Chapter 7 - ACCT 2010

If vito, inc. has an inventory turnover ratio of 5 times, then its days to sell must be

73

Goods in transit are _____.

Inventory items being transported from a seller to a buyer

As inventory quality increases, its cost usually _____.

increases

Which of these will require a credit to the inventory account in a perpetual inventory system?

selling inventory on account selling inventory for cash

Inventory costing methods allowed by GAAP include:

specific identification weighted average LIFO FIFO

In a periodic system, for Cost of Goods Sold to be updates, which of the following must occur?

take a physical count of inventory compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale

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

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

If companies are required to adopt IFRS, companies will _____.

No longer be able to use LIFO

companies generally report their accounting method for inventory in the __.

Notes to the financial statements

Rank in order, from highest (top) to lowest (bottom), the anticipated inventory turnover ratios for the following companies.

Walmart Tiff & co Bath iron works (sells ships to US gov)

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

balance sheet income statement

Blog, Inc, has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ____.

20,000

On may 1 beginning inventory consists of 10 items at a cost of $10 each. On may 3 10 items are purchased at $12 each. On may 15 10 items are purchased at $14 each. Using perpetual FIFO, the cost of goods sold for the month ended may 31 equals __.

220 = ( 8 x 10) + (10 x 14)

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?

Gross profit will be higher CGS will be higher Income tax expense will be lower

weighted average example

If a new company calculates the average cost of its inventory by adding together the total cost of all purchases and then dividing it by the number of units purchased during the period

If a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses ____ to value its inventory.

LIFO

When costs to purchase inventory are falling over time, using LIFO leads to reporting __ cost of goods sold and __ net income than FIFO.

Lower; higher

Delta diamond had 5 one-carat diamond available for sale this year: 1 purchased june 1 for $500, 2 purchased july 2 for $550 each, and 2 purchased sept 23 for $600 each. On dec 24 it sold one of the diamonds that was purchased on july 9. Using perpetual specific identification its inventory after the dec 24 sale is __.

inventory equals 500 + 550 + (2*600) = 2250

FIFO uses the _____ cost for Cost of Goods Sold on the income statement and the _____ cost for Inventory on the balance sheet.

oldest; newest

The LIFO Conformity Rule requires that LIFO be used _____.

or financial reporting if it is used on the company's tax return

Which of the following is merchandise inventory?

purchased finished goods goods held for sale in the normal course of business

True or False: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.

true - Spec. identifcation requires keeping track of each specific unit

raw materials that have been moved into the production process become

work in process

On May 1, beginning inventory consists of 10 items at a cost of $10 each. 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 FIFO, the Cost of Goods Sold for the month ended May 31 equals _____.

124 = (10 units x 10$) + (2 units x 12)

Lux Company uses a periodic inventory system. The company started the month with 20 lamps in its beginning inventory that cost $30 each. During the month, Lux purchased 80 additional lamps for $31 each. At the end of the month, Lux counted its inventory and found that 25 lamps remained unsold. If Lux uses the weighted average cost method, its cost of goods sold for the month is:

2,310

On May 1, beginning inventory consists of 10 items at a cost of $10 each. 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. Will COGS be higher using FIFO periodic inventory system or FIFO perpetual inventory system

COGS will be the same

if a company uses lifo for tax reporting purposes then it

Most likely has been experiencing rising inventory costs Must have used LIFO for financial reporting purposes

Who decides which of the many inventory accounting method a company should use?

The company's management

LIFO

assumes that the most recent products in a company's inventory have been sold first and uses those costs instead. - grocery store

Probes inc wrote down its inventory to the lower replacement value. The effect on probes accounting equation includes an __.

decrease in stockholder's equity decrease in assets

On May 1, beginning inventory consists of 10 items at a cost of $10 each. 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 FIFO, the Cost of Goods Sold for the month ended May 31 equals _____.

$140 = (10 x 12) + (2 x 10)

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 avg LIFO

Which of the following may occur with a higher inventory turnover ratio

Reduction in inventory storage Reduction in obsolescence (outdated and no longer used)

Consignment inventory

Refers 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

Which of the following statements are true?

an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory an increased inventory balance is desirable if management is building up stock in anticipation of higher sales

FIFO

assumes that the oldest products in a company's inventory have been sold first and goes by those production costs

inventory is recorded as

current asset on BS

Acme, Inc. had cost of goods sold of $2,000. If beginning was $2,100 and ending inventory was $500, Acme's purchases must have been $____

$400

If the inventory is 20,000 and the market value is 18,000 then the company should

Debit CGS Credit inventory 2000

Delta diamond had 5 one-carat diamond available for sale this year: 1 purchased june 1 for $500, 2 purchased july 2 for $550 each, and 2 purchased sept 23 for $600 each. On dec 24 it sold one of the diamonds that was purchased on july 9. Using perpetual specific identification its cost of goods sold is __.

560 = (500 + (2 x 550) + (2 x 600))/(1+2+2)