ch 6

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods. Multiple select question.

Cost of Goods Sold Inventory

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

Which of the following represent reasons why managers closely monitor inventory levels?

To ensure that sufficient units are available. To minimize costs of inventory write-downs due to obsolete inventory.

In a perpetual inventory system, freight costs on purchases are

added to the inventory account.

In a periodic inventory system, purchase returns

are recorded in a separate contra purchases account.

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

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

less

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value; greater

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

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

Perpetual inventory system

Neumann Company can determine the cost of inventory still on hand by referring to the inventory account.

Which of the following inventory systems requires a physical count in order to determine cost of goods sold?

Periodic inventory system

Under the periodic inventory system, purchase returns and purchase discounts accounts represent

contra purchases accounts.

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption? Multiple choice question.

FIFO

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

If a company uses the periodic inventory system, how many entries are made when a sale occurs?

one

When a sale occurs under the periodic inventory system, we record:

only the sale, but not the related cost of goods sold

A ______ inventory system updates the inventory account each time a sale or purchase is made, whereas a __________ inventory system calculates cost of goods sold and ending inventory at the end of the reporting period.

perpetual periodic

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

FOB shipping point means title to the goods passes

when they are shipped.

Periodic inventory system

Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

If a company uses the perpetual inventory system, how many entries are made when a sale occurs?

Two

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

debit inventory

The shipping term FOB stands for

free on board.

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

spolied