ACC2201 Chapter 6 HW

d. perpetual A perpetual inventory system involves recording inventory purchases and sales on a perpetual or continual basis.

A _____________ inventory system is one that is continually updated to reflect inventory purchases and sales. a. periodic b. transitional c. technical d. perpetual

b. 33.33% The gross profit ratio= gross profit /net sales ($500,000 − $50,000 − $300,000)/($500,000 − $50,000)

A company has total sales revenue of $500,000 for the year. Sales discounts, returns, and allowances total $50,000 and the cost of goods sold is $300,000. What is the company's gross profit ratio? a. 60% b. 33.33% c. 40% d. 44.44%

d. Accounts Payable The purchase return requires a debit to Accounts Payable. When creating a journal entry for a credit purchase return, the seller will debit accounts payable because accounts payable is a liability incurred when making the sale

A company that returns items that were previously purchased on account will debit: a. Cash b. Inventory c. Accounts Receivable d. Accounts Payable

False profit=revenue -cost 0.32=net sales $1 - $0.68 cost of goods sold

A gross profit ratio of 32% indicates that for every $1 of net sales, the company spends $0.32 on inventory. True of False

True A higher ratio tends to point to strong sales and a lower one to weak sales

A high inventory turnover ratio generally indicates that the company's inventory policies are effective. True of False

a. Credit to Inventory for $300 Accounts Payable 10,000(debit) Inventory 300(credit) Cash 9,700(credit)

A supplier offers a company terms 3/10, n/30 for a $10,000 purchase on account on January 1. The company uses a perpetual inventory system to record transactions. If the company makes the payment on January 10, the entry to record the payment will include a: a. Credit to Inventory for $300 b. Debit to Accounts Payable for $9,700 c. Credit to Cash for $10,000 d. Debit to Accounts Payable for $300

c. the amount it reports for ending inventory better approximates the current cost of inventory Accountants often call FIFO the balance-sheet approach: The amount it reports for ending inventory (which appears in the balance sheet) better approximates the current cost of inventory.

Accountants often call FIFO the balance-sheet approach because _____. a. the amount of ending inventory appears in the balance sheet b. the amount it reports for cost of goods sold more realistically matches the current costs of inventory needed to produce current revenues c. the amount it reports for ending inventory better approximates the current cost of inventory d. it better approximates actual cost of goods sold for most companies, because most companies' actual physical flow follows FIFO

False relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together. It is useful and usable when a company is able to identify, mark, and track each item or unit in its inventory.

An appropriate use of the specific identification method is in accounting for low-cost, similar inventory items that are difficult to separately identify. True or False

False (merchandise)

Companies that purchase inventories in finished form from suppliers are known as manufacturing companies. True or False

True Companies that report using LIFO must also report the difference between the LIFO amount and what that amount would have been if they had used FIFO. This difference is often referred to as the LIFO reserve.

Companies that report inventory using the LIFO method must report the difference between the LIFO cost and FIFO cost of its inventory. This difference is commonly called the LIFO reserve. True or False

d. $40,000 Ending inventory = Cost of goods available for sale − Cost of goods sold = ($30,000 + $80,000) − $70,000 = $40,000.

Dane Stores begins the year with $30,000 of DVD inventory. It purchases DVDs worth $80,000 during the year. The cost of goods sold for the year is $70,000. What is the amount of ending inventory? a. $30,000 b. $20,000 c. $10,000 d. $40,000

True Technological advances in recent years have made the perpetual system simpler and more cost-effective for most companies.

Due to technological advances in recent years, most companies use a perpetual inventory system to track inventory purchases and sales. True or False

True FOB shipping point means title passes when the seller ships the inventory, not when the buyer receives it.

FOB shipping point means title passes when the seller ships the inventory, not when the buyer receives it. True or False

a. 73 days Average days in inventory is calculated as 365 divided by the inventory turnover ratio.Inventory turnover ratio = $450,000/[($80,000+$100,000)/2] = 5.0 times.Average days in inventory = 365/5 = 73 days.

