ACC CHAPTER 6 PT 1

A company has beginning inventory for the year of $10,500. During the year, the company purchases inventory for $190,000 and ends the year with $27,000 of inventory. The company will report cost of goods sold equal to:

$173,500

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 1,100 units @ $5 each Jan. 31 Purchase 2,100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January?

$500

Given the information below: -Sales revenue $345,000 -Accounts receivable $52,000 -Ending inventory $113,000 -Cost of Goods Sold $242,000 -Sales returns $23,000 What is the gross profit?

$80,000

Manufacturing companies buy the inputs for the products they manufacture. Thus, we classify inventory for a manufacturer into three categories:

1. raw materials 2. work in process 3. finished goods

Accountants often call FIFO the ______: The amount it reports for ending inventory (which appears in the balance sheet) better approximates the current cost of inventory

Balance sheet approach

______ method: ◦Matches physical flow for most companies ◦Ending inventory reflects current cost ◦"Balance-sheet approach"

FIFO

Inventory is the cost of fully assembled but unshipped inventory at the end of the reporting period.

Finished goods

Which of the following inventory accounts consists of items for which the manufacturing process is complete?

Finished goods

It assumes the first units purchased (the first in) are the first ones sold (the first out).

First-in, first-out (FIFO) method

______ equals net revenues (or net sales) minus cost of goods

Gross profit

______ equals operating income plus nonoperating revenues and minus nonoperating expenses

Income before income taxes

Accountants often call LIFO the ______: The amount it reports for cost of goods sold (which appears in the income statement) more realistically matches the current costs of inventory needed to produce current revenues

Income statement approach

Many companies, though, generate revenues by selling ______ rather than a service

Inventory

______ includes items a company intends to sell to customers in the ordinary course of business

Inventory

______ method: ◦Cost of goods sold reflects current cost ◦"Income-statement approach"

LIFO

______ ◦Cost of goods sold reflects current cost ◦"Income-statement approach"

LIFO conformity rule

It assumes that the last units purchased (the last in) are the first ones sold (the first out).

Last-in, first-out (LIFO) method

______ produce the inventories they sell, rather than buying them in finished form from suppliers

Manufacturing companies

______ may assemble, sort, repackage, redistribute, store, refrigerate, deliver, or install the inventory, but they do not manufacture it. They simply serve as intermediaries in the process of moving inventory from the manufacturer to the end user.

Merchandising companies

______ equals all revenues minus all expenses

Net income

Which level of profitability is considered profit from normal operations?

Operating income

______ equals gross profit minus operating expenses

Operating income

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

Raw materials

Costs of goods sold is:

Reported in the income statement

______ purchase inventory from manufacturers or wholesalers and then sell this inventory to end users. You probably are more familiar with retail companies because these are the companies from which you buy products.

Retailers

It matches, or identifies, each unit of inventory with its actual cost. It is used primarily by companies selling unique, expensive products with low sales volume.

Specific identification method

The primary benefit of choosing LIFO is ______

Tax savings

It assumes that both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

Weighted-average cost method

______ resell inventory to retail companies or to professional users.

Wholesalers

Inventory refers to the products that have been started in the production process but are not yet complete at the end of the period. The total costs include raw materials, direct labor, and indirect manufacturing costs called overhead.

Work-in-process