Accounting Chapter 6, Hayes

The shipping term FOB stands for - free on board. - free onto buyer. - freight on board. - freight over board.

free on board.

Net sales revenue minus cost of goods sold is - earnings before taxes. - operating income. - gross profit. - net income.

gross profit.

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are - included in Gerald's inventory. - treated as a selling expense. - paid by the supplier.

included in Gerald's inventory.

A multiple-step income statement reports multiple levels of ____

income

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs - that have not yet been incurred. - incurred several years earlier. - incurred solely on the balance sheet date.

incurred several years earlier

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

FIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the - LIFO savings - LIFO reserve - FIFO cost - FIIFO reserve

The cumulative difference between reporting inventory at LIFO rather than FIFO

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

assets will increase

A periodic inventory system measures cost of goods sold by - counting inventory at the end of the period. - estimating the amount of inventory sold. - making entries to the inventory account for each purchase and sale. - debiting cost of goods sold for all purchases of inventory.

counting inventory at the end of the period.

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for: - inventory - revenue - gains and losses - operating expenses

inventory

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

inventory

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

inventory

The ___ ___ ratio shows the number of times the firm sells its average inventory balance during a reporting period.

inventory, turnover

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______. - selling expense; cost of goods sold - miscellaneous expenses; selling expense - inventory; selling expense

inventory; selling expense

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

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

Raw, Material

In a perpetual inventory system, when a company sells inventory on account, how many entries are required? - One - Zero - Two - Three

Two

For internal record keeping, most companies carry their inventory using the _____ basis. - LIFO - specific identification - FIFO - average cost

FIFO

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be ___ than ending inventory determined using the FIFO inventory assumption

Less

What type of company purchases raw materials and makes goods to sell? - Manufacturers - Retailers - Wholesalers

Manufacturers

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.

More

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming ____

outdated

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: - overstated assets, retained earnings and net income - the financial statement will be correct - understated assets, retained earnings, and net income - overstated net income

overstated net income

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: - Purchases - Inventory - Cost of Goods Sold - Raw Materials

Inventory

The specific identification method - matches each unit of inventory with its actual cost - would be beneficial to a company that makes inexpensive products - with high sales volume - would be beneficial to a company that makes fine jewelry - 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

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) - stockholders' equity decreases - total assets decrease - total assets increase - stockholders' equity increases - net income increases

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

Where is inventory reported in the financial statements? - Statement of cash flows as an investing activity - Balance sheet as a noncurrent asset - Income statement as revenue - Balance sheet as a current asset

Balance sheet as a current asset

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received? - LIFO - Weighted average - FIFO

FIFO

Which inventory account consists of the cost of items for which the manufacturing process is complete? - Finished goods inventory - Work-in-process inventory - Merchandise inventory - Raw materials inventory

Finished goods inventory

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

Finished, Goods

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? - Weighted-average - LIFO - FIFO

LIFO

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

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

When prices rise, which inventory method tends to result in lower income and a lower tax liability? - Weighted-average cost - FIFO - LIFO - NIFO

LIFO

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

LIFO

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 - FIFO adjustment - inventory conversion

LIFO adjustment

Which of the following accounts would be found in the balance sheet of a manufacturing company? - Merchandise inventory - Work in process - Cost of goods sold

Work in process

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. - multiple-step - current - single-step - classified

multiple-step

The LIFO adjustment is used internally to convert the inventory - to the LIFO basis. - to the FIFO basis. - to the weighted average basis.

to the LIFO basis.

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: - understated assets; overstated retained earnings and net income - understated assets, retained earnings, and net income - the financial statements are correct

understated assets, retained earnings, and net income

FOB destination means title to the goods passes - when they are shipped to the customer. - when they arrive at the destination.

when they arrive at the destination.

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

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 Cost of Goods Sold $1,000; credit Inventory $1,000 - Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 - Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 - Debit Cost of Goods Sold $700; credit Inventory $700

- Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 - Debit Cost of Goods Sold $700; credit Inventory $700

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

The definition of inventory includes which of the following items? - Items held for resale - Items currently in production for future sale - Materials used currently in the production of goods to be sold - Items held for use or disposal

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

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

- NIFO - Simple-average

Which of the following methods are available for costing inventory? - Simple-average - NIFO - Specific identification - FIFO - Weighted-average - LIFO

- Specific identification - FIFO - Weighted-average - LIFO

Which of the following represent reasons why managers closely monitor inventory levels? - To ensure that sufficient units are available. - To minimize costs of inventory write-downs due to obsolete inventory. - To increase the average days in inventory.