For the current year, Delta Corporation has beginning and ending inventories of $80,000 and $100,000, respectively. Cost of goods sold(if not giving this amount: should know how to find the cost of goods sold) for the year is $450,000. What is the company's average days in inventory? a. 73 days b. 5 days c. 64.9 days d. 4.5 days

a.4.8 times Inventory turnover ratio cost of goods sold/average inventory Inventory turnover ratio = $240,000/$50,000 = 4.8 times.

For the current year, Theta Corporation has beginning and ending inventories of $40,000 and $60,000, respectively. Cost of goods sold for the year is $240,000. What is the company's inventory turnover ratio? a.4.8 times b. 2.4 times c. 4 times d. 6 times

a. the lower of original cost and net realizable value Inventory is reported on the balance sheet at the lower of cost and net realizable value. The lower of cost or net realizable value concept means that inventory should be reported at the lower of its cost or the amount at which it can be sold

Inventory is reported on the balance sheet at: a. the lower of original cost and net realizable value b. original cost c. net realizable value d. the higher of original cost and net realizable value

b. asset on the balance sheet because it's valuable source=> so asset cost of goods sold => c. expense on the income statement

Inventory is typically reported as a(n): (cost of goods sold) a. revenue on the income statement b. asset on the balance sheet c. expense on the income statement d. liability on the balance sheet

a. work-in-process inventory Work-in-process inventory refers to products that have been started in the production process but are not yet complete at the end of the period.

Products that have been started in the production process but are not yet complete at the end of the period are known as: a. work-in-process inventory b. finished goods inventory c. raw materials inventory

c. the first units purchased are the first ones sold. The FIFO (First-In, First-Out) method assumes that the first units purchased are the first ones sold.

The FIFO method assumes that: a. each unit of inventory can be matched with its actual cost. b. the cost of goods sold consists of a random mixture of all goods available for sale. c. the first units purchased are the first ones sold. d. the last units purchased are the first ones sold.

b. a company that uses LIFO for tax reporting to also use LIFO for financial reporting Companies are not allowed to report their financial statements using FIFO and then report to the IRS using LIFO.

The LIFO conformity rule requires that _____. a. LIFO amounts must equal FIFO amounts for ending inventory b. a company that uses LIFO for tax reporting to also use LIFO for financial reporting c. all companies use LIFO d. LIFO can only be used when it matches actual flow of inventory

b. the last units purchased are the first ones sold. The LIFO (Last-In, First-Out) method assumes that the last units purchased are the first ones sold.

The LIFO method assumes that: a. each unit of inventory can be matched with its actual cost. b. the last units purchased are the first ones sold. c. the cost of goods sold consists of a random mixture of all goods available for sale. d. the first units purchased are the first ones sold.

False We add the cost of freight-in to the balance of inventory. Later, when the inventory is sold, the freight charges become part of the cost of goods sold.

The cost of freight-in is initially added to the balance of the Cost of Goods Sold account. True or False

True

The cost of inventory sold during a period is reported on the income statement. True or False

True The costs of beginning inventory plus additional purchases during the year make up the cost of inventory (cost of goods) available for sale.

The costs of beginning inventory plus additional purchases during the year make up the cost of inventory available for sale. True or False

c. $7,000 The weighted-average unit cost is $7.00 ($28,000 ÷ 4,000 units). Multiplying this with the ending inventory of 1,000 units, the ending inventory is $7,000.

The inventory transactions of Green Products Incorporated. Units sold during the year: 3,000. What is the amount of ending inventory that Green Products will report in its balance sheet for the current year, if it uses the weighted-average method? a. $8,000 b. $9,000 c. $7,000 d. $8,500

c. $7.00 Cost of goods available for sale = (500 × $5) + (1,000 × $6) + (500 × $7) + (2,000 × $8) = $28,000. Number of units available for sale = 500 + 1,000 + 500 + 2,000 = 4,000. Therefore, the weighted-average unit cost is $7.00 ($28,000 ÷ 4,000 units).

The inventory transactions of Green Products Incorporated. Units sold during the year: 3,000. What is the weighted-average unit cost? a. $9.00 b. $8.00 c. $7.00 d. $6.50

d. $20,000 (500 x $5) + (1,000 x $6) + (500 x $7) + (1,000 × $8).

