Chapter 6: Smartbook Assignment

Income

A multiple-step income statement reports multiple levels of __________.

FIFO

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

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

a current asset

Inventory is classified as __________

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

Nonoperating

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as __________ revenues and expenses.

Perpetual inventory system

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

LIFO

Provides better matching of current revenues with current inventory cost

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

nonoperating

Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses.

Periodic inventory system

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

multiple-step income statement

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.

Finished goods inventory

Which inventory account consists of the cost of items for which the manufacturing process is complete?

Work-in-process

_____ inventory refers to the products that have been started in production, but are still incomplete.

Finished Goods

__________ __________ inventory consists of items for which the manufacturing process is complete.

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?

FIFO

Periodic inventory system

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

specific identification

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.

Work in process

Which of the following accounts would be found in the balance sheet of a manufacturing company?

Which of the following methods are NOT used for inventory costing? •NIFO •Weighted-average •Simple-average •FIFO •Specific identification •LIFO

•NIFO •Simple-average

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

•assets will increase.

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

Gross Profit

Net Sales Revenue minus Cost of Goods Sold.

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

•LIFO reserve

Which inventory cost flow method approximates the physical flow of inventory items? •Weighted-average •FIFO •LIFO

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

incurred several years earlier.

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

Inventory

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

understated assets, retained earnings, and net income

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:

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

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

LIFO

The __________ cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

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

LIFO

Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces? •Specific identification •Weighted-average •FIFO •LIFO

LIFO

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

LIFO reserve

FIFO

Most closely approximates the actual physical flow of inventory

Perpetual inventory system

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

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

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

Two Reason: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

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 (Choose one:) •overstated assets, retained earnings and net income •the financial statement will be correct •understated assets, retained earnings, and net income •overstated net income

Wrong Answers: •overstated assets, retained earnings and net income Reason: the balance sheet is correct because the effect of the error counterbalanced; net income is too high because the beginning balance is too low. •the financial statement will be correct Reason: net income is too high because beginning inventory balance is too low •understated assets, retained earnings, and net income Reason: effect on current year statements not the following year statements. Correct Answer: •overstated net income

Raw Materials

__________ __________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

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

incurred several years earlier.

The definition of inventory includes which of the following items? • 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 •Items held for resale

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

•Cost of Goods Sold •Inventory

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

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

•Debit Inventory

Which of the following methods are available for costing inventory? (Select all that apply.) •Simple-average •FIFO •Weighted-average •NIFO Reason: Next-in, first-out is not permitted •Specific identification •LIFO

•FIFO •Weighted-average •Specific identification •LIFO Wrong Answers: •Simple-average Reason: Simple-average is the wrong name for weighted average. •NIFO Reason: Next-in, first-out is not permitted.

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 •Raw Materials •Purchases •Cost of Goods Sold

•Inventory

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

•Inventory •Cost of Goods Sold

Which of the following items are readily available from an inventory account under the perpetual inventory system? Multiple select question. •sales revenue •freight-out •cost of units sold •beginning inventory balance •ending inventory balance •individual purchases

•cost of units sold •beginning inventory balance •ending inventory balance •individual purchases

Using the perpetual inventory system, what is the effect of a sale of inventory on assets? Multiple select question. •assets increase by the sales price of the inventory •assets increase by the cost of the inventory •assets decrease by the cost of the inventory assets decrease by the sales price of the inventory

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

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to: Multiple select question. •increase an asset and decrease an expense •increase an asset and increase revenue •decrease an asset and decrease revenue •decrease an asset and increase an expense

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

Purchasing inventory on account: Multiple select question. •increases assets •increases equity •increases liabilities •decreases assets •decreases equity

•increases assets •increases liabilities

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) Multiple select question. •stockholders' equity decreases •total assets decrease •stockholders' equity increases •total assets increase •net income increases

•stockholders' equity increases •total assets increase •net income increases

The __________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

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:

Correct Answer: overstated net income Wrong Answers: •overstated assets, retained earnings and net income Reason: the balance sheet is correct because the effect of the error counterbalanced; net income is too high because the beginning balance is too low. •the financial statement will be correct Reason: net income is too high because beginning inventory balance is too low •understated assets, retained earnings, and net income Reason: effect on current year statements not the following year statements.

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? Multiple choice question. •Debit Cost of Goods Sold $1,500; credit Inventory $1,500 •Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500 •Debit Accounts Receivable $2,000; credit Inventory $2,000 •Debit Inventory $1,500; credit Cost of Goods Sold $1,500

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

The specific identification method (select all that apply): •would be beneficial to a company that makes fine jewelry •would be beneficial to a company that makes inexpensive products with high sales volume •is not an acceptable method of accounting •matches each unit of inventory with its actual cost

•would be beneficial to a company that makes fine jewelry •matches each unit of inventory with its actual cost