Intermediate Accounting Chapter 8 Inventory

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.

Over the total life of a company, total cost of goods sold

is the same under each cost flow assumption.

The specific identification method of inventory costing matches each unit with

its actual cost

Cost of goods sold is typically the _____ expense in the income statement.

largest

Which of the following inventory cost flow assumptions is prohibited under International Financial Reporting Standards?

last in, first out

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

last-in, first-out

Which of the following cost flow assumptions currently are acceptable under U.S. GAAP?

last-in, first-out first-in, first-out weighted average

Initial adoption of IFRS by a company that currently utilizes the LIFO method would likely result in

lower cost of goods sold. higher taxable income.

Finished goods is a type of inventory found on a _____ company's balance sheet.

manufacturing

Ruy Company typically tries to sell its oldest inventory items first. Ruy Company

may choose any of the three accepted inventory methods.

In a periodic inventory system, the inventory account is _____ and cost of goods sold is recorded _____.

not adjusted as purchases and sales are made; at the end of the reporting period

Work-in-process contains costs of inventory items that are

not yet complete

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

paper used in the printing process textbooks ready to be shipped to bookstores

The gross method views a discount not taken as

part of the cost of inventory.

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 or stolen items are not identified.

periodic

A physical count of inventory is necessary in a(n) _____________ inventory system to determine cost of goods sold.

periodic

A(n)____________ inventory system adjusts inventory at the end of each reporting period.

periodic

The cost of goods sold equation assumes that all inventory not on hand at the end of the period was sold and does not account for damaged or stolen merchandise. This is a disadvantage in which type of inventory system?

periodic

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

Finished goods inventory contains costs of inventory items that are

ready for sale

In a consignment, a company arranges for another company to

sell its products

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

Different inventory methods can produce significantly different amounts for cost of goods sold in a given year. Across the life of a company, cost of goods sold will be

the same under each cost assumption.

If goods are shipped f.o.b. destination, at time of shipment

the seller still has legal title of the goods.

When a company determines the quantity of inventory items, it must consider

units in transit. units on consignment. units it currently possesses.

A company is most likely to utilize the specific identification method if its inventory consists of

very expensive products. unique products.

Raw materials inventory consists of the cost of units that

will be used as components of a manufactured product

Which of the following accounts would be found on the balance sheet of a manufacturing company?

work in process

Sanfillipo, Inc., had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600units15400 units @ $22 each 22400 units @ $24 each 27 400units Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.The cost of inventory at the end of March applying the average cost method is:

$12,900

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.

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

$640. Reason: $2,880/900 x 200 = $640

Which factors may influence a company's choice of inventory cost flow assumption?

-actual physical flow of inventory -financial statement effect -tax implications of choice

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?

100 of the units purchased on February 23

Which of the following correctly reflects the determination of cost of goods sold in a periodic inventory system?

Beginning inventory + net purchases - ending inventory

Seven Seas Company begins the year with $75,000 in inventory. During the year, Seven Seas purchases additional inventory on account for $130,000. Total sales for the year, all on account, were $182,000. Seven Seas uses a periodic inventory. The cost of ending inventory of $65,000 is determined by a physical count at the end of the year. The journal entry used to update the inventory account at the end of the year includes which of the following?

Credit purchases $130,000 Debit cost of goods sold $140,000 Debit inventory (ending) $65,000 Credit Inventory (beginning) $75,000

What may offset the income tax motivation for using LIFO in periods of rising prices?

Desire to report higher net income.

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

FIFO

Which inventory costing method assumes that items in ending inventory are the most recently acquired?

FIFO

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

LIFO

LIFO

Provides better matching of current revenues with current inventory cost

Which of the following is correct?

There is no requirement to choose a cost flow assumption that approximates actual physical flow of units.

True or false: Under U.S. GAAP, companies are required to disclose the inventory costing method(s) used.

True

True or false: The impact on reported income numbers is an important consideration when choosing an inventory cost flow method.

True Reason: Inventory cost method can have an impact on how well costs are matched with associated revenues and impact the timing of income and income tax expense.

The average cost method assumes that cost of goods sold consists of

a mixture of all the goods available for sale.

The net method views a discount not taken as

an interest expense.

A just-in-time (JIT) inventory system

assists managers with inventory management. allows companies to maintain relatively low inventory balances.

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

assumption

A periodic inventory system allocates cost of goods available for sale _____; a perpetual inventory system allocates cost of goods available for sale _____.

at the end of the period; each time goods are sold

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

When a company utilizes a periodic inventory system, a physical count is necessary to determine cost of goods sold because

cost of goods sold is not determined at the time of sale.

Which of the following would be an important consideration for management in choosing the perpetual or periodic inventory system?

cost of implementation management control

A periodic inventory system

does not continuously track the quantity of merchandise. does not continuously track the cost of merchandise sold.

