Acct Chapter 6

goods in transit

- goods not yet received - sold goods not yet delivered

days in Inventory

365 / inventory turnover ratio

FOB shipping point

buyer pays freight costs

conservatism

method that is least likely to overstate assets & net income

net realizable value

net amount a company expects to receive from the sale of inventory

consignor

owner of the goods who give them to consignees

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

FOB destination

ownership of the goods remains with the seller until the goods reach the buyer (sellers responsibility in transit)

LIFO reserve

difference between inventory reported using LIFO & inventory using FIFO

LIFO

ending inventory is FISH --> first in still here

FIFO

ending inventory is the LISH --> last in still here

LIFO

falling prices effect: reports highest income

FIFO

falling prices effect: reports lowest net income

inventory

goods in transit should be included in the ______________ of the company that has legal title to the goods

consignee

holds goods; tries to sell goods for consignor for a fee, w/o taking ownership of the goods

days in inventory

indicates the average number of days inventory is held

inventory turnover ratio

indicates the number of times merchandise moves through a business - indicates the liquidity of inventory by measuring the number of times the average inventory "turns over" (is sold) during the year

FIFO

inflation effect: produces a higher net income because lower unit costs of the first units purchased are matched against revenue

LIFO

inflation effect: produces a lower net income because higher unit costs of the last goods purchased are matched against revenue

sold; ending inventory

Cost of goods available for sale must be allocated between cost of goods _________ and ___________ _____________.

average cost

- allocates the cost of goods available for sale on the basis of the weighted-average unit cost incurred - applies weighted average unit cost to the units on hand to determine the cost of ending inventory

because prices usually change, and tracking which units have been sold is difficult

An assumption about cost flow is used: - even when there is no change in the purchase price of inventory. - because prices usually change, and tracking which units have been sold is difficult. - because it is required by the income tax regulation. - only when the flow of goods cannot be determined.

Cecil

Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. at the end of the accounting period, which of the following parties is includes in its inventory the consigned goods?

specific identification

Given equal circumstances, which inventory method would probably be the most time-consuming? - FIFO - Average-cost - Specific identification - LIFO

FIFO method

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory? - LIFO method - Average cost method - FIFO method - Need more information to answer

FIFO method

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the: - LIFO method. - Tax method. - Average-cost method. - FIFO method.

lower net income than FIFO

In periods of rising prices, what will LIFO produce? - Higher net income than FIFO - The same net income as FIFO - Higher net income than average costing - Lower net income than FIFO

cost of goods sold will include the latest (most recent) costs and thus will be more realistic

In periods of rising prices, which is an advantage of using the LIFO inventory costing method? - Net income will be the highest and thus reflect the prosperity of the company. - Phantom profits are reported. - Ending inventory will include latest (most recent) costs and thus be more realistic. - Cost of goods sold will include the latest (most recent) costs and thus will be more realistic.

terms of sale

Legal Title is determined by the _____.

legal title

The factor which determines whether or not goods should be included in a physical count of inventory is

60.8 days

The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. What is Wilkens' days in inventory for 2017? - 146 days - 121.7 days - 60.8 days - 97.3 days

FIFO

Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost? - Whichever method that produces the highest ending inventory figure - LIFO - FIFO - Average cost method

It is generally good business management to sell the most recently acquired goods first

Which of the following statements is correct with respect to inventories? - The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold. - Under FIFO, the ending inventory is based on the latest units purchased. - FIFO seldom coincides with the actual physical flow of inventory. - It is generally good business management to sell the most recently acquired goods first.

jewelry store

Which of the following would most likely employ the specific identification method of inventory costing? - Gasoline station -Grocery store -Jewelry store -Hardware store

companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period

Which statement is false? - An inventory count is generally more accurate when goods are not being sold or received during the counting. - Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period. - No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. - Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.

specific identification

an actual physical flow costing method in which individual items still in inventory are specifically given a cost to arrive at the total cost of the ending inventory. This is the type of inventory an automobile dealer will probably use to calculate their year-end cost of cars on their lot

FIFO

companies determine units & costs of ending inventory starting with the unit cost of the most recent purchase & working backward until all units of inventory have been costed

net realizable value

companies must "write-down" inventory to its ________ in the period in which the price decline occurs

weighted average unit cost

cost of goods available for sale / total units available for sale

inventory turnover ratio

cost of goods sold / average inventory

FIFO

cost of the earliest goods purchased are the first to be recognized in determining cost of goods sold (i.e. inventory purchased first is sold first)

LIFO

costs of the latest goods purchased are the first to be recognized in determining cost of goods sold (i.e. assuming inventory purchased last is first sold)

perpetual system

physical inventory is taken for 2 reasons: - check accuracy of inventory records - determine amount of inventory lost due to wasted raw materials, shop lifting, or employee theft

periodic system

physical inventory is taken for 2 reasons: - determine inventory on hand - determine the cost of goods sold for the period

LIFO

seldom coincides with actual flow of merchandise (ex. goods stored in piles, gravel or mulch)

FOB destination

seller pays freight cost

cost of goods sold

understating ending inventory will overstate _______.

total cost

units * unit cost (weighted average)

lower of cost or net realizable value

when the inventory is lower than it cost (ex. clothes going out of season)