Chapter 6

FIFO method.

The cost flow method that often parallels the actual physical flow of merchandise is the LIFO method. average-cost method. gross profit method. FIFO method.

True

The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.

FOB destination

Title to goods transfers when the goods are delivered to the buyer.

FOB shipping point

Title to the goods transfers when the public carrier accepts the goods from the seller.

365 days by the inventory turnover.

Days in inventory is calculated by dividing 365 days by the inventory turnover. 365 days by average inventory. the inventory turnover by 365 days. average inventory by 365 days.

FOB shipping point means that the destination or buyer has to pay for shipping where as FOB destination means the shipper has to pay for the shipping.

Explain the difference between the terms FOB shipping point and FOB destination.

True

Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

True

Goods out on consignment should be included in the inventory of the consignor.

True

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Inventory turnover

Measures the number of times the inventory sold during the period.

work in process

An auto manufacturer would classify vehicles in various stages of production as merchandise inventory. raw materials. work in process. finished goods.

FIFO (first in, first out)

usually parallels the actual physical flow of merchandise?

Last-in, first-out (LIFO) method

Cost of goods sold consists of the most recent inventory purchases.

Merchandise Inventory

Goods ready for sale to customers by retailers and wholesalers.

Work in process

Goods that are only partially completed in a manufacturing company.

cost of goods available for sale of the companies will be identical.

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the cost of goods available for sale of the companies will be identical. cost of goods sold of the companies will be identical. ending inventory of the companies will be identical. net income of the companies will be identical.

reported as a current asset on the balance sheet.

Inventory is reported as a current asset on the balance sheet. generally valued at the price for which the goods can be sold. often reported as a miscellaneous expense on the income statement. reported under the classification of Property, Plant, and Equipment on the balance sheet.

False

Inventory turnover is calculated as cost of goods sold divided by ending inventory.

False

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Average-cost method

The same unit cost is used to value ending inventory and cost of goods sold.

True

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Average-Cost

assumes that goods available for sale during an accounting period are identical?

LIFO

assumes that the latest units purchased are the first to be sold?

First-in, first-out (FIFO) method

Ending inventory valuation consists of the most recent inventory purchases.

finished goods inventory.

In a manufacturing business, inventory that is ready for sale is called raw materials inventory. finished goods inventory. store supplies inventory. work in process inventory.

True

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

LIFO

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense? FIFO LIFO average Cost income tax expense for the period will be the same under all assumptions

FIFO method.

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the tax method. FIFO method. LIFO method. average-cost method.

Included

Indicate whether each item should be "Included" or "Not Included" from the inventory taking. Freight-In

Included

Indicate whether each item should be "Included" or "Not Included" from the inventory taking. Purchase Discounts

Included

Indicate whether each item should be "Included" or "Not Included" from the inventory taking. Purchase Returns and Allowances

Included

Indicate whether each item should be "Included" or "Not Included" from the inventory taking. Purchases

Not Included

Indicate whether each item should be "Included" or "Not Included" from the inventory taking. Sales Discounts

Current replacement cost

The amount that would be paid at the present time to acquire an identical item.

ending inventory and cost of goods sold.

The cost of goods available for sale is allocated between beginning inventory and cost of goods purchased. beginning inventory and ending inventory. beginning inventory and cost of goods on hand. ending inventory and cost of goods sold.

True

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

False

The more inventory a company has in stock, the greater the company's profit.

Specific identification method

Tracks the actual physical flow for each inventory item available for sale.

Middle-in, first-out

Which of the following is not a common cost flow assumption used in costing inventory? Last-in, first-out Average cost Middle-in, first-out First-in, first-out