The inventory transactions of Green Products Incorporated. Units sold during the year: 3000. What is the amount of cost of goods sold that Green Products will report in its income statement for the current year, if it uses the first-in, first-out cost method? a. $8,000 b. $5,500 c. $22,500 d. $20,000

b. $22,500 This is calculated as (2,000 x $8) + (500 x $7) + (500 x $6).

The inventory transactions of Green Products Incorporated. Units sold during the year: 3000. What is the amount of cost of goods sold that Green Products will report in its income statement for the current year, if it uses the last-in, first-out cost method? a. $20,000 b. $22,500 c. $5,500 d. $8,000

b. $8,000 Only 1,000 units from the final purchase (cost = $8) will be in the ending inventory.

The inventory transactions of Green Products Incorporated. Units sold during the year: 3000. What is the amount of ending inventory that Green Products will report in its balance sheet at the end of the year, if it uses the first-in, first-out cost method? a. $20,000 b. $8,000 c. $5,500 d. $22,500

c. $5,500 Ending inventory will consist of the 500 units from the Jan. 1 inventory (cost = $5) and 500 units of the May 15 purchase (cost = $6).

The inventory transactions of Green Products Incorporated. Units sold during the year: 3000. What is the amount of ending inventory that Green Products will report in its balance sheet at the end of the year, if it uses the last-in, first-out cost method? a. $8,000 b. $20,000 c. $5,500 d. $22,500

c. $9,800 beginning inventory+ purchase inventory=available inventory available inventory = cost of goods sold + unsold Cost of Goods Sold = (200 (beginning inventory-sale=500-300=200) units x $10) + (400 units x $12) + (200 units x $15) = $9,800. entry Account Receivable 16000/ Sale revenue 16000 Cost of goods Sold 9800/Inventory 9800

The inventory transactions of VTS Corporation. All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. The entry to record the transaction on December 10 will involve a debit to Cost of Goods Sold for _____. a. $8,600 b. $11,100 c. $9,800 d. $12,300

d. 1,300 closing inventory under FIFO 300*15=4500 closing inventory under LIFO 200*10=2000(there is only available for first one => 200, don't confuse 500) 100*12=1200 2000+1200=3200 4500-3200=1300

The inventory transactions of VTS Corporation. All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. What is the amount of LIFO adjustment needed to adjust FIFO inventory records reported for the year to LIFO for external reporting purposes? a. $3,000 b. $4,500 c. $1,000 d. 1,300

b. Credit to Sales Revenue for $6,000 Every time, we should make 2 entries for inventory inventory = 500-300=200/200*20=4000 Accounts Receivable 6000/Sales Revenue 6,000 cost of goods sold (I) 4000 / inventory (B) 4000 gross profit(I) =sale revenue - cost of goods sold = 1000

The inventory transactions of VTS Corporation. All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. Which of the following will be recorded on February 25? (gross profit) a. Debit to Accounts Receivable for $3,000 b. Credit to Sales Revenue for $6,000 c. Credit to Inventory for $5,000 d. Debit to Cost of Goods Sold for $6,000

d. Credit to Accounts Payable for $4,800 purchase was made on account, Inventory (A) 4800/Accounts Payable(L+) 4800

The inventory transactions of VTS Corporation. All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. Which of the following will be recorded on May 21? a. Credit to Cost of Goods Sold for $4,800 b. Debit to Sales Revenue for $4,800 c. Credit to Cash for $4,800 d. Credit to Accounts Payable for $4,800

b. $4,500 The ending balance contains 300 units purchased at a cost of $15 on July 15.

The inventory transactions of VTS Corporation. All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. What is the ending balance of Inventory under the FIFO method? a. $6,200 b. $4,500 c. $3,200 d. $5,000

False The multiple-step income statement begins by reporting that a company's sales revenues minus cost of goods sold equals gross profit.

The multiple-step income statement begins by reporting that a company's sales revenues minus cost of goods sold equals net income. True or False

b. the cost of goods sold consists of a random mixture of all goods available for sale. The weighted-average method assumes that ending inventory and cost of goods sold consist of a random mixture of all goods available for sale.

