goods a wholesale company purchases in finished form are referred to as what?

merchandise inventory

A Blank______ company resells goods while a Blank______ company produces goods.

merchandising; manufacturing

Orange Co., a computer retailer, shows the following selected assets on its balance sheet. Indicate which account would be properly classified as inventory.

mouse pads

In a periodic inventory system, the inventory account is Blank______ and cost of goods sold is recorded Blank______.

not adjusted as purchases and sales are made; at the end of the reporting period

a disadvantage to the ______ inventory system is that all inventory quantities not on hand at the end of the period are assumed to have been sold, and damaged or stolen items are not identified.

periodic

an _____ inventory system adjusts inventory at the end of each reporting period

periodic

Identify the inventory system that tends to incur comparatively less cost.

periodic inventory system

an _____ inventory system adjusts for each change caused by a purchase, a sale, or a return of merchandise

perpetual

an ______ inventory system allows management to determine the amount of goods on hand on any date without having to take a physical count.

perpetual

A Blank______ inventory system recognizes cost of goods sold each time a sale occurs; a Blank______inventory system decreases inventory each time a sale occurs.

perpetual; perpetual

Companies can identify system errors, theft, and breakage by comparing the inventory quantity according to the perpetual system and the quantity determined by a ____ ____ at the end of period

physical count

Those costs that are included in inventory are referred to as

product costs

Companies closely monitor inventories to maintain a sufficient Blank______ of inventory to meet customer demand, while also controlling the Blank______ of carrying inventory.

quantity; cost

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

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

the oldest units in inventory.

When merchandise is shipped f.o.b. shipping point, who includes the inventory on their balance sheet when the goods are with the common carrier?

the purchaser

A perpetual inventory system is designed to

track inventory quantities from acquisition to sale.

True or false: Dollar-value LIFO allows a company to combine a large variety of goods into one pool.

true

True or false: The same ending inventory and cost of goods sold amounts are always computed in a perpetual inventory system as in a periodic inventory system when FIFO is used.

true

Cost of goods sold determined under the FIFO perpetual system method is the same as under the FIFO periodic inventory system

under all circumstances.

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be

$2,540.

Smith Company has 150 units costing $450 in beginning inventory. During the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the periodic LIFO method, ending inventory will be

$615

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be

$640

Smith Company adopted dollar-value LIFO (DVL) as of January 1, when it had an inventory of $690,000. Its inventory as of December 31, of the same year was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31?

$723,600

Western Company adopted dollar-value LIFO (DVL) as of January 1, when it had an inventory of $715,000. Its inventory as of December 31, of the same year was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31?

$758,200

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on March 18, which units would be assumed to have been sold in a perpetual LIFO system?

100 of the units purchased on February 23

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer?

2

On December 31, Richard Company purchases 1,000 units of merchandise, f.o.b. destination, from Neumann Corp. and 2,000 units, f.o.b. shipping point from Smith Corp. The goods are shipped on December 31. How many units should Richard include in its ending inventory on December 31 from this purchase?

2,000 units

Neumann Company places 100 units on consignment with Hartman Consignments Company. At the end of the accounting period, 45 of those units remain unsold. How many units (if any) should be included in Neumann's ending inventory?

45 units

The dollar-value LIFO (DVL) method

reduces the risk of liquidation of layers. simplifies recordkeeping.

in a consignment, a company arranges for another company to

sell its products.

If goods are shipped f.o.b. destination, the _____ usually is responsible for shipping

seller or supplier

A significant disadvantage of the periodic inventory system is that it assumes that quantities not on hand at the end of the period were Blank______.

sold

Generally, product costs are expensed when the related products are

sold

Which of the following could cause a difference between the quantities of inventory determined by physical count and the quantities tracked by a perpetual inventory system?

spoilage thefts breakage system errors

Which of the following items should be classified as inventory for a company that manufactures accounting textbooks?

textbooks ready to be shipped to bookstores paper used in the printing process

A DVL pool is made up of items

that are likely to have similar cost change pressures.

Donald Company purchases and sells inventory f.o.b. destination. On December 31, the company sells 10,000 units and receives notice that 40,000 units have been shipped by its supplier. Which units should be included in Donald Company's ending inventory?

the 10,000 units sold

High recordkeeping costs and possible LIFO liquidation are disadvantages of

unit LIFO.

When a company determines the quantity of inventory items, it must consider

units it currently possesses. units in transit. units on consignment.

In a perpetual inventory system the inventory account is adjusted

when inventory is sold. when inventory is purchased.

Which of the following determines who includes consigned goods in inventory?

who carries the risk of loss

Which of the following accounts are typically reported on the balance sheet of a manufacturing company?

work in process raw materials finished goods

Which of the following would be an important consideration for management in choosing the perpetual or periodic inventory system?

management control cost of implementation

If prices have changed and a company uses dollar-value LIFO, we need to determine whether an observed increase in inventory is an actual increase in the quantity of inventory or one caused by an increase in prices. This is accomplished by using

cost indexes

The specific identification method

would be beneficial to a company that makes fine jewelry matches each unit of inventory with its actual cost