Chapter 6 test
Inventory turnover
A ratio that measures the number of times and on average the inventory sold during the period; computed by dividing the cost of good sold by the average inventory during the period
Specific identification method
An actual physical flow costing method in which items still in inventory are specifically costed To arrive at the total cost of the ending inventory
Cost of goods sold is computed from the following equation
BEGINNING INVENTORY+COGS-ENDING INVENTORY
If beginning inventory is understated by $13,000, the effects of this error in the current period is
COGS= understated NET INCOME=overstated
The entry to replenish a petty cash fund includes a credit to
Cash
Under a consignment arrangement the
Consignor has ownership until goods are sold to a customer
Overstating ending inventory will overstate all of the following except
Cost of goods sold
Understanding beginning inventory will understate
Cost of goods sold
A petty cash fund of $100 is replenished when the fun contains $4 in cash and receipts for $93. The entry to replenish the funds would be
Debit cash over and short for $3
A debit memorandum could show the collection of a note receivable by the bank
FALSE
Checks from customers who pay their account promptly are called outstanding checks
FALSE
Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods and the company
FALSE
Only large companies need to be concerned with a system of internal control
FALSE
Personnel who handle cash receipt should have the option of taking a vacation or not
FALSE
The petty cash fund eliminates the need for a bank checking account
FALSE
The specific identification method of inventory valuation is desirable when a company sells a large number of low - unit cost items
FALSE
And periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is close to current cost is the
FIFO Method
The term FOB denotes
Free on Board
Which of the following should be included in the physical inventory of a company
Goods In transit from another company shipped FOB shipping point
First-in First-out method
Inventory costing method that assumes that the cost of the earliest goods purchased are the first to be recognized as cost of good sold
Last-in First-out Method (LIFO)
Inventory costing method that assumes the cost of the latest units purchased are the first to allocate to cost of goods sold
Average cost method
Inventory costing method that uses the weight-average unit cost to allocate to ending inventory and COGS the cost of goods available for sale
The factor which determines whether or not good should be included in a physical count of inventory is
LEGAL TITLE
Merchandise inventory
Merchandise on hand (not sold) at the end of an accounting period.
A debit balance in cash over and short is reported as a
Miscellaneous expense
A petty cash fund is generally established an order to
Pay relatively small expenditures
Cash equivalents are highly liquid investments that can be converted into a specific amount of cash
TRUE
Goods out on consignment should be included in the inventory of the consignor
TRUE
Goods that have been purchased FOB destination but are in transit, should be excluded from physical count of goods
TRUE
The first -in, first -out (FIFO) Inventory method results and an ending inventory valued at the most recent costs
TRUE
The two key parties to a note are the maker and the payee
TRUE
FOB shipping point
Terms indicating that ownership of the goods pass to the buyer on the public carrier excepts the goods from the seller
Work in progress
That portion of manufactured inventory that has begun the production process but is not yet complete
Current replacement cost
The current cost to replace an inventory item.
The LIFO Inventory method assumes that the cost of the latest units purchased are
The first to be allocated to the cost of good sold
If employees are bonded
They have been insured against misappropriation of assets
Which of the following statement is correct with respect to inventories
Under FIFO, The ending inventory is based on the latest units purchased
Freight terms of FOB shipping point mean that the
buyer must bear the freight costs.
FOB destination
ownership of the goods remains with the seller until the goods reach the buyer
If goods in transit are shipped FOB destination
the seller has legal title to the goods until they are delivered.