Chapter 7

If Barry Bees, Inc!'s days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals ____ times.

5

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

73 days

True or false: 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

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts

- detect bookkeeping errors - detect theft - detect shrinkage

Which of these might cause the value of inventory to fall below its original cost?

- obsolescence from going out of style - increased competition - damage

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

Companies generally report their accounting method for inventory in the

notes to the financial statements

Companies generally report their accounting method for inventory in the ____

notes to the financial statements

Which statement is true The inventory costing methods must mirror the physical flow of goods. Specific identification, weighted average cost, LIFO and FIFO are acceptable GAP costing methods. The inventory costing methods reflect the amount paid for the purchases of inventory.

The inventory costing methods determine the amount of the debit to Cost of Goods Sold and credit to inventory. Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods. The inventory methods apply to both perpetual and periodic inventory systems,

Alpha Company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is ______.

$4.25

Applying the lower of cost or market rule results in inventory being reported at the

market value if lower than cost

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

merchandise

FIFO uses the ____ cost for Cost of Goods Sold on the income statement and the ____ cost for inventory on the balance sheet

oldest ; newest

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

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 ______.

$2,250 Reason: Inventory equals $2,250 (=$500 + 550 + (2x$600)). Cost of Goods Sold equals $550.

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 FIFO, its Inventory at December 31 is ______.

$2,300

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 ______.

$2,310

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.

$302

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.

10

At year end, CuriZ, Inc.'s inventory consists of 200 bottles of Clean at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. CurIZ should report its inventory at ____.

1000

Which of these would explain an increase in a company's inventory turnover ratio?

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

Inventory costing methods allowed by US GAP include:1) specific ____ 2) ____ average; 3) last in, _____ out; and 4) first in, _____ out

Blank 1: identification Blank 2: weighted Blank 3: first Blank 4: first

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.

Blank 1: weighted Blank 2: average

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

The weighted average cost method uses the weighted average cost to calculate the value of

Cost of Goods Sold Inventory

The weighted average cost method uses the weighted average cost to calculate the value of ____

Cost of Goods Sold / Inventory

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?

Cost of Goods Sold will be the same

Inventory is reported as a(n)

Current Asset on the Balance Sheet

Which of these inventory accounting methods are acceptable under US GAP?

LIFO Weighted average FIFO Specific identification

On May 1, beginning inventory consists of 10 items at a cost of $8 each. On May 3, 10 items are purchased at $10 each. On May 8, 8 items are sold. On May 15, 10 items are purchased at $11 each. Cost of Goods Sold would be ____\ using LIFO perpetual compared to using LIFO periodic.

Lower

On May 1, Widget Company had 10 gadgets in its Inventory that cost $5 each. On May 10, it sold 5 gadgets. On May 15, it bought 20 more gadgets that cost $6 each. At May 31, it had 25 gadgets in ending inventory. Cost of Goods Sold using LIFO perpetual will be ______ Cost of Goods Sold using LIFO periodic inventory.

Lower than

What is the amount of the lower-of-cost-or-market write down, if any?

The write down would be $1,000.

Specific identification is

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

FIFO, LIFO, and weighted average inventory costing methods are based on ____

assumptions that accountants make about the flow of inventory costs

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

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

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

decreases

Inventory is reported on the ____ Later, when the inventory is sold, it becomes _____

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

Merchandise Inventory

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

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

cost of the actual item sold

Of the 4 companies listed below, which company is more likely to use specific identification to value its inventory and cost of goods sold?

custom home builder

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

from the purchases made during the month

An increase in a company's inventory balance from a prior year is

good if the inventory turnover ratio is higher

Which of the following is merchandise inventory?

goods held for sale in the normal course of business

FIFO, an inventory costing method, actually describes how to calculate the cost of _____.

goods sold

When costs to purchase inventory are rising, using LIFO leads to reporting ____ cost of goods sold and ____ net income than FIFO

higher, lower

As inventory quality increases, its cost usually _____.

increases

When costs to purchase inventory are rising, using LIFO leads to reporting a ____ than FIFO.

lower value for inventory on the balance sheet

Who decides which of the many inventory accounting methods a company should use?

the company's management

The inventory turnover ratio directly measures

the times per period the average inventory balance is sold

The costs of carrying inventory include the costs of

theft obsolescence storage spoilage

Ending inventory errors in 2019

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

An understatement of the 2019 ending inventory will affect

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

Delta Diamonds had 5 diamonds available for sale this year: June 1 - purchased 1 for $500; July 9 - purchased 2 for $550 each; and on September 23 - purchased 2 for $600 each. On December 24, it sold 1 of the diamonds. Using LIFO periodic, its ending inventory is

2200

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

2240

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

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

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 _____

65

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 and balance sheet

Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.

$12.10

Which of the following statements are true? O An increased inventory balance is desirable if the resulting inventory turnover ratio is lower. O An increased inventory balance is undesirable if it is a result of an accumulation of un- salable inventory. O An increased inventory balance is desirable if management is building up stock in anticipa- tion of higher sales.

An increased inventory balance is undesirable if it is a result of an accumulation of un- salable inventory. An increased inventory balance is desirable if management is building up stock in antici- pation of higher sales.

Risen, Inc. has beginning inventory of $16 which consists of 2 units at $8 each. It purchased 10 units at $10 each. It sold 5 units for $20 each. Which would result in the higher Gross Profit, FIFO or LIFO and why?

FIFO because the older, less expensive units are assumed to be sold first making Cost of Goods Sold lower and Gross Profit higher than LIFO

Which of the following may occur with a higher inventory turnover ratio?

- reduction in obsolescence - reduction in inventory storage costs

The goals of inventory managers include ______.

keeping the costs of buying and storing inventory as low as possible having enough inventory on hand to meet customer demand making sure that inventory quality meets customer expectations

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. During the month it sold 52 gadgets, using FIFO perpetual inventory, Cost of Goods Sold equals _____

302

Barry Bees, Inc's Cost of Goods Sold equals $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals ___ days (assume 365 days per year).

37

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10. It purchased 3 more at $12. It sold 4 units during the period. What is the Cost of Goods Sold using the weighted average cost method?

44.80

Which statements are true? -First-in, Last-out is one of the titles of inventory methods allowed by GAAP. -A grocery store may or may not use the Last-in, First-out inventory method - The inventory method selected must be based on the physical flow of goods -The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods.

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

Which of the following statements are true? (Check all that apply.)

Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business. Using a different inventory accounting method leads to reporting a different amount for cost of goods sold.

Which statement is true? -Specific identification, weighted average cost, LIFO and FIFO are acceptable GAP costing methods. -The inventory costing methods must mirror the physical flow of goods. -The inventory costing methods reflect the amount paid for the purchases of inventory.

Specific identification, weighted average cost, LIFO and FIFO are acceptable GAP cost- ing methods.

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 7 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 2 quilts remained unsold. If Mountain Made uses periodic weighted average cost, its Cost of Goods Sold for the month is ______.

$1,656

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 FIFO, its Cost of Goods Sold for the year ended iS

500

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 beginning inventory

To find a description of the inventory accounting method used by a company, you need to look at the ______.

notes to the financial statements