Chapter 7 LearnSmart

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.

10000/1000 = 10 inventory turn over ratio = Cost of Goods Sold / Average inventory

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using periodic weighted average cost, its Cost of Goods Sold is ______. Multiple choice question.

2*550 = 1100 2*600 = 1200 1200+ 1100 + 500 =2800 2800/5 =560

If Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be ______. Multiple choice question.

365/5 = 73 days

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 20 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 5 quilts remained unsold. If Mountain Made uses LIFO periodic, its Cost of Goods Sold for the month is ______.

3780

Which of these might cause the value of inventory to fall below its original cost? (Check all that apply.)

Increased competition Damage Obsolescence from going out of style

Which of these might cause the value of inventory to fall below its original cost?

Increased competition Obsolescence from going out of style Damage

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?

Only the items that have market values lower than the costs will be written down.

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory? Multiple choice question.

Only the items that have market values lower than the costs will be written down.

Applying the lower of cost or market rule results in inventory being reported at the ______.

market value if lower than cost

Applying the lower of cost or market rule results in inventory being reported at the ______. Multiple choice question.

market value if lower than cost

To find a description of the inventory accounting method used by a company, you need to look at the ______. Multiple choice question.

notes to the financial statements

The inventory turnover measures the ______.

number of times the average inventory balance is bought and sold

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10 each. It purchases 3 more at $12 each. It sold 2 units. Using the ___________________ ________________ cost inventory method, Cost of Goods Sold equals $22.40.

weighted average

What is the inventory costing method that adds together the total cost of all goods available for sale during the period, and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory?

Weighted average cost

First-in, first-out (FIFO) method

an inventory costing method that assumes that the earliest goods purchased are the first to be sold

Specific identification is ______.

an inventory method that tracks which item is actually sold and debits Cost of Goods Sold for the actual cost of the item

The weighted average cost method uses the ______ cost for Cost of Goods Sold on the income statement and the ______ cost for Inventory on the balance sheet. Multiple choice question.

average; average

Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______. Multiple choice question.

balance sheet as a current asset; Cost of Goods Sold on the income statement

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using last-in, first-out, the 3 goods sold are ______. Multiple choice question.

from the purchases made during the month

The physical flow of goods does not have to match

inventory costing methods

The inventory turnover measures the ______. Multiple choice question.

number of times the average inventory balance is bought and sold

Companies generally report their accounting method for inventory in the ______.

notes to the financial statements

The costs of carrying inventory include the costs of ______. (Check all that apply.) Multiple select question.

storage theft spoilage obsolescence

To find a description of the inventory accounting method used by a company, you need to look at the ______.

notes to the financial statements

A grocery store may or may not use the Last-in, First-out inventory method. The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods.

true

If Barry Bees, Inc.'s days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals

5

Risen, Inc. has beginning inventory of $16 which consists of 2 units at $8 each. It purchased 10 units at $10 each. It sold 5 units for $20 each. Which would result in the higher Gross Profit, FIFO or LIFO and why?

FIFO because the older, less expensive units are assumed to be sold first making Cost of Goods Sold lower and Gross Profit higher than LIFO

True or false: GAAP requires that a business must use an inventory accounting method that is the same as the physical flow of goods in and out of the business.

False

Delta Diamonds had 5 diamonds available for sale this year: June 1 - purchased 1 for $500; July 9 - purchased 2 for $550 each; and on September 23 - purchased 2 for $600 each. On December 24, it sold 1 of the diamonds. Using LIFO periodic, its ending inventory is ______. Multiple choice question.

$2,200

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using FIFO, its Inventory at December 31 is ______. Multiple choice question.

$2,300

Which of the following is merchandise inventory?

Goods held for sale in the normal course of business

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, Cost of Goods Sold equals ______. Multiple choice question.

$30

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10. It purchased 3 more at $12. It sold 4 units during the period. What is the Cost of Goods Sold using the weighted average cost method?

$44.80

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using periodic specific identification, its Cost of Goods Sold is ______.

$550

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List from top to bottom, in order of highest ending inventory to lowest ending inventory value.

1) FIFO 2) weighted average 3) LIFO

Barrry Bees, Inc.'s Cost of Goods Sold equals $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals ________________ days (assume 365 days per year).

10,000/1000 = 10 365/10 = 36.5

King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume uses LIFO periodic, its Cost of Goods Sold for the month is ______.

8 * 10 = 80 40 * 12 = 480 8 + 40 = 48 48 - 5 = 43 sold 480 + 30 = 510 $510

Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.

80 * 12 = 960 20 * 12.50 = 250 960 + 250 = 1210 1210/100 = 12.1 per unit

Which of these would explain an increase in a company's inventory turnover ratio? (Check all that apply.) Multiple select question.

A decrease in total inventory An increase in the demand for the company's products

Specific Identification Method

A method of assigning costs to inventory that identifies the cost of each specific item purchased and sold.

Which financial statements are needed to calculate the inventory turnover ratio? (Check all that apply.)

Balance sheet Income statement

How does the inventory costing methods affect the income statement when costs tend to rise over time?

Cost of Goods Sold on the income statement differs between the methods causing Income Tax Expense to differ.

How does the inventory costing methods affect the income statement when costs tend to rise over time? Multiple choice question.

Cost of Goods Sold on the income statement differs between the methods causing Income Tax Expense to differ.

When costs are rising, ______ produces a larger Inventory balance (making the balance sheet appear to be stronger) and smaller Cost of Goods Sold (resulting in a larger Gross Profit) which makes the company look more profitable.

FIFO

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received? Multiple choice question.

FIFO

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet? Multiple choice question.

FIFO

Which statement is true? The inventory costing methods must mirror the physical flow of goods. Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods. The inventory costing methods reflect the amount paid for the purchases of inventory.

Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.

Merchandise inventory ______. (Select all that apply.)

consists of products acquired in a finished condition that are available for sale is reported as a current asset on the balance sheet

In a perpetual inventory system, Inventory is initially recorded at ______. Multiple choice question.

cost

When using the specific identification inventory method, cost of goods sold equals the ______. Multiple choice question.

cost of the actual item sold

Days to sell measures the average number of ______. Multiple choice question.

days from the time inventory is purchased to the time it is sold

Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet?

LIFO

An increased inventory balance is desirable if management is building up stock in anticipation of higher sales. An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory.

TRUE

True or False Specific identification, weighted average cost, LIFO and FIFO are generally accepted costing methods.

True

True or false: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items. True false question.

True

Weighted Average Cost Method

Uses the weighted average unit cost of goods available for sale for calculations of both the cost of goods sold and ending inventory.

If Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be ______.

73 days

Last-in, first-out (LIFO) method

an inventory costing method that assumes that the latest units purchased are the first to be sold

An increase in a company's inventory balance from a prior year is ______. Multiple choice question.

good if the inventory turnover ratio is higher

FIFO, an inventory costing method, actually describes how to calculate the cost of ______. Multiple choice question.

goods sold

The goals of inventory managers include ______. (Check all that apply.) Multiple select question.

having enough inventory on hand to meet customer demand making sure that inventory quality meets customer expectations keeping the costs of buying and storing inventory as low as possible

A ______ inventory turnover ratio may result in a reduction in storage and obsolescence costs as well as reduced borrowing. Multiple choice question.

higher

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.

income statement; balance sheet