ACCT 303. Chapter 8 - Inventories: Measurement

On January 1, Bern Company has 100 units costing $100 in beginning inventory. On January 2, Bern purchases an additional 400 units of $1.50 per unit and sells 300 units. On January 3, the company sells an additional 100 units. On January 4, Bern purchases 200 additional for $1.60 per unit. If Bern utilizes a perpetual LIFO system, per unit cost of goods sold for the January 3 sale will be

$1.50

Which of the following represent a reason why managers closely monitor inventory levels? Select all that apply. A. To minimize costs of ordering and carrying inventory B. To ensure that layers are not liquidated under the FIFO method C. To ensure that sufficient units are available

A. C.

A perpetual inventory system continuously records changes in what? A. Inventory quantity B. Inventory completion C. Inventory cost D. Inventory production

A. Inventory quantity C. Inventory cost

Which of the following would increase the gross profit ratio? A. The sales price of a product increases by the same percentage as does cost of goods sold B. The sales price of a product increases by a higher percentage than does cost of goods sold C. The sales price decreases by exactly the same amount as does cost of goods sold

B. C.

The LIFO method assumes that the units that remain in inventory are A. The most recent units purchased B. The oldest units in inventory

B. The oldest units in inventory

The goods a wholesale company purchases in finished form are referred to as what? A. Manufactured inventory B. Finished goods C. Merchandise inventory

C. Merchandise inventory

Most closely approximates the actual physical flow of inventory

FIFO

The FIFO method assumes that units sold are the _________ units acquired

First

If prices rise continually during the year, cost of goods sold tends to be ______________ using the periodic LIFO method than using the perpetual LIFO method

Higher

The cost of freight-in paid by the purchaser is most commonly included in the cost of

Inventory

Provides better matching of current revenues with current inventory cost

LIFO

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

LIFO

A disadvantage to the _____________ inventory system is that all inventory quantities not on hand at the end of the period are assumed to have been sold, and damaged and stolen items are not identified.

Periodic

In a perpetual inventory system, a new weighted-average unit cost is calculated after each ____________

Purchase

When a buyer returns goods to the seller, the buyer records a(n) ______________

Purchase return

The cost of components purchases from another manufacturer that will become part of the finished products are recognized in the __________________ ________________ account

Raw materials

If goods are shipped f.o.b. destination, the _________ usually is responsible for shipping

Seller

Under the dollar-value LIFO method, inventory as quantity of ________, rather than quantity of _________.

Value, goods

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be: A. $5,667 B. $5,800

A. $5,667 (5000 x {(1,000 + 5,800)/6.000})

What type of expenditures should be included in the cost of inventory of a manufacturing company? A. Expenditures necessary to acquire inventory B. Cost of storing inventory after it has arrived at sales location C. Expenditures necessary to bring inventory to sales location

A. Expenditures necessary to acquire inventory C. Expenditures necessary to bring inventory to sales locations

Freight is added directly to the inventory account A. Periodic inventory B. Perpetual inventory

B. Perpetual inventory

Finished goods inventory contains cost of inventory items that are A. Not yet placed in the manufacturing process B. Ready for sale C. Not yet complete D. Already sold

B. Ready for sale

In a(n) __________ inventory system, cost of goods sold is recorded at the end of the accounting period

Periodic

Purchase returns are recorded in a separate contra purchase account in a _________________ inventory system

Periodic

A(n) ______________ inventory system allows management to determine the amount of goods on hand on any date without having to take a physical count

Perpetual

Measurement of inventory and cost of goods sold always starts with determine the ___________________ quantities of goods

Physical

The dollar-value LIFO inventory method extends the concept of inventory pools by allowing a company to combine a large variety of inventory items into one _____________

Pool

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2010 and 2009, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of 2010, Pernell's ending inventory would have been A. $150,000 higher it had used FIFO B. $50,000 higher if it had used FIFO C. $150,000 lower if it had used FIFO D. $50,000 lower if it had used FIFO

A. $150,000 higher it had used FIFO

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be A. $640 B. $600 C. $636 D. $620A.

A. $640 ($2,880/900 x 200)

Neumann Company places 100 units on consignment with Hartman Consignments Company. At the end of the accounting period, 45 of those units remain unsold. How many units (if any) should be included in Neumann's ending inventory? A. 45 units B. 55 units C. 0 units D. 100 units

A. 45 units

The terms 5/15, n/45 mean what? A. A 5% purchase discount if payment is made within 15 days B. A 5% purchase discount if payment is made between 16 days and 45 days C. A 15% purchase discount if payment is made within 5 days

A. A 5% purchase discount if payment is made within 15 days

Consistent with IFRS, which of the following cost flow assumptions are currently permitted? A. First in, first out B. Weighted- average C. Last in, first out

A. First in, first out B. Weighted- average

Which of the following methods are acceptable in accounting for purchase discounts? A. Net method B. Discount method C. Gross method

A. Net method C. Gross method

The gross profit ratio is computed as gross profit divided by A. Net sales B. Total assets C. Net income D. Cost of goods sold

A. Net sales

A separate freight-in account is used A. Periodic inventory B. Perpetual inventory

A. Periodic inventory

Neumman Company can determine the cost of inventory still on hand by referring to the inventory account A. Perpetual inventory system B. Periodic inventory system

A. Perpetual inventory system

Peter Company recognizes cost of goods sold each time it recognizes a sale A. Perpetual inventory system B. Periodic inventory system

A. Perpetual inventory system

The LIFO reserve shows how ending inventory would have differed if the company had utilized __________ or ___________, instead of LIFO A. Weighted-average B. FIFO C. Specific identification

