chapter 7 learnsmart accounting 2010

true statements

1. an increased inventory balance is desirable if management is building up stock in anticipation of higher sales. 2. an increased inventory balanced is undesirable if it is a result of an accumulation of unsaleable inventory.

Alpha company bought inventory from Omega company, FOB shipping point. On December 31st, the last day of accounting year, the goods were on the truck owned by Theta, Inc. in transit exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

Berkeley company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale during the period will ___________.

be split between cost of goods sold and ending inventory

inventory is reported as a ______________.

current asset on the balance sheet

as inventory quality increases, its cost usually __________.

increases

which method will result in the same Cost of Goods Sold amount whether it is computed using the periodic inventory system or perpetual inventory system.

------

the goals of inventory managers include __________.

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

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

-reduction in inventory storage costs -reduction in obsolescence

which will require a credit to the inventory account in a perpetual inventory system?

-selling inventory for cash -selling for on account

in a periodic inventory system, for cost of goods sold to be updated, which of the following must occur?

-take a physical count of inventory -compute cost of goods sold by subtracting ending inventory from goods available for sale

using a perpetual inventory system, when a company records a sale of merchandise, it must also record ___________.

1. a decrease in its inventory 2. cost of goods sold, which will be reported on the income statement

using a perpetual inventory system, when a company records of a sale merchandise, it must also record _______________.

1. a decrease in its inventory 2. cost of goods sold, which will be reported on the income statement

Gross Profit is _____________.

1. a subtotal on the income statement 2. equal to Net Sales minus Cost of Goods Sold

the goals of inventory managers include ___________.

1. keeping the costs of buying and storing inventory as low as possible 2. making sure that inventory quality meets customer expectations 3. having enough inventory on hand to meet customer demand

which statements are true?

1. managers can choose the method of accounting for inventory cost that best fits their business 2. using different inventory accounting method leads to reporting a different amount for cost of goods sold.

What will require a credit to the inventory account in the perpetual inventory system?

1. selling inventory on account 2. selling inventory for cash

other true statements

1. using different inventory accounting methods leads to reporting a different amount for cost of goods sold 2. managers can choose the method of accounting inventory cost, ex: FIFO and LIFO that best fits their business.

which company is most likely to have a higher inventory turnover than its competitors within the same industry?

a company with lower-priced goods and lower gross profit

the inventory turnover ratio directly measures _____________.

the times per period the average inventory balance is sold

Gross Profit is ______________.

- equal to Net Sales minus Cost of Goods Sold - a subtotal on the income statement

which would explain an increase in a company's inventory turnover ratio?

-a decrease in total inventory -an increase in the demand for the company's products

Acme had a cost of goods sold at $2000. If beginning inventory was $2100, and ending inventory was $500, Acme's new purchases must have been $_________.

400

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

5

if a company days to sell equals 73 days based on a 365-day a year, then its inventory turnover ratio equals ___ times.

5

if a company has an inventory turnover ratio of 5 times, then it decays to sell must be ______________.

73 days

Broyer company bought inventory FOB shipping point from cellar company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc. in transit between Broyer and Cellar. Which company should include these goods in its December 31st inventory?

Broyer should include the 4,000 in its inventory

Angus company agreed to sell goods for Longhorn company on consignment, but wasn't willing to take ownership of the goods, in case they do not sell. Which of the following statements is true?

Longhorn owns the inventory and should report it on the balance sheet.

an increase in a company's inventory balance from a prior year is ____________.

good if the inventory turnover ratio is higher.

what is an example of merchandise inventory?

goods held for sale in the normal course of business

As inventory quality increases, and its cost usually _________________.

increases

a company's balance sheet shows three inventory accounts- raw materials, work in process, and finished goods. this company must be _________.

manufacturer

which inventory system requires an inventory count in order to determine the debit to cost of goods sold for all the goods sold during the year

periodic

Cost of goods sold is debited and inventory credited, when the sale occurs using the ___________ inventory system.

perpetual

when analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare ratio with ______________.

prior year's ratios for the company

the costs of carrying inventory include the costs of ______________.

storage, obsolescence, theft, spoilage

what causes LIFO and weighted average cost methods to differ when using perpetual versus periodic?

the periodic method assumes all purchases during the period occurred before all sales during the period.

accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.

true

Raw materials that have been moved into the production process become _________ inventory.

work in progress

raw materials that have been moved into the production process become __________ inventory.

work in progress

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3rd, 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 the perpetual weighted average cost, cost of goods sold for the month ended May 31st is _____________.

$132

Blog inc, has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. it's gross profit is ____________.

$20,000

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

the company's management