Accounting Ch. 6 EXAM 3

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be __________ than cost of goods sold determined using the FIFO inventory assumption.

higher

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are treated as a selling expense. included in Gerald's inventory. paid by the supplier.

included in Gerald's inventory

A multiple-step income statement reports multiple levels of

income

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be _________ than ending inventory determined using the FIFO inventory assumption.

lower

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

manufacturers

Companies that produce the inventory they sell are referred to as

manufacturing

FIFO

most closely approximates the actual physical flow of 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

Select all that apply 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 decrease stockholders' equity increases total assets increase stockholders' equity decreases

net income increases stockholders' equity increases total assets increase

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs? Perpetual inventory system Periodic inventory system Both periodic and perpetual inventory systems

perpetual inventory system

LIFO

provides better matching of current revenues with current inventory cost

Select all that apply 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 $1,000; credit Inventory $1,000 Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

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

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold? Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500 Debit Cost of Goods Sold $1,500; credit Inventory $1,500 Debit Inventory $1,500; credit Cost of Goods Sold $1,500 Debit Accounts Receivable $2,000; credit Inventory $2,000

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following? Debit Sales Revenue Debit Accounts Payable Debit Inventory Debit Purchase

Debit Inventory

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? LIFO Weighted-average FIFO

FIFO

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

FIFO

Which of the following accounts are typically reported in the balance sheet of a manufacturing company? Cost of goods sold Finished goods Work in process Raw materials

Finished goods Work in process Raw materials

Select all that apply The definition of inventory includes which of the following items? Multiple select question. Items held for resale Materials used currently in the production of goods to be sold Items currently in production for future sale Items held for use or disposal

Items held for resale Materials used currently in the production of goods to be sold Items currently in production for future sale

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? FIFO Weighted-average LIFO

LIFO

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

LIFO

When prices increase, the ____________ inventory method provides the best matching of revenue and expenses.

LIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the LIFO reserve LIFO savings FIFO cost FIFO reserve

LIFO reserve

Select all that apply Which of the following methods are not used for inventory costing? NIFO Weighted-average Simple-average LIFO FIFO Specific identification

NIFO Simple average

perpetual inventory system

Peter Company recognizes cost of goods sold each time it recognizes a sale.

periodic inventory system

Sherman Company recognizes cost of goods sold after completing a physical inventory.

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

Two

Select all that apply Which of the following methods are available for costing inventory? Weighted-average LIFO NIFO Specific identification FIFO Simple-average

Weighted-average LIFO Specific identification FIFO

Select all that apply Which of the following accounts are typically reported in the balance sheet of a manufacturing company? Work in process Finished goods Raw materials Cost of goods sold

Work in process Finished goods Raw materials

Select all that apply Using the perpetual inventory system, what is the effect of a sale of inventory on assets? assets decrease by the cost of the inventory assets increase by the sales price of the inventory assets decrease by the sales price of the inventory assets increase by the cost of the inventory

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

Meller purchases inventory on account. As a results, Meller's income will decrease. liabilities will decrease. stockholders' equity will decrease. assets will increase.

assets will increase

Where is inventory reported in the financial statements?

balance sheet as a current asset

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.) current assets. cost of goods sold. liabilities. inventory.

cost of goods sold. inventory

Inventory is classified as

current asset

Select all that apply Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to: decrease an asset and decrease revenue decrease an asset and increase an expense increase an asset and increase revenue increase an asset and decrease an expense

decrease an asset and increase an expense increase an asset and increase revenue

The shipping term FOB stands for free on board. freight on board. free onto buyer. freight over board.

free on board

Select all that apply Purchasing inventory on account: increases equity increases assets decreases equity increases liabilities decreases assets

increases assets increases liabilities

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

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

inventory

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: Cost of Goods Sold Raw Materials Purchases Inventory

inventory

Select all that apply Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods. Inventory Sales Revenue Cost of Goods Sold Purchases

inventory cost of goods sold

Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold. The reported amounts for ending inventory and cost of goods sold will not be the same across inventory reporting methods because: inventory costs generally change over time. inventory costs are incurred solely on the balance sheet date. inventory costs have not yet been incurred.

inventory costs generally change over time

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

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

work in process