chapter 6

average inventory =

(beginning inventory + ending inventory) / 2

When does the cost of inventory become an​ expense? A) When inventory is delivered to a customer B) When inventory is purchased from the supplier C) When payment is made to the supplier D) When cash is collected from the customer

A

Which statement is​ true? A) Gross profit is the excess of sales revenue over cost of goods sold. B) Purchase returns and allowances increase the net amount of purchases. C) The Sales account is used to record only sales on account. D) A service company purchases products from suppliers and then sells them.

A

ABC Furniture Unlimited sells antique furniture. ABC will most likely use the​ ________ method to cost its ending inventory. A) Last-in, first-out B) Specific-unit-cost C) Average D) First-in, first-out

B

The cost of inventory that is still on hand is​ called: A) inventory, a longminus−term asset that appears on the balance sheet. B) inventory, a current asset that appears on the balance sheet. C) purchases, a current asset that appears on the balance sheet. D) cost of goods​ sold, an expense that appears on the balance sheet.

B

Another term for gross profit is: A) gross sales B) gross income C) gross margin D) gross operating income

C

Which is the CORRECT order for items to appear on the income​ statement? A) sales​ revenue, operating​ expenses, gross​ profit, net income B) sales​ revenue, gross​ profit, cost of goods​ sold, operating expenses C) sales​ revenue, cost of goods​ sold, gross​ profit, operating expenses D) sales​ revenue, gross​ profit, net​ income, operating expenses

C

Cost of goods sold will appear on which financial​ statement? A) statement of retained earnings B) balance sheet C) statement of cash flows D) income statement

D

Under the averageminus−cost inventory​ method, to determine the average cost per​ unit: A) the cost of purchases for the period are divided by the number of units available. B) the cost of beginning inventory is divided by the number of units available. C) the cost of beginning inventory plus the cost of purchases is divided by the number of units sold. D) the cost of beginning inventory plus the cost of purchases is divided by the number of units available.

D

How is inventory classified in the financial​ statements? A) As an expense B) As a contra account to Cost of Goods Sold C) As a revenue D) As a liability E) As an asset

E

TRUE OR FALSE - The choice of an inventory costing method does not impact a company's balance sheet

FALSE

TRUE OR FALSE - service entities report cost of goods sold on the income statement

FALSE

TRUE OR FALSE - Cost of Goods sold is an operating expense on the income statement

False

FIFO

Maximizes reported income

average cost per unit =

cost of goods available / number of units available

inventory turnover =

cost of goods sold / average inventory

LIFO

enables a company to buy high-cost inventory at year-end and thereby decrease reported income and income tax

LIFO

generally associated with saving income taxes

gross profit percentage =

gross profit / net sales revenue

LIFO

matches the most current cost of goods sold against sales revenue

cost of goods sold =

number of unites of inventory sold x cost per unit of inventory

sales revenue =

number of units of inventory sold x sale price per unit of inventory

Average-Cost

provides a middle ground measure of ending inventory and cost of goods sold

FIFO

results in a cost of ending inventory that is close to the current cost of replacing the inventory

LIFO

results in an old measure of the cost of ending inventory

gross margin =

sales revenue - cost of goods sold

LIFO

the method of inventory valuation that is disallowed by IFRS

ending inventory =

unit cost x number of units on hand

Specific-Unit-Cost

used to account for automobiles, jewelry, and art objects

Applies to all four inventory methods

writes inventory down when current replacement cost drops below historical cost