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

electricity to operate facility depreciation of manufacturing equipment

The amount of cost of goods sold determined under the average cost method typically

falls between the amounts determined using LIFO and FIFO.

Consistent with International Financial Reporting Standards, which of the following cost flow assumptions are currently permitted?

first in, first out weighted-average

The _____ ratio indicates the percentage of each sales dollar available to cover expenses other than cost of goods sold and then to provide a profit.

gross profit

The inventory turnover ratio shows

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

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

include $4,000 in ending inventory reduce cost of goods sold by $4,000

What is required at the end of a reporting period in a periodic inventory system?

A physical count of the period's ending inventory so an adjustment can be made.

If a company has a policy of not including shipping charges in cost of goods sold, which of the following must occur?

Both the amount of freight-out charges incurred during the period and the income statement classification of charges must be disclosed.

Which of the following can affect earnings quality for a company?

Change in inventory method Inventory write-downs Choice of inventory method

Which of the following inventory methods result in the same ending inventory and cost of goods sold?

FIFO periodic inventory system FIFO perpetual inventory system

Where must a company indicate the inventory costing method(s) used?

In a disclosure note

Which of the following is a correct interpretation of the information provided by the gross profit margin?

It indicates the percentage of each sales dollar available to cover other expenses.

Which of the following are characteristics of inventory?

It will be sold in the normal course of business. It will be used in the production of goods to be sold.

A slowing turnover ratio combined with higher than normal inventory levels may indicate which of the following?

Potential for decreased production Potential for inventory becoming obsolete

Identify the statement below concerning the LIFO inventory method that is untrue.

The ending inventory under LIFO will tend to approximate replacement cost.

Which of the following companies would be most likely to utilize the specific identification method?

company with one-of-a-kind products

Inventory costs that relate to products that are not yet complete are shown in

work-in-process inventory

The Hamlet Company uses the periodic inventory system. Information for the current year is as follows: Sales$2,650,000 Beginning inventory 680,000 Purchases 1,200,000 Purchase returns 12,000 Ending inventory 740,000 Hamlet's cost of goods sold for the current year is:

$1,128,000

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

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

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

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

Terms like 2/10, n/30 represent what?

A purchase discount

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.

In a periodic inventory system, purchase returns are closed to what account at the end of the reporting period?

Cost of goods sold

The ______ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

Which inventory method typically most closely matches the actual flow of inventory being sold?

FIFO

Many companies maintain their internal records using _____ or the average cost method, but use ______ for external reporting and income tax purposes.

FIFO; LIFO

True or false: Goods shipped f.o.b. destination are included in the purchaser's inventory while the goods are in transit.

False Reason: Title of goods with f.o.b. destination shipping terms transfer when the goods reach the purchaser.

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

LIFO only

Wholesale and retail companies

Purchase goods that are primarily in completed form.

Manufacturing companies

Purchase goods that are used to produce another product.

The choice of inventory method is an ____________ of which units of inventory are sold or not sold, even if this does not match the actual flow.

assumption

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

assure proper inventory cutoff.

The inventory turnover ratio is computed as cost of goods sold divided by _____.

average inventory

When inventory is sold and reported as cost of goods sold, the cost of inventory is recognized as a(n) ___________.

expense

Inventory costs that relate to products that are ready for sale are transferred to

finished goods inventory

A(n) ___________ inventory system adjusts for each change caused by a purchase, a sale, or a return of merchandise.

perpetual

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

perpetual

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

raw materials

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

spoilage breakage system errors thefts

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 periodic LIFO method, ending inventory will be

$615 Reason: ($3,300/1,000) x 50 units + $450

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 represent a reason why managers closely monitor inventory levels?

To ensure that sufficient units are available. To minimize costs of ordering and carrying inventory.

In a perpetual inventory system, freight costs on purchases are

added to the inventory account.

True or false: The LIFO inventory cost flow method most often mirrors the physical flow of inventory.

False Reason: FIFO typically approximates the physical flow of inventory.

True or false: The actual flow of a company's inventory must correspond with the cost flow assumption chosen by the company.

False Reason: The cost flow assumption does not have to correspond to the actual inventory flow.

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.

In which type of inventory costing system are inventory costs on the balance sheet generally out of date?

LIFO

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

LIFO

True or false: The LIFO method of inventory valuation is permitted under U.S. GAAP and IFRS.

Reason: IFRS prohibits the use of LIFO under IAS No. 2. False

manufacturing overhead

The cost of work in process includes the cost of raw materials used in production, the cost of labor that can be directly traced to the goods in process, and an allocated portion of other manufacturing costs

What of the following could motivate a company that uses LIFO for external reporting to use another method for internal recordkeeping?

The high recordkeeping cost of LIFO. Contractual agreements such as bonus contracts.

Which of the following is not a characteristic of an asset classified as inventory?

The item is currently used as part of the company's day-to-day operations.

What is included in the cost of merchandise inventory?

The purchase price of the goods. Necessary costs incurred to get the goods in location for sale.

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

The purchaser

At what point does a manufacturing company transfer costs to finished goods?

When the product is 100% complete.

At what point does a manufacturing company recognize cost of goods sold?

When the product is sold.

Which of the following determines who includes consigned goods in inventory?

Who carries the risk of loss.

Which of the following inventory-related techniques can be used to manipulate earnings?

Write-downs Changes in inventory method

Periodic LIFO applies the last-in, first-out concept _____ and perpetual LIFO applies the last-in, first-out concept _____ resulting in different cost of goods sold and inventory amounts.

at the end of the period; every time a sale is made

The measurement of inventory and cost of goods sold starts with determining the physical quantities of goods in which of the following systems?

both the periodic and perpetual inventory system

In a periodic inventory system, the inventory account during the accounting period reflects

cost of beginning inventory.

Weighted-average unit cost is determined by dividing _____ by quantity of goods available for sale.

cost of goods available for sale

The inventory turnover ratio is computed as _____ divided by average inventory.

cost of goods sold

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

inventory

When prices increase, the ______ inventory method tends to decrease a company's tax liability during a particular fiscal period relative to other inventory methods.

last-in, first-out

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

A JIT inventory system allows companies to maintain ______ inventory levels.

smaller

A significant disadvantage of the periodic inventory system is that it assumes that quantities not on hand at the end of the period were ______.

sold

Generally, product costs are expensed when the related products are

sold

The cost of inventory includes

the cost to bring inventory to its desired location expenditures to acquire the inventory

Those costs that are included in inventory are referred to as __________ costs.

product

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

Companies closely monitor inventories to maintain a sufficient ________ of inventory to meet customer demand, while also controlling the ______ of carrying inventory.

quantity; cost

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the periodic LIFO method, cost of goods sold will be

$1,760. Reason: (($1,980/900) x 800) = $1,760

On January 1, Smith Company has 500 units costing $500 in beginning inventory. On January 2, Smith purchases an additional 200 units for $1.25 per unit, and sells 300 units. On January 3, the company purchases 400 additional units for $1.50 per unit. On January 4, Smith sells 200 additional units. If Smith utilizes a perpetual LIFO system, per unit cost of goods sold associated with the January 4 sale will be

$1.50 Reason: These will come from the most recent purchase on 1/3 at $1.50 per unit

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. Reason: The remaining 100 from the January 2 purchase at $1.50 per unit are the last units in so they will be sold

Sanfillipo, Inc., had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600units15400 units @ $22 each 22400 units @ $24 each 27 400units Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.The cost of inventory at the end of March applying the FIFO method is:

$14,000

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 FIFO method, cost of goods sold will be

$3,090. Reason: 950 units have been sold. 150 units from beginning inventory at $450 plus 800 units from the units purchased. ($3,300/1000) = $3.30 x 800 = $2640 + 450 = $3090

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

$375,000. Reason: $150,000 + $250,000 - $25,000 = $375,000

A company purchases inventory on account for $45,000 with terms 2/10, n/30. Under the net method of accounting for purchases, the purchase would be recorded at:

$45,000 − ($45,000 × 2%) = $44,100.

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 FIFO method, ending inventory will be

$660. Reason: 200 units remain. ($3,300/1000) = $3.30 x 200 = $660

Estimated future sales returns must be

-included in ending inventory -deducted from cost of goods sold

The definition of inventory includes which of the following items?

-items currently in production for future sale -items used currently in the production of goods to be sold -items held for resale

On December 31, Salz Company sells 1,000 units of merchandise to Weiner Corp. and 2,000 units to Torr Corp. Shipping terms are f.o.b. destination for the 1,000-unit sale and f.o.b. shipping point for the 2,000-unit sale and the goods have shipped. If Salz still has 10,000 physical units in its inventory after these sales, how many units should Salz include in its ending inventory on December 31?

11,000 units Reason: The 10,000 units in ending inventory plus the 1,000 units shipped f.o.b. destination are included in Salz's inventory

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 Reason: 30,000 - 2,000 + 10,000

For its fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:

40%

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%. Reason: Gross profit ratio is computed as gross profit/NET SALES. Be sure to use the net sales number, not gross sales. ($5 million -$3 million)/$5 million

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?

45 units

Chase Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Rounding to the nearest percent, the company's gross profit ratio would be

50%. Reason: Gross profit ratio is computed as gross profit/NET SALES. Be sure to use the net sales number, not gross sales. ($7 million -$3.5 million)/$7 million

The terms 5/15, n/45 mean what?

