ACCT 220 SmartBook 7 Questions

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, Cost of Goods Sold equals ______. $33 an indeterminable amount given the specific items sold was not identified $31 (rounded to the nearest dollar) $30 $31.50

$33

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 ______. $500 $50 $516 $510 $60

$510

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received? LIFO Weighted average FIFO

FIFO

T or F: GAAP requires that a business must use an inventory accounting method that is the same as the physical flow of goods in and out of the business.

False A business may use specific identification, or it may use a cost flow assumption (LIFO, FIFO, or weighted average) that does not mimic the physical flow of goods.

Which of the following would be considered merchandise inventory? Work in process Purchased finished goods Raw materials Cost of goods sold

Purchased finished goods

Which of the following may occur with a higher inventory turnover ratio? Reduction in obsolescence Reduction in bad debt expense Reduction in sales allowances Reduction in inventory storage costs

Reduction in obsolescence Reduction in inventory storage costs

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

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

Which inventory method is typically used when accounting for expensive and unique inventory items? FIFO Specific identification Weighted Average Cost LIFO

Specific identification

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; income statement income statement; balance sheet balance sheet; income statement balance sheet; balance sheet

income statement; balance sheet

Which of these would explain an increase in a company's inventory turnover ratio? A decrease in cost of goods sold An increase in the demand for the company's products A decrease in total inventory

An increase in the demand for the company's products A decrease in total inventory

Which company will have the higher number of days to sell? Company A whose cost of goods sold equals $1,000 and whose average inventory is $100. Company B whose cost of goods sold equals $2,000 and whose average inventory is $100. Company A Company B There is not enough information to answer this question.

Company A Days to sell (=365/inventory turnover ratio) would be higher for Company A at 36.5 days (=365 days/($1,000/$100)) versus Company B at 18.25 days (=365 days/($2,000/$100)).

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased? Specific identification Periodic LIFO FIFO Perpetual Weighted average

LIFO

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

True Managers may choose the method that best fits their business environment.

_______ inventory consists of products acquired in a finished condition, ready for sale without further processing.

merchandise

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

An understatement of the 2019 ending inventory will affect ______. 2019 Cost of Goods Sold 2020 Cost of Goods Sold 2020 Ending Inventory 2020 Beginning Inventory

2019 Cost of Goods Sold 2020 Cost of Goods Sold 2020 Beginning Inventory

If Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be ______. 14% 73 times per year 14 days 73 days

73 days 365/5

On May 1, there were 4 inventory items that cost $30 each. On May 5, 2 items were purchased for $35 each. Given one item from the beginning inventory and one from the May 5 inventory were sold, under the __________ _________ inventory method, cost of goods sold would equal $65.

specific identification

The costs of carrying inventory include the costs of ______. delivering goods to customers spoilage theft storage obsolescence

spoilage theft storage obsolescence

The inventory turnover ratio directly measures ______. how many days it takes to collect its sales of inventory sold on account the days it takes to sell its average inventory balance the times per period the average inventory balance is sold

the times per period the average inventory balance is sold

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchases 3 more at $12 each. It sold 2 units. Using the ________ _________ cost inventory method, Cost of Goods Sold equals $22.40

weighted average

Ending inventory errors in 2019 ______. will affect only 2019 will affect the 2020 goods available for sale but will not affect the 2020 ending inventory are offset by the end of 2020, and thus, are not considered errors

will affect the 2020 goods available for sale but will not affect the 2020 ending inventory

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? $11.50 $11.00 It cannot be determined until the units are weighed. $11.20

$11.20

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? $11.50 It cannot be determined until the units are weighed. $11.20 $11.00

$11.20

Delta Diamonds had 5 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. Using periodic weighted average cost, its inventory after the December 24 sale is ______. $2,200 $2,300 $2,240 $560 $2,250

$2,240 The average cost per unit is $560 (=($500 + (2 x $550) + (2 x $600))/(1 + 2 + 2)). Inventory (using weighted average) is $2,240 ($560 per unit x 4 units).