A. Weighted-average B. FIFO

Which of the following accounts are typically reported on the balance sheet of a manufacturing company? Select all that apply. A. Work in process B. Raw materials C. Finished goods D. Cost of goods sold

A. Work in process B. Raw materials C. Finished goods

The specific identification method: A. Would be beneficial to a company that makes fine jewelry B. Matches each unit of inventory with its actual cost C. It not an acceptable method of accounting D. Would be beneficial to a company that make inexpensive product with high sales volume

A. Would be beneficial to a company that makes fine jewelry B. Matches each unit of inventory with its actual cost

Cost flow _____________ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory

Assumptions

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $10 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased at least 1,200 units pretax income would have been A. $2,000 higher B. $2,000 lower

B. $2,000 lower

Bethany Corp. uses a periodic inventory system. Cost of beginning inventory is $150,000. During the year, Bethany purchases inventory costing $250,000. Based on a physical count at the end of the period, Bethany determines that inventory costing $25,000 is still on hand. Bethany Corporation's cost of goods sold will be A. $400,000 B. $375,000 C. $425,000 D. $250,000

B. 375,000 ($150,000 + $250,000 - $25,000 = $375,000)

The inventory turnover ratio is computed as cost of goods sold divided by A. Gross profit B. Average inventory C. Net sales D. Total revenue

B. Average inventory

When inventory quantities _________ during a period, out-of-date inventory layers are liquidated and cost of goods sold will match concurrent costs with current selling prices in a LIFO inventory costing system. A. Increase B. Decline C. Stay the same

B. Decline

A periodic inventory system A. Continuously tracks the cost of merchandise sold B. Does not continuously track the cost of merchandise sold

B. Does not continuously track the cost of merchandise sold

What type of expenditures should be included in the cost of inventory of a merchandising company A. Cost of storing inventory after it has arrived at sales location B. Expenditures necessary to acquire inventory C. Expenditures necessary to bring inventory to necessary condition and sales location

B. Expenditures necessary to acquire inventory C. Expenditures necessary to bring inventory to necessary condition and sales location

Inventory shipped _____________ is included in the purchaser's inventory as soon as merchandise is shipped. A. F.O.B. destination B. F.O.B. shipping point

B. F.O.B. shipping point

Which of the following cost flow assumptions currently are acceptable under U.S. GAAP? Select all that apply A. Next-in, first-out B. First-in, first-out C. Last in- first-out D. Weighted average

B. First-in, first-out C. Last in- first-out D. Weighted average

In a perpetual inventory system, which buyer accounts are reduced at the time a purchase return occurs _____________________ A. Accounts receivable B. Inventory C. Cost of goods sold D. Accounts payable

B. Inventory D. Accounts payable

The goods a retail company intends to resell are often referred to as A. Overhead inventory B. Merchandise inventory C. Raw materials inventory D. Work in process inventory

B. Merchandise inventory

Orange Co., a computer retailer shows the following selected assets on its balance sheet. Indicate which account would be properly classified as inventory. A. Desks B. Mouse pads C. Office supplies D. Patents

B. Mouse pads

Shelly Company must first take a physical inventory to determine the cost of inventory still on hand A. Perpetual inventory system B. Periodic inventory system

B. Periodic inventory system

Sherman Company recognizes cost of goods sold after completing a physical inventory A. Perpetual inventory system B. Periodic inventory system

B. Periodic inventory system

Cost of goods sold determined under the FIFO perpetual system method is the same under the FIFO periodic inventory system A. Only when per unit costs rise B. Under all circumstances C. Only when inventory remains stable

B. Under all circumstances

In a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order: A. Finished goods B. Work in process C. Cost of goods sold

B. Work in process A. Finished goods C. Cost of goods sold

The gross profit ratio highlights the relationship between which of the following A. Inventory B. Net income C. Cost of goods sold D. Net sales revenue

C. Cost of goods sold D. Net sales revenue

Ownership of inventory at the end of the accounting period is determined for (Select all that apply) A. Unfulfilled purchase orders B. Unfulfilled sales orders C. Good shipped by suppliers D. Good shipped to customers

C. Good shipped by suppliers D. Good shipped to customers

Assuming that prices rise over time, which inventory cost flow assumption will result in the highest cost of goods sold? A. Weighted-average B. FIFO C. LIFO

C. LIFO

If a company uses ______________ to measure taxable income, they must use the same method for external financial reporting. A. Average cost B. FIFO C. LIFO

C. LIFO

Work-in-process contains costs of inventory items that are A. Ready for sale B. Already sold C. Not yet complete D. Not yet placed in the manufacturing process

C. Not yet complete

At what point does a manufacturing company recognize cost of goods sold? A. When the product is 100% completed B. When the product is 80% complete C. When the product is sold

C. When the product is sold

Arranging for another company to sell a company's products is referred to as a ________________________________

Consignment

Smith Company has 150 units costing $450 in beginning inventory. During the year, the company purchases 1,000 units for a total cost of $3,300. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the LIFO method, ending inventory will be A. $652 B. $660 C. $600 D. $615

D. $615 (($3,300/1,000 x 50 units + $450))

Which inventory costing method assumes that cost of good sold and ending inventory consist of a mixture of all the goods available for sale? A. FIFO B. Specific identification C. LIFO D. Average cost

D. Average cost

Place the following in the proper order to reflect the typical cost flow for a manufacturing company A. Direct labor is applied to work in process B. Manufacturing overhead is applied to work in process C. Costs of completed units are transferred to finished goods D. Raw materials are used and recorded in work in process E. Cost flow to costs of goods sold when goods are sold

D. Raw materials are used and recorded in work in process A. Direct labor is applied to work in process B. Manufacturing overhead is applied to work in process C. Costs of completed units are transferred to finished goods E. Cost flow to costs of goods sold when goods are sold