Finance

Alpha Company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is ______.

$4.25 Reason: ((75 x $4) + (25 x $5))/100=$4.25

Which of these inventory accounting methods are acceptable under US GAAP? (Check all that apply.)

FIFO Specific identification Weighted average LIFO

Risen, Inc. has beginning inventory of $16 which consists of 2 units at $8 each. It purchased 10 units at $10 each. It sold 5 units for $20 each. Which would result in the higher Gross Profit, FIFO or LIFO and why?

FIFO because the older, less expensive units are assumed to be sold first making Cost of Goods Sold lower and Gross Profit higher than LIFO

Which of the following is merchandise inventory?

Goods held for sale in the normal course of business

Which of these might cause the value of inventory to fall below its original cost? (Check all that apply.)

Obsolescence from going out of style Increased competition Damage

Which of the following would be considered merchandise inventory?

Purchased finished goods

The weighted average cost method uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet.

average; average

Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______

balance sheet as a current asset; Cost of Goods Sold on the income statement

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet? Multiple choice question.

FIFO

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, it is using the weighted ___ cost method.

average

Which of the following statements are true? (Check all that apply.)

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

The costs of carrying inventory include the costs of ______. (Check all that apply.)

spoilage theft storage obsolescence

The inventory turnover ratio directly measures ______.

the times per period the average inventory balance is sold

True or false: Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.

true

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

Specific identification

Which statement is true?

Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchased 3 more at $12 each. What is the weighted average cost per unit? Multiple choice question.

$11.20 the weighted average cost is $11.20 (=((2 x $10) + (3 x $12))/5).

Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.

$12.10

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

$2,200

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, Cost of Goods Sold equals ______. Multiple choice question.

$30

King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume uses LIFO periodic, its Cost of Goods Sold for the month is ______.

$510 This is LIFO ending inventory the cost of the 43 masks sold equals (40 masks x $12) + (3 masks x $10).

Delta Diamonds had 5 one-carat 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 that was purchased on July 9. Using periodic specific identification, its Cost of Goods Sold is ______.

$550

What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the ______.

Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income

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

Income statement Balance sheet

Which of the following statements concerning inventory is correct? Multiple choice question.

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

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

The company's management

Specific identification is ______.

an inventory method that tracks which item is actually sold and debits Cost of Goods Sold for the actual cost of the item

When using the specific identification inventory method, cost of goods sold equals the ______.

cost of the actual item sold

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

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 last-in, first-out, the 3 goods sold are ______. Multiple choice question.

from the purchases made during the month

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

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.

income statement; balance sheet

As inventory quality increases, its cost usually ___. (Enter one word per blank.)

increases

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

market value if lower than cost

LIFO uses the ______ unit costs for Cost of Goods Sold on the income statement and the ______ unit costs for Inventory on the balance sheet.

newest; oldest

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

oldest; newest

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______.

only in a perpetual system It is not possible to determine shrinkage in a periodic system because the inventory balance and cost of good sold are not determined until the inventory is counted at the end of the period. In the perpetual system, the inventory balance is updated after each sale. When the inventory is counted at the end of the period and compared to the balance according to the accounting records, the difference is the amount of shrinkage that occurred during the period

Which of the following income statement line items are affected by the inventory method chosen?

Gross Profit Income from Operations Net Income Income before Income Tax Expense Income Tax Expense

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.

$302 10 x 5 = 50 42 x 6 = 252

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.

10 Reason: Inventory turnover ratio=cost of goods sold/average inventory or $10,000/ (($800 + $1,200)/2).