Intermediate Accounting Ch. 8

On January 1, Bern Company has 100 units costing $100 in beginning inventory. On January 2, Bern purchases an additional 400 units for $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 units 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

Gerhard Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 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, COGS would have been

$2,000 higher

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 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 1,200 units, pretax income would have been

$2,000 lower

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's pretax income for the 2016 fiscal year would have been

$50,000 higher if it had used FIFO

Pernell Company reported LIFO reserves of $150,000 and $100,000 in 2016 and 2015, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's cost of goods sold for the 2016 fiscal year would have been

$50,000 lower if it had used FIFO

Bern Corp., a merchandising company, utilizes the net method in accounting for purchase discounts. The company usually pays during the discount period, when discounts are offered by the vendor. Bern's net income for the year ended was $500,000. Purchase discounts taken during the year totaled $5,000. If Bern had used the gross method, its net income would have been

$500,000

Smith Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $690,000. Its inventory as of December 31, 2016, was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2016?

$723,600

Western Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016, was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$758,200

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer?

2

Adams Corp., a merchandising company, has 30,000 units in its inventory on December 31. Just before closing for the day, the company ships 2,000 units to a customer. The company also receives a notice from its supplier that an order of 10,000 units has been shipped. The terms for the sale and the purchase were f.o.b. shipping point. How many units of merchandise should be included in Adam's ending inventory?

38,000 units

Rudy Company reports gross sales revenue of $5.2 million, net sales revenue of $5 million, and cost of goods sold of $3 million. Rounding to the nearest percent, the company's gross profit ratio would be

40%

Which of the following correctly describes a cost that would be properly classified as overhead for a manufacturing company?

All costs necessary to manufacture a product other than those that can be directly linked to specific goods

The dollar-value LIFO (DVL) inventory method

Allows a broader range of goods to be included in pools

In a periodic inventory system, purchase returns

Are recorded in a separate contra purchases account

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

Assumptions

Which inventory costing method assumes that cost of goods sold and ending inventory consist of a mixture of all the goods available for sale?

Average cost

The dollar-value LIFO method extends the concept of inventory pools by allowing companies to

Combine a large variety of goods in one pool

In a perpetual inventory system the inventory account is

Continually adjusted

Western Company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and the cost of the inventory sold was $40,000. Assuming Western uses a perpetual inventory system, the journal entry to record the purchase of inventory during the year includes which of the following?

Credit cash $100,000 Debit inventory $100,000

Western Company begins the year with $50,000 of inventory on hand. During 2018, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000 and the cost of the inventory sold was $40,000. Assuming Western uses a perpetual inventory system, the journal entry to record the sale and cost of inventory during the year includes which of the following?

Credit sales revenue $70,000 Credit inventory $40,000 Debit cost of goods sold $40,000 Debit accounts receivable $70,000

Estimated future sales returns must be

Deducted from cost of goods sold Included in ending inventory

A periodic inventory system

Does not continuously track the cost of merchandise sold Does not continuously track the quantity of merchandise

Which of the following costs would be properly classified as manufacturing overhead?

Electricity to operate facility Depreciation of manufacturing equipment

What type of expenditures should be included in the cost of inventory of a manufacturing company?

Expenditures necessary to bring inventory to sales location Expenditures necessary to acquire inventory

The cost of inventory includes

Expenditures to acquire the inventory The cost to bring inventory to its desired location The cost to bring inventory to its desired condition

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

FIFO

True or false: A periodic inventory system allows management to determine the amount of goods on hand without having to take a physical count.

False

Which of the following is(are) true regarding the use of the gross and the net method of accounting for purchase discounts.

Financial statements do not differ under the gross and net methods if discounts are always taken The net method results in a higher gross margin than the gross method if discounts are not taken

Ownership of inventory at the end of the accounting period is determined for

Goods shipped by suppliers Goods shipped to customers

Inventory cost flow assumptions can be used to assign dollar amounts to

Goods sold Ending inventory

Which of the following are included in inventory?

Goods that manufacturers produce for sale Assets a retail company acquires for resale

The ____ method of recording purchase discounts, subtracts the discount from total purchases to determine net purchases.

Gross

Steiner Company's average days in inventory has decreased during 2016 as compared to the prior year. From this information, we can conclude that Steiner

Has a higher inventory turnover ratio Is selling its inventory faster

The inventory turnover ratio shows

How many times the average inventory balance is sold during the current reporting period

Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?

