Concepts Review & Self Study CH 6

what amount would Madison report for ending inventory using LIFO

$3,380

Which of the following companies record revenues when selling inventory?

Both manufacturing and merchandising companies

When a company determine that the net realizable value of its ending inventory is lower than its cost, what would be the effects of the adjustment to write down inventory to net realizable value?

Decrease total assets, decrease net income, decrease retained earnings

Which of the following levels of profitability in a multiple-step income statement represents revenues from the sale of inventory less the cost of that inventory?

Gross Profit

Which of the following is an example of a nonoperating expense for a merchandising company?

Interest Expense

Inventory is typically reported as a(n):

asset on the balance sheet

Using a perpetual inventory system the purchase of inventory on account would be recored as

debit inventory; credit accounts payable

Which of the following steps in the flow of inventory costs for a manufacturing company occurs first?

purchasing raw materials

Walmart is an example of a:

retailer

The FIFO method assumes that:

the first units purchased are the first ones sold.

Products that have been started in the production process but are not yet complete at the end of the period are known as:

work-in-process inventory

Jan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. What is the amount of LIFO adjustment needed to adjust FIFO inventory records reported for the year to LIFO for external reporting purposes?

$1,300

Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 Calculate the amount to be reported for ending inventory of Model A.

$10,000

At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold?

$11,500

Travis Corporation begins the year with $50,000 of tire inventory. The company purchases tires worth $150,000 during the year. At the end of the year, the purchase cost of remaining inventory is $30,000. What is the cost of goods sold?

$170,000

InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 Calculate the amount to be reported for ending inventory of Model B.

$2,000

Dane Stores begins the year with $30,000 of DVD inventory. It purchases DVDs worth $80,000 during the year. The cost of goods sold for the year is $70,000. What is the amount of ending inventory?

$40,000

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the amount of ending inventory that Green Products will report in its balance sheet at the end of the year, if it uses the last-in, first-out cost method?

$5,500

Jan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. The entry to record the transaction on December 10 will involve a debit to Cost of Goods Sold for _____.

$9,800

For the year, Simmons Incorporated reports net sales of $100,000, cost of goods sold of $80,000, and an average inventory balance of $40,000. What is Simmons' gross profit ratio?

20%

A company has total sales revenue of $500,000 for the year. Sales discounts, returns, and allowances total $50,000 and the cost of goods sold is $300,000. What is the company's gross profit ratio?

33.33%

For the current year, Theta Corporation has beginning and ending inventories of $40,000 and $60,000, respectively. Cost of goods sold for the year is $240,000. What is the company's inventory turnover ratio?

4.8 Times

For the current year, Delta Corporation has beginning and ending inventories of $80,000 and $100,000, respectively. Cost of goods sold for the year is $450,000. What is the company's average days in inventory?

73 days

A company that returns items that were previously purchased on account will debit:

Accounts payable

InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 The year-end adjustment to mark inventory down to net realizable value will involve a debit to _____.

Cost of Goods Sold for $500

Which inventory cost flow assumption generally results in the lowest reported amount for cost of goods sold when inventory costs are rising?

FIFO

When inventory costs are rising, the _____ results in a higher reported inventory.

FIFO method

A gross profit ratio of 32% indicates that for every $1 of net sales, the company spends $0.32 on inventory.

False

An appropriate use of the specific identification method is in accounting for low-cost, similar inventory items that are difficult to separately identify.

False

Companies that purchase inventories in finished form from suppliers are known as manufacturing companies.

False

The cost of freight-in is initially added to the balance of the Cost of Goods Sold account.

False

The multiple-step income statement begins by reporting that a company's sales revenues minus cost of goods sold equals net income.

False

Wholesalers resell inventory to end users.

False

InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 The year-end adjustment to mark inventory down to net realizable value will involve a credit to _____.

Inventory for $500

Which of the following is true of a period of falling inventory costs?

LIFO will report higher gross profit than FIFO.

Which of the following is an advantage of using LIFO in a period of rising costs?

Results in lower taxes

Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error?

Understate cost of goods sold.

The LIFO conformity rule requires that _____.

a company that uses LIFO for tax reporting to also use LIFO for financial reporting

A _____________ inventory system is one that is continually updated to reflect inventory purchases and sales.

perpetual

Accountants often call FIFO the balance-sheet approach because _____.

the amount it reports for ending inventory better approximates the current cost of inventory

The LIFO method assumes that:

the last units purchased are the first ones sold.

Inventory is reported on the balance sheet at:

the lower of original cost and net realizable value

Beginning inventory - 10 units @ $200 Purchase - 15 units @ $300 total of 12 sales to customers What amount would Madison report for cost of goods sold using FiFO

$2,600

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the amount of cost of goods sold that Green Products will report in its income statement for the current year, if it uses the first-in, first-out cost method?

$20,000

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the amount of cost of goods sold that Green Products will report in its income statement for the current year, if it uses the last-in, first-out cost method?

$22,500

what amount would Madison report for cost of goods sold using LIFO

$3,600

what amount would Madison report for ending inventory using FiFO ?

$3,900

Jan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. What is the ending balance of Inventory under the FIFO method?

$4,500

Trivia Company reports a gross profit of $100, income tax expense of $15, selling, general, and administrative expenses of $35, nonoperating revenues of $10, and nonoperating expenses of $15. What is the company's operating income?

$65

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the weighted-average unit cost?

$7

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the amount of ending inventory that Green Products will report in its balance sheet for the current year, if it uses the weighted-average method?

$7,000

Jan. 1Beginning inventory 500 $5 May 15Purchase 1,000 6 Jun. 10Purchase 500 7 Oct. 25Purchase 2,000 8 Units sold during the year: 3,000What is the amount of ending inventory that Green Products will report in its balance sheet at the end of the year, if it uses the first-in, first-out cost method?

$8,000

Jan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. Which of the following will be recorded on May 21?

Credit to Accounts Payable for $4,800

A supplier offers a company terms 3/10, n/30 for a $10,000 purchase on account on January 1. The company uses a perpetual inventory system to record transactions. If the company makes the payment on January 10, the entry to record the payment will include a:

Credit to Inventory for $300

Jan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. Which of the following will be recorded on February 25?

Credit to Sales Revenue for $6,000

using perpetual inventory system the sale of inventory on account would be recored as

Debit Cost of Goods Sold ; Credit Inventory OR Debit Accounts receivable ; credit Sales Revenue

Using a periodic inventory system, the purchase of inventory on account would be recored as

Debit Purchases; credit Accounts Payable

The weighted-average method assumes that:

The weighted-average method assumes that:

A high inventory turnover ratio generally indicates that the company's inventory policies are effective.

True

Companies that report inventory using the LIFO method must report the difference between the LIFO cost and FIFO cost of its inventory. This difference is commonly called the LIFO reserve.

True

Due to technological advances in recent years, most companies use a perpetual inventory system to track inventory purchases and sales.

True

FOB shipping point means title passes when the seller ships the inventory, not when the buyer receives it.

True

The cost of inventory sold during a period is reported on the income statement

True

The costs of beginning inventory plus additional purchases during the year make up the cost of inventory available for sale.

True

When inventory costs are rising, LIFO results in lower tax expense when compared to FIFO.

True