Chapter 6 ACCT

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. The net realizable values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. Using the lower of cost and net realizable value method, CurlZ should report its inventory at:

$1,000

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was:

$990

Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the

LIFO adjustment

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

Two

Meller purchases inventory on account. As a results, Meller's

assets will increase.

The shipping term FOB stands for

free on board.

The gross profit ratio is calculated as

gross profit divided by net sales.

Gross profit divided by net sales equals

gross profit ratio.

The purchase discount term, 2/10, n/30, means that the purchaser ______.

has 10 days from the purchase date in which to pay and receive a 2% discount

Freight-in is

included as a cost of inventory.

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

increase an asset and increase revenue decrease an asset and increase an expense

Purchasing inventory on account:

increases assets increases liabilities

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value; greater

The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as:

net realizable value

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by the supplier.

Freight-in on inventory purchases is typically recognized as

part of the cost of purchasing inventory.

Under the ____________ inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.

perpetual

Debit Inventory, credit Accounts Payable Debit Inventory, credit Accounts Payable

1)Purchase of inventory on account 2)Sale of inventory on account

Correctly match the shipping costs with the accounting treatment Freight-in Freight-out

1)added to the cost of inventory 2)recognized as operating expense

Match each scenario with the type of inventory system. Perpetual inventory system- Periodic inventory system-

1-Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. 2-Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

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

if a company pays freight-in for its inventory, that amount will later be included in

cost of goods sold

Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit Inventory

Maier Company purchases inventory from Kunze Corporation and debits inventory and credits accounts payable to record the transaction. Which of the following journal entries would Kunze make to record the sale?

Debit accounts receivable, credit sales revenue

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

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

Inventory

Which of the following is a correct interpretation of the information provided by the gross profit margin?

It indicates the percentage of each sales dollar available to cover other expenses.

Which of the following is a correct interpretation of the information provided by the gross profit ratio?

It measures the amount by which the inventory sale exceeds its cost.

At year end, CurlZ Inc.'s inventory consists of 100 bottles of CleanZ with a cost of $1, and a selling price of $0.80 per bottle. It also has 100 boxes of DyeZ with a cost of $10, and a selling price of $11 per box. Using the lower of cost and net realizable value method, the year-end Inventory balance should include which of the following amounts?

The selling price of $80 for the CleanZ bottles. The cost of $1,000 for the DyeZ boxes.

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

Which of the following items are readily available from an inventory account under the perpetual inventory system?

beginning inventory balance individual purchases ending inventory balance cost of units sold

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is:

correct

Catalina Bookstore pays freight on books shipped to its store. The shipping cost is debited to Inventory. When the books are sold, the freight costs pertaining to the books are included in:

cost of goods sold

If a company pays freight-in for its inventory, that amount will later be included in

cost of goods sold.

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period

If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____. (Answer from the viewpoint of the buyer.)

credit to Inventory. debit to Accounts Payable

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

inventory; selling expense

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)

total assets increase net income increases stockholders' equity increases

Berta Company's inventory value has declined during the current period. Berta does not expect to sell its inventory during the current year. Berta should recognize the loss in the period when the inventory

value declines.

FOB shipping point means title to the goods passes

when they are shipped.

The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when

the value declines below cost

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis.