chapter 6 quizlet
assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?
lifo
which of the following accounts would be found in the balance sheet of a manufacturing company?
work in process
__________Inventory refers to the products that have been started in production, but are still incomplete.
work-in-process
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 sale price of the inventory
assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?
LIFO
what type of company purchases raw materials and makes goods to sell?
Manufacturers
the shipping term FOB stands for:
free on board
net sales revenue minus cost of goods sold is:
gross profit
a multiple-step income statement reports multiple levels of
income
revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues are expenses.
nonoperating
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
a multiple-step income statement reports multiple levels of:
income
gross profit is:
sales revenue minus cost of goods sold
purchasing inventory on account
* increases liabilities * increase assets
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 Accounts Receivable $1,000; credit Sales Revenue $1,000 -Debit Cost of Goods Sold $700; credit Inventory $700
Which of the following methods are not used for inventory costing? (Select all that apply.)
-Simple-average -NIFO
major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for
-cost of goods sold. -inventory
the work-in-process inventory account typically includes which costs?
-direct labor -raw materials -indirect manufacturing costs
which of the following accounts are typically reported in the balance sheet of a manufacturing company?
-Finished goods -Raw materials -Work in process
because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.:
inventory, Cost of goods Sold
when prices rise, which inventory method tends to result in lower income and a lower tax liability?
lifo
Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. at the end of the year, vogel converts its inventory balance from fifo to lifo by using the:
lifo adjustment
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
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
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
Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:
decrease an asset and increase an expense, increase an asset and increase revenue
Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:
inventory
___________ __________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.
raw materials
the inventory turnover ratio directly measures ____________.
the times per period the average inventory balance is sold.
The definition of inventory includes which of the following items?
-items held for resale -items used currently in the production of goods to be sold -items currently in production for future sale
Items held for sale in the normal course of business are referred to as
inventory
when prices increase, the _______ inventory method provides the best matching of revenue and expenses.
LIFO
the lower of cost and net realizable value method was developed to:
avoid reporting inventory at an amount that exceeds the benefits it provides.
the specific identification method
-matches each unit of inventory with its actual cost -would be beneficial to a company that makes fine jewelry
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.
Using a perpetual inventory system, what is the effect of a sale of inventory on assets?
assets decrease by the cost of the inventory
in a lifo inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs
incurred several yrs. earlier.
Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the
lifo adj.
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
under the _______ invent. syst., the inventory account reflects purchases during the year, as wellas cost of units sold.
perpetual
FOB destination means title to the goods passes when:
they arrive at the destination
meller purchases inventory on account. as a results, meller's:
assets will increase
a periodic inventory system measures cost of goods sold by
counting inventory at the end of the period.
inventory is classified as:
current asset
Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?
debit inventory
Which of the following items are readily available from an inventory account under the perpetual inventory system?
ending inventory balance cost of units sold beginning inventory balance individual purchases
Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use?
fifo
Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?
fifo
Which inventory cost flow method approximates the physical flow of inventory items?
fifo
which inventory cost method approximates the physical flow of inventory items?
fifo
which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?
fifo
____________ ___________ inventory consists of items for which the manufacturing process is complete.
finished goods
a major difference between companies that provide services and companies that manufacturing or sell goods is that those that manufacture or sell goods must account for:
inventory
Cost of goods sold divided by average inventory is:
inventory turnover
The __________ _________ ratio shows the number of times the firm sells its average inventory during a reporting period.
inventory turnover
Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)
inventory. cost of goods sold.
in times of rising prices, cost of goods sold determined using the lifo invent. assump. typ. will be ________ than cost of goods sold determines using the FIFO invent. assump.
larger
Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces?
lifo
The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the
lifo reserve
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 Blank 1Blank 1 lifo, Correct Unavailable Blank 2Blank 2 reserve, Correct Unavailable.
lifo reserve
Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming:
outdated
under the ________ inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.
perpetual
which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production
raw materials inventory
The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.
specific identification
in a perpetual inventory system, when a company sells inventory on account, how many entries are required?
two
For internal record keeping, most companies carry their inventory using the ________ basis.
when they arrive at the destination.
added to the cost of inventory
Freight-in
gerald corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are:
included in Gerald's inventory.
on a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as _______________ revenues and expenses.
nonoperating
the lifo adjustment is used internally to convert the inventory
to the lifo basis
Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:
understated assets, retained earnings, and net income
Most closely approximates the actual physical flow of inventory
FIFO
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)
total assets increase net income increases stockholders' equity increases
which inventory account consists of the cost of items for which the manufacturing process is complete?
Finished goods inventory
recognized as operating expense
Freight-out
Provides better matching of current revenues with current inventory cost
LIFO
when prices increase, the _________ inventory method tends to decrease a company's tax liability during a particular fiscal period
LIFO
The _______cost flow assumption more realistically matches the current cost of inventory with current sales revenue.
Lifo
companies that produce the inventory they sell are referred to as ____________.
Manufacturing
where is inventory reported in the financial statements?
balance sheet as a current asset
which of the following methods are available for costing inventory?
(1) FIFO (2) Weighted-average (3) LIFO (4) Specific identification
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 Inventory $1,500
which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?
perpetual inventory system
which of the following items are readily available from an inventory account under the perpetual inventory system?
* cost of units sold * ending inventory balance * beginning inventory balance * individual purchases
The _______ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies
FIFO
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
Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:
overstated net income