Chapter 6 SB

Companies that produce the inventory they sell are refereed to as?

Manufactures

Ronald Corporation purchases inventory with terms FOB destination. The shipping cost are $300. The shipping costs are:

Paid by the supplier

Is the scenario a perpetual or period inventory system Sherman Company recognizes cost of goods sold after completing a physical inventory.

Periodic inventory system

Accountants often call FICO the:

balance-sheet approach

LIFO assumes the last purchases are sold when?

first

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be higher? or lower? than cost of goods sold determined using the FIFO inventory assumption.

higher, greater, more OR larger

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

obsolete why? to minimize cots of inventory write-downs due to obsolete inventory

Using the perpetual inventory system, what is the effect on a sale of inventory on assets?

1. assets increase by the sales price of the inventory 2. assets decrease by the cost of the inventory

Norman Inc, uses the perpetual inventory system. When the company records a sale, it should make entries to:

1. decree an asset and increase an expense 2. increase an asset and increase revenue

1. work in process 2. raw materials 3 finished goods In manufacturing companies, the 3 above are typically reported where?

The balance sheet

True or False Manufacturing companies produce the inventories they sell, rather than buying them I finished form suppliers.

True

income statement that reports multiple levels of [income, earning, profit, or probability]?

a multiple-step income statement

The lower of cost and net realizable value method was developed to:

avoid reporting inventory amount that exceeds the benefits it provides

Fill in the blank The ________1_________ method of valuing inventory was developed to avoid reporting inventory at an amount that is __________2_________ than the benefits it can provide.

1. lower of cost and net realizable value 2. greater

(fill in the black. one word per blank) _______1_______ _________2________ inventory includes theist of components that will become part of the finished product but have not yet ben used in production.

1. raw 2. materials OR material

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statement? (Assume that the sales price is higher than the cost of inventory) which 3 things in the accounting equation increases?

1. total assets increase 2. net income increases 3. stockholders' equity increases

two major differences between service companies and retail or manufacturing companies is the retailers and manufacturers must account for?

1. cost of goods sold 2. inventory

Purchasing inventory on account increases which two things in the accounting equation?

1. increases assets 2. increase liabilities

We classify Inventory for a manufacturer into which 3 categories?

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

4 different inventory cost methods

1. specific identification 2. first-in, first-out (FIFO) 3. Last-in, first-out (LIFO) 4. Weighted-average cost

A) Most closely approximates the actual physical flow of inventory B) Provides better matching of current revenues with current inventory cost Match A and B with LIFO and FIFO

A is FIFO B is LIFO

(Matching) Perpetual inventory system; Periodic inventory system A) Newman Company can determine the cost of inventory still on hand by referring to the inventory account. B) Shelly Company must first take a physical inventory to determine the cost of inventory still on hand

A is an example of Perpetual inventory system B is an example of Periodic inventory system

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the: A. LIFO reserve B. FIFO reserve. C. Inventory reserve

A) LIFO reserve

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

FIFO

Inventory is classified as:

a current asset

Gerald Corporation purchases inventory FOB shipping point. The costs are $300. The shipping costs are

included in Gerald's inventory

Accountants often call LIFO the:

income-statement approach

In a LIFO inventory system, inventory costs shown in the Balance sheet may be distorted because they may represent costs

incurred several years earlier

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs:

incurred several years earlier

1. items currently in production for future sale 2. materials used currently in the production of goods to be sold, and 3.items held for resale these are the definition of which term?

inventory

A major difference between companies that provide services and companies that manufacture or sell goods us that those that manufacture or sell goods must account for:

inventory

(fill in the black. one word per blank) Items held for sale in the normal course of business are referred to as _______1_______

inventory or inventories

items held for sale in the normal course of business are referred to as:

inventory or inventories

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be higher? or lower? than ending inventory determined using the FIFO inventory assumption.

lower, smaller, or less

(fill in the black. one word per blank) Companies that produce the inventory they sell are refereed to as ________1__________.

manufacturers OR manufacturing

The type of income statement that reports a series of subtotals such as gross profit, operating income before taxes is a _______________ income statement.

multiple-step

Ronald Corporation purchases inventory with terms FOB. destination. The shipping cost are $300. The shipping costs are:

paid by the supplier

LIFO reports the most:

recent inventory cost in cost of goods sold

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

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

to ensure that sufficient units are available AND to minimize cots of inventory write-downs due to obsolete inventory

True or False Inventory is a current asset

true

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

two WHY? two entries are required: First entry is required for the sales transaction second entry is required to record the cost of goods sold AND decrease inventory

Killian Company's inventory balance at the end 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 until the following year, the financial statement effect in the current year will be:

understated assets, retained earnings, and net income

FOB shipping point means title to the goods passes

when they are shipped

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: A) Inventory B) Purchases C) Raw materials D) Cost of Goods Sold

A) inventory

Where is inventory reported in the financial statement?

Balance sheet as a current asset

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

C) LIFO

A periodic inventory system measures cost of goods by:

Counting inventory at the end of the period

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 $700; Credit inventory $700 Debit Accounts receivable $1,000; Credit sales revenue $1,000 Debit cost of Goods sold $700; credit net income $300 Debit cost of goods sold $1,000; Credit inventory $1,000

Debit Cost of Goods sold $700; Credit inventory $700 Debit Accounts receivable $1,000; Credit sales revenue $1,000

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 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 a debit or credit? Debit/Credit to inventory, accounts payable, purchases, or sales revenue?

Debit inventory

When prices increase, the ________________ inventory method provides the best matching of revenue and expenses.

FICO or last-in-first-out

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? weighted-average, FIFO, or LIFO

FIFO

For internal record keeping, most companies carry their inventory using the _________________ basis.

FIFO

Most companies' ACTUAL physical flow follows LIFO or FIFO?

FIFO

Which better approximates actual cost of goods sold for most companies? LIFO or FIFO

FIFO

The shipping term FOB stands for

Free On Board

Meller purchases inventory on account. As a result, Meller's assets will:

Increase

A major difference between companies that provide services and companies that manufacture or sell goods is that manufacture or sell goods must account for:

Inventory

Because prices change over time, costs reported for these accounts tend to differ amount inventory cost methods.

Inventory and costs of goods sold

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

LIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the:

LIFO reserve

What type of company purchases raw materials and makes goods to sell?

Manufactures

Work in process is found in the balance sheet of what type of company?

Manufacturing company

Killian Company's inventory balance at the end 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 net income Why? *not the financial statement because net income is too high because beginning inventory balance is too low *not understated assets, retained earning, and net income because effect on current year statements not the following year statements *not overstated assets, retained earnings and net income because the balance sheet is correct because the effect of the error counterbalanced; net income is too high because the beginning balance is too low

Is the scenario a perpetual or period inventory system Peter Company recognizes cost of goods sold each time it recognizes a sale.

Perpetual inventory system

Which inventory account included the cost of components that will become part of the finished product but have not yet been used in production.

Raw materials inventory

Income statement related to LIFO

The amount it reports for cost of goods sold more realistically matches the current cost of inventory needed to produce current revenues.