- To ensure that sufficient units are available. - To minimize costs of inventory write-downs due to obsolete inventory.

Which of the following accounts are typically reported in the balance sheet of a manufacturing company? - Work in process - Cost of goods sold - Finished goods - Raw materials

- Work in process - Finished goods - Raw materials

Using the perpetual inventory system, what is the effect of a sale of inventory on assets? - assets decrease by the sales price of the inventory - assets decrease by the cost of the inventory - assets increase by the cost of the inventory - assets increase by the sales price of the inventory

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

Using the perpetual inventory system, what is the effect of a sale of inventory on assets? - assets decrease by the sales price of the inventory - assets increase by the cost of the inventory - assets increase by the sales price of the inventory - assets decrease by the cost of the inventory

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

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for - cost of goods sold. - current assets. - liabilities. - inventory.

- cost of goods sold. - inventory.

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

- decrease an asset and increase an expense - increase an asset and increase revenue

Purchasing inventory on account: - increases liabilities - decreases assets - increases equity - increases assets - decreases equity

- increases liabilities - increases assets

The Work-in-Process inventory account typically includes which costs? - indirect manufacturing costs - inventory storage costs - raw materials - direct labor

- indirect manufacturing costs - raw materials - direct labor

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

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

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 - LIFO

FIFO

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

FIFO

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption? - LIFO - FIFO - Weighted-average

FIFO

When prices increase, the ___ inventory method tends to decrease a company's tax liability during a particular fiscal period.

LIFO

Gross Profit is - Net Sales Revenue minus Cost of Goods Sold. - Revenue minus Inventory. - Beginning Inventory plus Purchases minus Ending Inventory. - Revenue minus Expenses.

Net Sales Revenue minus Cost of Goods Sold.

_____ inventory refers to the products that have been started in production, but are still incomplete. - Finished goods - Work-in-process - Raw materials

Work-in-process

Inventory is classified as - a noncurrent asset. - a revenue. - a current asset. - a current liability.

a current asset.

The lower of cost and net realizable value method was developed to - provide an alternative to the FIFO, LIFO, and weighted-average methods. - prevent the company from selling the inventory below its original cost. - avoid reporting inventory at an amount that exceeds the benefits it provides

avoid reporting inventory at an amount that exceeds the benefits it provides.

Cost of goods sold divided by average inventory is - accounts receivable turnover. - gross profit percentage. - inventory turnover. - days sales in inventory.

inventory turnover.

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide. - lower of cost and net realizable value; smaller - lower of cost and net realizable value; greater - lower of cost and sales revenue; greater - cost-benefit; smaller - lower of cost and sales revenue; smaller - cost-benefit; greater

lower of cost and net realizable value; greater

Companies that produce the inventory they sell are referred to as _____

manufacturers

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are - paid by the supplier. - Deducted from Ronald's inventory. - treated as a selling expense.

paid by the supplier.

Under the ____ inventory system, the inventory account reflects purchases during the year, as well as cost of units sold

perpetual

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method. - matching unit - specific identification - actual cost - weighted-average

specific identification

The inventory turnover ratio directly measures ______. - how many days it takes to collect its sales of inventory sold on account - the days it takes to sell its average inventory balance - the times per period the average inventory balance is sold

the times per period the average inventory balance is sold

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? - Debit Inventory $1,500; credit Cost of Goods Sold $1,500 - Debit Accounts Receivable $2,000; credit Inventory $2,000 - Debit Cost of Goods Sold $1,500; credit Inventory $1,500 - Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500

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

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

Debit Inventory

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production. - Finished goods inventory - Raw materials inventory - Merchandise inventory - Work-in-process inventory

Raw materials inventory

The formula for inventory turnover is - inventory divided by cost of goods sold. - sales divided by gross profit. - cost of goods sold divided by average inventory. - gross profit divided by average inventory.

cost of goods sold divided by average inventory.