chpt 6 acct

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

Raw materials Work in process Finished goods

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

Reason: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

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

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

assets will increase

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be BLANK , Incorrect Unavailable than cost of

higher

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

included in Gerald's inventory.

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

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

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

What type of company purchases raw materials and makes goods to sell?

Manufacturers

LIFO

Provides better matching of current revenues with current inventory cost

Which of the following represent reasons why managers closely monitor inventory levels?

To minimize costs of inventory write-downs due to obsolete inventory. To ensure that sufficient units are available.

n times of rising prices, ending inventory determined using the LIFO inventory assumption will be BLANK, Correct Unavailable than ending inventory determined using the FIFO inventory assumption.

lower

Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:

overstate net income understated assets, retained earnings, and net income

Which of the following accounts would be found in the balance sheet of a manufacturing company? Cost of goods sold Merchandise inventory Work in process

Work in process

Periodic inventory system

Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

Perpetual inventory system

Choice, Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. Neumann Company can determine the cost of inventory still on hand by referring to the inventory account.

Which of the following methods are available for costing inventory? (Select

FIFO LIFO Specific identification Weighted-average

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

When prices increase, BLANK, Incorrect Unavailable inventory method provides the best matching of revenue and expenses.

LIFO

FIFO

first in first out; Most closely approximates the actual physical flow of inventory

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)

net income increases total assets increase stockholders' equity increases

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods

Cost of Goods Sold 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

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

Items held for sale in the normal course of business are referred to as

inventory

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

outdated

For internal record keeping, most companies carry their inventory using the _____ basis.

FIFO

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

paid by the supplier

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO

reserve