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

Which of the following statements is correct?

A company can apply more than one inventory cost flow assumption.

In a perpetual inventory system, when inventory is returned which accounts will the purchaser adjust to reflect the effect of the return?

Accounts payable Inventory

Which of the following would be recognized as inventory?

An item that is manufactured and held for future resale.

Which of the following are included in inventory?

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

Accounting for inventory is an important topic because correctly measuring inventory affects both the __________ _____________through ending inventory and the _______________ _____________ via cost of goods sold.

Balance sheet : Income statement

Arranging for another company to sell a company's products is referred to as a(n) ____________.

Consignment

Where can freight-out charges be found?

Cost of goods sold Selling expenses

Suppose that Michale Company operates in an environment of rising prices and utilizes the periodic inventory system. If the company were to use the LIFO inventory method, its cost of goods would be $500,000; if it were to use the FIFO method, its cost of goods sold would be $400,000. Based on this information, which of the following predictions would be correct with respect to the weighted-average cost method?

Cost of goods sold would be between $400,000 and $500,000.

What is the first step in measuring inventory and cost of goods sold?

Determining the physical quantities of goods.

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.

Assuming that prices increase, which of the following inventory methods results in lower costs of goods sold?

FIFO

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

LIFO Reason: In a period of rising prices, LIFO results in goods with the highest cost being sold first resulting in higher cost of goods sold.

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.

FIFO

Most closely approximates the actual physical flow of inventory

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

costs incurred several years earlier.

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. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry to record the sale of inventory during the year includes which of the following?

credit sales revenue $70,000 debit accounts receivable $70,000

At the end of an accounting period, it is important to ensure proper inventory _____ to determine the ownership of goods in transit.

cutoff

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?

debit accounts receivable $70,000 credit inventory $40,000 credit sales revenue $70,000 debit cost of goods sold $40,000

Western Company begins the year with $50,000 of inventory on hand. During the year, Western purchases additional inventory for $100,000 cash. Sales for the year, all on account, totaled $70,000. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry at the end of the year once the physical count occurs includes which of the following?

debit cost of goods sold $40,000 credit inventory (beginning) $50,000 credit purchases $100,000 debit inventory (ending) $110,000

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. A physical count determined the cost of inventory at the end of the year to be $110,000. Assuming Western uses a periodic inventory system, the journal entry to record the purchase of inventory during the year includes which of the following?

debit purchases $100,000 credit cash $100,000

When a company returns inventory to the seller, net purchases ______.

decrease

Periodic LIFO applies the last-in, first-out concept to total sales and total purchases at the _____________ of the reporting period, while perpetual LIFO applies the concept after every purchase is made.

end

Carlson Auto Dealers Inc. sells a handmade automobile as its only product. Each automobile is identical; however, they can be distinguished by their unique ID number. At the beginning of 2021, Carlson had three cars in inventory, as follows: Car IDCost203$75,000 207 75,000 210 78,000 During 2021, each of the three autos sold for $105,000. Additional purchases (listed in chronological order) and sales for the year were as follows: Car IDCostSelling Price211$75,000 $105,000 212 75,000 108,000 213 76,500 not sold214 78,000 111,000 215 81,000 115,500 216 79,500 not sold217 84,000 120,000 218 81,300 121,500 219 87,000 not sold use specific identification method to calculate: ending inventory: Cost of goods sold:

ending inventory: $243,000 Cost of goods sold: $702,300

The FIFO method assumes that units sold are the _________ units acquired and that units remaining in ending inventory are the ________ units purchased.

first; last

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

gross

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

gross

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

gross profit

Ludwig Company operates in an environment of rising prices and currently utilizes the LIFO inventory method under U.S.GAAP. If the company were to adopt International Financial Reporting Standards, its pretax income likely would

increase.

Discounts not taken are reported as interest expense under the ____________ method of accounting for discounts.

net

Discounts not taken are reported as interest expense under the ______________ method of accounting for discounts.

net

Which inventory system allocates cost of goods available for sale only at the end of each reporting period?

periodic

Identify the inventory system that tends to incur comparatively less cost.

periodic inventory system

In a(n) ________________ inventory system, the average cost method is applied by computing a moving average unit cost each time inventory is purchased.

perpetual

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

perpetual

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.

Weighted-average unit cost is determined by dividing cost of goods available for sale by

total quantity available for sale.

A perpetual inventory system is designed to

track inventory quantities from acquisition to sale.

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

true

True or false: LIFO, FIFO, and the weighted average inventory costing methods are all allowed under U.S. GAAP.

true

Analyzing changes in the inventory ___________ ratio can provide information about the quality of current period earnings.

turnover

Ending inventory determined under the FIFO perpetual system method is the same as under the FIFO periodic inventory system

under all circumstances.

The specific identification method

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