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 one of the diamonds that was purchased on July 9. Using a periodic specific identification, its Inventory after the December 24 sale is ______. $2,300 $1,650 $2,250 $2,240 $2,200 $550

$2,250

Lux 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 periodic weighted average cost, its Cost of Goods Sold for the month is ______. $2,325 $770 $2,305 $2,287.50 $2,310

$2,310

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 20 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 5 quilts remained unsold. If Mountain Made uses LIFO periodic, its Cost of Goods Sold for the month is ______. $1,050 $3,750 $3,780 $1,020

$3,780

Delta Diamonds had 5 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. Using periodic weighted average cost, its Cost of Goods Sold is ______. $500 $600 $560 $550

$560 Cost of Goods Sold (using weighted average)=($500 + (2 x $550) + (2 x $600))/(1 + 2 + 2)=$560 per unit; $560 x 1 unit=$560

Delta Diamonds had 5 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. Using LIFO periodic, its Cost of Goods Sold is ______. $1,200 $550 $600 $1,100 $500

$600

Chicken Little started the month with 5 eggs in its inventory that cost $2 each. During the month, Chicken Little bought 30 more eggs that cost $2.50 each. At the end of the month, Chicken Little counted its inventory and found that 8 eggs remained unsold. If Chicken Little uses FIFO periodic, its Cost of Goods Sold for the month is ______. $20 $65 $17.50 $55 $67.50

$65

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 __________.

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

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 Cost of Goods Sold be higher using a FIFO periodic inventory system or FIFO perpetual inventory system? The perpetual inventory system Cost of Goods Sold will be the same The periodic inventory system

Cost of Goods Sold will be the same FIFO periodic and perpetual will have the same Cost of Goods Sold (CGS). LIFO periodic versus perpetual will result in different CGS because LIFO periodic assumes all purchases during the period occurred before the cost of the sales are recorded at the end of the period.

What effect does the inventory costing method have on the income statement? The inventory methods affects the amount of the ______. Cost of Goods Sold and Gross Profit only Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income Sales, Cost of Goods Sold, Gross Profit, Income Tax Expense and Net income Sales, Cost of Goods Sold and Gross Profit and does not affect on Income Tax Expense

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

Which of these might cause the value of inventory to fall below its original cost? Damage Decrease in gross profit Obsolescence from going out of style Increased competition

Damage Obsolescence from going out of style Increased competition

Which of these might cause the value of inventory to fall below its original cost? Damage Obsolescence from going out of style Increased competition Decrease in gross profit

Damage Obsolescence from going out of style Increased competition

Which of the following income statement line items are affected by the inventory method chosen? Income from Operations Gross Profit Income before Income Tax Expense Net Income Sales Income Tax Expense

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

Which financial statements are needed to calculate the inventory turnover ratio? Management's responsibility report Statement of retained earnings Income statement Balance sheet Statement of cash flows

Income statement Balance sheet

Which of these might cause the value of inventory to fall below its original cost? Decrease in gross profit Increased competition Obsolescence from going out of style Damage

Increased competition Obsolescence from going out of style Damage

Which of the following statements concerning inventory is correct? Inventory is reported as a current asset because it has been sold. Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date. Inventory is a non-current asset because it is held for sale in the ordinary course of business and is not available to meet current obligations. Inventory is not reported as a current asset.

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

Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet? LIFO FIFO Specific identification Weighted average

LIFO

Who decides which of the many inventory accounting methods a company should use? The company's management The Securities and Exchange Commission (SEC) GAAP The Public Company Accounting Oversight Board (PCAOB) Competitive companies get together and agree on a single method that all will use

The company's management

T or F: The inventory method selected by management does not have to correspond to the physical flow of goods to be in accordance with GAAP.

True The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods. For example, a grocery store may use Last-in, First-out inventory method.

Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______. income statement as in transit inventory; Cost of Goods Sold on the balance sheet balance sheet as noncurrent asset; Gross Profit on the income statement balance sheet as a current asset; Cost of Goods Sold on the income statement income statement as Gross Profit; Cost of Goods Sold on the income statement

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

In a perpetual inventory system, Inventory is initially recorded at ______. gross profit expected resale value expected selling price cost expected profit

cost

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

cost of the actual item sold

Days to sell measures the average number of ______. times per year receivables are collected days' sales in accounts payable times per year inventory is purchased days from the time inventory is purchased to the time it is sold

days from the time inventory is purchased to the time it is sold

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit __________.

decreases

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 purchases made during the month from the beginning inventory the ones that were actually sold and cannot be determined from the information provided

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 first-in, first-out, the 3 goods sold are assumed to be ______. from the purchases made during the month the ones that were actually sold and cannot be determined from the information provided from the beginning inventory

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 ______. the ones that were actually sold and cannot be determined from the information provided from the purchases made during the month from the beginning inventory

from the purchases made during the month

An increase in a company's inventory balance from a prior year is ______. always bad always good good if the inventory turnover ratio is higher

good if the inventory turnover ratio is higher

Inventory costing methods allowed by US GAAP include: 1) specific ___________ 2) __________ average 3) last in, ___________ out 4) first in, ________ out.

identification weighted first first

Merchandise inventory ______. is reported as a current asset on the balance sheet consists of products acquired in a finished condition that are available for sale becomes work in process inventory once it enters the production process is reported on the income statement above Gross Profit

is reported as a current asset on the balance sheet consists of products acquired in a finished condition that are available for sale

Applying the lower of cost or market rule results in inventory being reported at the ______. higher market values market value if lower than cost cost because the historical cost rule takes precedence

market value if lower than cost

Applying the lower of cost or market rule results in inventory being reported at the ______. market value if lower than cost cost because the historical cost rule takes precedence higher market values

market value if lower than cost

Applying the lower of cost or market rule results in inventory being reported at the ______. market value if lower than cost higher market values cost because the historical cost rule takes precedence

market value if lower than cost

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

oldest; newest

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 ______. $30 $31 (rounded to the nearest dollar) an indeterminable amount given the specific items sold was not identified $31.50 $33

$30

Which of these inventory accounting methods are acceptable under US GAAP? LIFO Specific identification FIDO LUDO FIFO Count and carry Weighted average

LIFO Specific identification FIFO Weighted average

Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______. income statement as in transit inventory; Cost of Goods Sold on the balance sheet income statement as Gross Profit; Cost of Goods Sold on the income statement balance sheet as noncurrent asset; Gross Profit on the income statement balance sheet as a current asset; Cost of Goods Sold on the income statement

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

Ending inventory errors in 2019 ______. are offset by the end of 2020, and thus, are not considered errors will affect the 2020 goods available for sale but will not affect the 2020 ending inventory will affect only 2019

will affect the 2020 goods available for sale but will not affect the 2020 ending inventory

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. 5 10 15

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

Which of the following statements are true? An increased inventory balance is desirable if the resulting inventory turnover ratio is lower. 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.

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.

Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet? Specific identification LIFO FIFO Weighted average

LIFO

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 last in first out last-in, first-out

What is the inventory costing method that adds together the total cost of all goods available for sale during the period, and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory? Specific identification Weighted average cost FIFO LIFO

Weighted average cost

Specific identification is ______. the classification of an account as an asset, liability, or stockholders' equity account an inventory method that tracks which item is actually sold and debits Cost of Goods Sold for the actual cost of the item a detailed list of all of a corporation's stockholders a high-tech security technique for identifying key employees

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

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. detect shrinkage detect theft detect bookkeeping errors are not needed when a perpetual system is used

detect shrinkage detect theft detect bookkeeping errors

As inventory quality increases, its cost usually ___________

increases, rises, or grows