Chapter 7 ACC Learnsmart: Inventory and Cost of Goods Sold

What inventory accounts would one expect to see in the accounting records of a company that makes furniture?

Finished goods inventory Raw materials inventory and Work in process inventory

Which financial statements are needed to calculate the inventory turnover ratio?

balance sheet and income statement

Inventory is reported on the ____. Latter when the inventory is sold, it becomes ____.

balance sheet as a current asset; cost of goods sol on the income statement

Which inventory costing method uses the oldest cost for goods sold on the income statement and the newest cost for inventory on the balance sheet?

FIFO

The weighted average cost method uses the weighted average cost to calculate the value of _____.

inventory and cost of goods sold

Which of the following statements concerning inventory is correct?

inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit___?

decreases

As inventory quality increases, its cost usually _____.

increases

Gross Profit is _____ .

equal to net sales minus cost of goods sold and a subtotal on the income statement

An understatement of the 2018 ending inventory will affect _____.

2018 cost of goods sold 2019 cost of goods sold and 2019 beginning inventory

Acme, Inc. had cost of goods sold of $2000. If beginning inventory was $2100 and ending inventory was $500, Acme's purchases must have been $_____.

400

If Barry bees, Inc.'s days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals _____ times.

5 or five

Which of the following would be considered merchandise inventory?

purchased finished goods

Which inventory method is typically used when accounting for expensive and unique inventory items?

specific identification

Ending inventory errors in 2018 _____.

will affect the 2019 goods available for sale but will not affect the 2019 ending inventory

On May 1, beginning inventory consists of 10 items at a cost of $10. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual LIFO, ending inventory at May 31 equals _____.

$220

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500; 2 purchased July 9 for $550 each; and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using LIFO periodic, its Cost of Goods Sold is ____.

$600

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased?

LIFO

Rank in order, f rom highest to lowest, the anticipated inventory turnover ratios for the following companies.

WalMart Tiffany & Co. *exclusive jewelry store) Bath Iron Works (sells battle ships to the US government)

Berkley Company had beginning inventory of $4000 and purchases of $20,000. If half of its inventory was sold, Berkley goods available for sale during the period will _____.

be split between cost of good sold and ending inventory

In a perpetual inventory system, inventory is initially recorded at ____.

cost

Using perpetual inventory system, when a company records a sale of merchandise, it must also record____.

cost of goods sold, which will be reported on the income statement and a decrease in its inventory

Which of the following 2019 financial statement line items will be affected if the 2019 ending inventory is overstated?

current assets will be overstated net income will be overstated and cost of goods sold will be understated

An increase in a company's inventory balance from a prior year is ____.

good if the inventory turnover ratio is higher

FIFO, an inventory costing method, actually describes how to calculate the cost of ____.

goods sold

Applying the lower of cost or market rule results in inventory being reported at the _____.

market value if lower than cost

____ inventory refer to goods a company is holding on behalf of the actual owner of the goods. The company is willing to try to sell the goods for the owner for a fee.

Consignment

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List, from top to bottom, in order of highest ending inventory to lowest ending inventory value.

FIFO Weighted Average LIFO

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs?

FIFO and LIFO

Which of these inventory accounting methods are acceptable under US GAAP?

FIFO LIFO Specific Identification Weighted Average

The assumption that a company makes about its inventory cost flow has _____.

an effect on the company's income statement and an effect on the company balance sheet

Beginning inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. using first-in, first-out, the 3 goods sold are assumed to be ____.

from the beginning inventory