Intermediate Accounting Smartbook Ch. 8

The goods a wholesale company purchases in finished form are referred to as what?

merchandise inventory

Which inventory system allocates cost of goods available for sale only at the end of each reporting period?

periodic

A _____ inventory system recognizes cost of goods sold each time a sale occurs; a _____ inventory system decreases inventory each time a sale occurs.

perpetual; perpetual

What method of inventory valuation matches each unit on hand at the end of the period with its actual cost?

specific identification

A DVL pool is made up of items

that are likely to have similar cost change pressures.

The LIFO inventory method assumes that the units sold are

the most recent units purchased

High recordkeeping costs and possible LIFO liquidation are disadvantages of

unit LIFO

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's cost of goods sold for the 2016 fiscal year would have been

$50,000 lower if it had used FIFO.

What type of expenditures should be included in the cost of inventory of a manufacturing company? (Select all that apply.) -Expenditures necessary to acquire inventory. -Cost of storing inventory after it has arrived at sales location. -Expenditures necessary to bring inventory to sales location.

-Expenditures necessary to acquire inventory. -Expenditures necessary to bring inventory to sales location.

The LIFO reserve shows how ending inventory would have differed if the company had utilized _______ or ______, instead of LIFO. (Select all that apply.)

-FIFO -weighted-average

Inventory cost flow assumptions can be used to assign dollar amounts to (Select all that apply.)

-cost of goods sold -ending inventory

A periodic inventory system (Select all that apply.)

-does not continuously track the cost of merchandise sold. -does not continuously track the quantity of merchandise.

Ownership of inventory at the end of the accounting period is determined for (Select all that apply.)

-goods shipped by suppliers. -goods shipped to customers.

The dollar-value LIFO (DVL) method (Select all that apply.) -reduces the risk of liquidation of layers. -simplifies record-keeping. -increases the risk of liquidation of layers. -prevents liquidation of layers.

-reduces the risk of liquidation of layers. -simplifies recordkeeping.

In a perpetual inventory system the inventory account is adjusted (Select all that apply.)

-when inventory is sold -when inventory is purchased

The specific identification method (select all that apply):

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

Which inventory costing method assumes that items in ending inventory are the most recently acquired?

FIFO

Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?

How units of goods and their associated costs flow through the system.

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

LIFO

If a company uses LIFO to measure its taxable income, the IRS requires that LIFO also be used to measure income reported to investors and creditors.This is know as the

LIFO conformity rule

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

The average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale

In a perpetual inventory system the inventory account is

continually adjusted

At the end of an accounting period, it is important to ensure proper inventory _____ to determine the ownership of goods in transit.

cutoff

The FIFO method assumes that units sold are the _________ units acquired and that units remaining in ending inventory are the ________ units purchased.

first; last

Which inventory costing method assumes that items sold are those that were acquired first?

FIFO

Which inventory costing method assumes that the units sold are the most recent units purchased?

LIFO

The dollar-value LIFO (DVL) inventory method

allows a broader range of goods to be included in pools.

The dollar-value LIFO method extends the concept of inventory pools by allowing companies to

combine a large variety of goods in one pool.

Smith Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $690,000. Its inventory as of December 31, 2016, was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2016?

$723,600 $758,100/1.05 = $722,000 giving 2 layers of $690,000 and $32,000. $690,000 x 1.05 = $690,000 $32,000 x 1.05 = $33,600 $690,000 + $33,600 = $723,600

Which of the following are disadvantages of unit LIFO? (Select all that apply.)

-Possibility of LIFO liquidation -Significant recordkeeping costs

Advantages of using LIFO inventory pools include which of the following? (Select all that apply.)

-Simplify recordkeeping -Reduce the risk of LIFO layer liquidations

The cost of inventory includes (Select all that apply.)

-expenditures to acquire the inventory -the cost to bring inventory to its desired condition -the cost to bring inventory to its desired location

The definition of inventory includes which of the following items? (Select all that apply.)

-items used currently in the production of goods to be sold -items held for resale -items currently in production for future sale

Which of the following accounts are typically reported on the balance sheet of a manufacturing company? (Select all that apply.)

-raw materials -finished goods -work in process

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer?

2

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

LIFO

If a company uses _____ to measure taxable income, they must use the same method for external financial reporting.

LIFO

The average cost method assumes that cost of goods sold consists of

a mixture of all the goods available for sale.

True or false: A periodic inventory system allows management to determine the amount of goods on hand without having to take a physical count.

false

The layer year cost index is calculated by dividing the cost in ______ year by the cost in ______ year.

layer; base

Orange Co., a computer retailer, shows the following selected assets on its balance sheet. Indicate which account would be properly classified as inventory.

mouse pads

Western Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016, was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$758,200 $815,400/1.08 = $755,000 giving 2 layers of $715,000 and $40,000. $715,000 x 1.0 = $715,000 $40,000 x 1.08 = $43,200 $715,000 + $43,200 = $758,200

Inventory for a ___company consists of raw materials, work in process, and finished goods. (Enter only one word.)

manufacturing

Use of LIFO inventory pools reduces the chance of unintentional LIFO layer ____. (Enter only one word.)

liquidation