Acct Chapter 6
goods in transit
- goods not yet received - sold goods not yet delivered
days in Inventory
365 / inventory turnover ratio
FOB shipping point
buyer pays freight costs
conservatism
method that is least likely to overstate assets & net income
net realizable value
net amount a company expects to receive from the sale of inventory
consignor
owner of the goods who give them to consignees
FOB shipping point
ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
FOB destination
ownership of the goods remains with the seller until the goods reach the buyer (sellers responsibility in transit)
LIFO reserve
difference between inventory reported using LIFO & inventory using FIFO
LIFO
ending inventory is FISH --> first in still here
FIFO
ending inventory is the LISH --> last in still here
LIFO
falling prices effect: reports highest income
FIFO
falling prices effect: reports lowest net income
inventory
goods in transit should be included in the ______________ of the company that has legal title to the goods
consignee
holds goods; tries to sell goods for consignor for a fee, w/o taking ownership of the goods
days in inventory
indicates the average number of days inventory is held
inventory turnover ratio
indicates the number of times merchandise moves through a business - indicates the liquidity of inventory by measuring the number of times the average inventory "turns over" (is sold) during the year
FIFO
inflation effect: produces a higher net income because lower unit costs of the first units purchased are matched against revenue
LIFO
inflation effect: produces a lower net income because higher unit costs of the last goods purchased are matched against revenue
sold; ending inventory
Cost of goods available for sale must be allocated between cost of goods _________ and ___________ _____________.
average cost
- allocates the cost of goods available for sale on the basis of the weighted-average unit cost incurred - applies weighted average unit cost to the units on hand to determine the cost of ending inventory
because prices usually change, and tracking which units have been sold is difficult
An assumption about cost flow is used: - even when there is no change in the purchase price of inventory. - because prices usually change, and tracking which units have been sold is difficult. - because it is required by the income tax regulation. - only when the flow of goods cannot be determined.
Cecil
Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. at the end of the accounting period, which of the following parties is includes in its inventory the consigned goods?
specific identification
Given equal circumstances, which inventory method would probably be the most time-consuming? - FIFO - Average-cost - Specific identification - LIFO
FIFO method
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory? - LIFO method - Average cost method - FIFO method - Need more information to answer
FIFO method
In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the: - LIFO method. - Tax method. - Average-cost method. - FIFO method.
lower net income than FIFO
In periods of rising prices, what will LIFO produce? - Higher net income than FIFO - The same net income as FIFO - Higher net income than average costing - Lower net income than FIFO
cost of goods sold will include the latest (most recent) costs and thus will be more realistic
In periods of rising prices, which is an advantage of using the LIFO inventory costing method? - Net income will be the highest and thus reflect the prosperity of the company. - Phantom profits are reported. - Ending inventory will include latest (most recent) costs and thus be more realistic. - Cost of goods sold will include the latest (most recent) costs and thus will be more realistic.
terms of sale
Legal Title is determined by the _____.
legal title
The factor which determines whether or not goods should be included in a physical count of inventory is
60.8 days
The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. What is Wilkens' days in inventory for 2017? - 146 days - 121.7 days - 60.8 days - 97.3 days
FIFO
Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost? - Whichever method that produces the highest ending inventory figure - LIFO - FIFO - Average cost method
It is generally good business management to sell the most recently acquired goods first
Which of the following statements is correct with respect to inventories? - The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold. - Under FIFO, the ending inventory is based on the latest units purchased. - FIFO seldom coincides with the actual physical flow of inventory. - It is generally good business management to sell the most recently acquired goods first.
jewelry store
Which of the following would most likely employ the specific identification method of inventory costing? - Gasoline station -Grocery store -Jewelry store -Hardware store
companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period
Which statement is false? - An inventory count is generally more accurate when goods are not being sold or received during the counting. - Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period. - No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. - Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
specific identification
an actual physical flow costing method in which individual items still in inventory are specifically given a cost to arrive at the total cost of the ending inventory. This is the type of inventory an automobile dealer will probably use to calculate their year-end cost of cars on their lot
FIFO
companies determine units & costs of ending inventory starting with the unit cost of the most recent purchase & working backward until all units of inventory have been costed
net realizable value
companies must "write-down" inventory to its ________ in the period in which the price decline occurs
weighted average unit cost
cost of goods available for sale / total units available for sale
inventory turnover ratio
cost of goods sold / average inventory
FIFO
cost of the earliest goods purchased are the first to be recognized in determining cost of goods sold (i.e. inventory purchased first is sold first)
LIFO
costs of the latest goods purchased are the first to be recognized in determining cost of goods sold (i.e. assuming inventory purchased last is first sold)
perpetual system
physical inventory is taken for 2 reasons: - check accuracy of inventory records - determine amount of inventory lost due to wasted raw materials, shop lifting, or employee theft
periodic system
physical inventory is taken for 2 reasons: - determine inventory on hand - determine the cost of goods sold for the period
LIFO
seldom coincides with actual flow of merchandise (ex. goods stored in piles, gravel or mulch)
FOB destination
seller pays freight cost
cost of goods sold
understating ending inventory will overstate _______.
total cost
units * unit cost (weighted average)
lower of cost or net realizable value
when the inventory is lower than it cost (ex. clothes going out of season)