How units of goods and their associated costs flow through the system

Items a company intends to sell in the normal course of business, has in production for future sale, or uses currently in production, are all examples of what?

Inventory

Steiner Company's average days in inventory has decreased during 2016 as compared to the prior year. From this information, we can conclude that Steiner

Is selling its inventory faster Has a higher inventory turnover ratio

Assuming that prices rise over time, which inventory cost flow assumption will result in the highest cost of goods sold?

LIFO

If a company uses _____ to measure taxable income, they must use the same method for external financial reporting.

LIFO

The _____ inventory method assumes that the units in ending inventory were the items acquired first.

LIFO

Another name for the LIFO reserve account is

LIFO allowance

If a company uses LIFO to measure its taxable income, the IRS requires that LIFO also be used to measure income reported to investors and creditors.This is know as the

LIFO conformity rule

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

The layer year cost index is calculated by dividing the cost in ______ year by the cost in ______ year.

Layer Base

The specific identification method

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

A _____ company resells goods while a _____ company produces goods.

Merchandising Manufacturing

Orange Co., a computer retailer, shows the following selected assets on its balance sheet. Indicate which account would be properly classified as inventory.

Mouse pads

The gross profit ratio is computed as gross profit divided by _____.

Net sales

A ____ inventory system adjusts inventory at the end of the each reporting period.

Periodic

Under the ____ inventory system, purchase discounts are treated as a reduction in the inventory account.

Perpetual

Companies can identify system errors, theft, and breakage by comparing the inventory quantity according to the perpetual system and the quantity determined by a ____ ____ at the end of the period.

Physical count

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

Purchase

The cost of components purchased from another manufacturer that will become part of the finished product are recognized in the ____ ____ account.

Raw materials

Which of the following accounts are typically reported on the balance sheet of a manufacturing company?

Raw materials Finished goods Work in process

At the end of the fiscal period, Schmidt Company estimates that inventory costing $4,000 that was sold for $10,000 will be returned at the beginning of the following year. Schmidt Company should

Reduce cost of goods sold by $4,000 Include $4,000 in ending inventory

Advantages of using LIFO inventory pools include which of the following?

Reduce the risk of LIFO layer liquidations Simplify recordkeeping

Which of the following are disadvantages of unit LIFO?

Significant recordkeeping costs Possibility of LIFO liquidation

LIFO inventory pools

Simplifies recordkeeping

The dollar-value LIFO (DVL) method

Simplifies recordkeeping Reduces the risk of liquidation of layers

What method of inventory valuation matches each unit on hand at the end of the period with its actual cost?

Specific identification

Donald Company purchases and sells inventory f.o.b. destination. On December 31, the company sells 10,000 units and receives notice that 40,000 units have been shipped by its supplier. Which units should be included in Donald Company's ending inventory?

The 10,000 units sold

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on March 18, which units would be assumed to have been sold in a perpetual LIFO system?

The 100 units purchased February 23rd

Which of the following items should be classified as inventory for a company that manufactures beach umbrellas?

The finished umbrellas ready for sale The canvas used in the production of the umbrellas

Daryl Corp. purchases 10,000 units of inventory on account for $50,000. Two days after receiving the inventory, Daryl discovers that 1,000 units are defective and returns the defective units to the vendor. The company utilizes a perpetual inventory system. As a result of this return,

The inventory balance decreases The accounts payable balance decreases

The LIFO inventory method assumes that the units that remain in ending inventory are

The oldest units in inventory

When merchandise is shipped f.o.b. destination, who includes the inventory on their balance sheet when the goods are with the common carrier?

The seller

Which of the following could cause a difference between the quantities of inventory determined by physical count and the quantities tracked by a perpetual inventory system?

Thefts Spoilage System errors Breakage

True or false: Dollar-value LIFO allows a company to combine a large variety of goods into one pool.

True

Cost of goods sold determined under the FIFO perpetual system method is the same as under the FIFO periodic inventory system

Under all circumstances

High recordkeeping costs and possible LIFO liquidation are disadvantages of

Unit LIFO

In a perpetual inventory system the inventory account is adjusted

When inventory is purchased When inventory is sold

Determining ownership of goods that are in transit at the end of the accounting period is important to

assure proper inventory cutoff