The weighted-average method assumes that: a. the first units purchased are the first ones sold. b. the cost of goods sold consists of a random mixture of all goods available for sale. c. the last units purchased are the first ones sold. d. each unit of inventory can be matched with its actual cost.

d. $170,000 Cost of goods available for sale = $50,000 + $150,000.$170,000 (Cost of goods sold) = $200,000 (Cost of goods available for sale) − $30,000 (Ending inventory).

Travis Corporation begins the year with $50,000 of tire inventory. The company purchases tires worth $150,000 during the year. At the end of the year, the purchase cost of remaining inventory is $30,000. What is the cost of goods sold? a. $200,000 b. $120,000 c. $80,000 d. $170,000

b. $65 operating income= gross profit -(operating expense[selling+general+administrative expense]) ($65 = $100 − $35).

Trivia Company reports a gross profit of $100, income tax expense of $15, selling, general, and administrative expenses of $35, nonoperating revenues of $10, and nonoperating expenses of $15. What is the company's operating income? a. $45 b. $65 c. $60 d. $50

a. $10,000 Model A would be reported in ending inventory at its original cost of $100 per unit because that's lower than its net realizable value of $120 per unit. Given that there are 100 units of Model A in ending inventory, the total amount of ending inventory to report for Model A = $100 × 100 = $10,000.

Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. Calculate the amount to be reported for ending inventory of Model A. a. $10,000 b. $11,000 c. $12,000

b. $2,000 Model B would be reported in ending inventory at its net realizable value of $40 per unit because that's lower than its original cost of $50 per unit. Given that there are 50 units of Model B in ending inventory, the total amount of ending inventory to report for Model B = $40 × 50 = $2,000.

Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. Calculate the amount to be reported for ending inventory of Model B. a. $2,500 b. $2,000 c. $2,250

b. Inventory for $500 cost of the inventory is $16,500 (or 100 × $100 + 50 × $50 + 20 × $200) net realizable value is $16,000 (or 100 × $100 + 50 × $40 + 20 × $200). adjusting entry would include a credit to Inventory for $500 (or $16,500 − $16,000).

Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. The year-end adjustment to mark inventory down to net realizable value will involve a credit to _____. a. Accounts Payable for $1,000 b. Inventory for $500 c. Sales Revenue for $1,500 d. Cost of Goods Sold for $500

debit (asking cost of goods sold) d. Cost of Goods Sold for $500 (debit) b. Inventory for $500 (credit) cost of the inventory is $16,500 (or 100 × $100 + 50 × $50 + 20 × $200) net realizable value is $16,000 (or 100 × $100 + 50 × $40 + 20 × $200). lowest cost adjusting entry would include a debit to Cost of Goods Sold for $500 (or $16,500 − $16,000).

Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. The year-end adjustment to mark inventory down to net realizable value will involve a debit to _____. (credit?) a. Sales Revenue for $1,500 b. Inventory for $500 c. Cash for $1,000 d. Cost of Goods Sold for $500

b. retailer

Walmart is an example of a: a. manufacturer b. retailer c. wholesaler

True cost of goods are rise=> expense high and income low=> low tax expense

When inventory costs are rising, LIFO results in lower tax expense when compared to FIFO. True or False

b. FIFO method cost rising => FIFO higher report cost faling=> LIFO higher report

When inventory costs are rising, the _____ results in a higher reported inventory. a. weighted-average method b. FIFO method c. LIFO method

b. Results in lower taxes During periods of rising costs, FIFO results in a (1) higher ending inventory, (2) lower cost of goods sold, and (3) higher reported profit than does LIFO. The primary benefit of choosing LIFO is tax savings.

Which of the following is an advantage of using LIFO in a period of rising costs? a. Results in lower cost of goods sold b. Results in lower taxes c. Results in higher reported profit d. Results in higher ending inventory

b. Interest expense non-operating expense is a cost that isn't directly related to core business operations. ex) interest payments on debt, restructuring costs, inventory write-offs and payments to settle lawsuits.

Which of the following is an example of a nonoperating expense for a merchandising company? a. Advertising expense b. Interest expense c. Depreciation expense d. Supplies expense

b. LIFO will report higher gross profit than FIFO. LIFO will report higher gross profit than FIFO, because that lower cost inventory is reported as cost of goods sold.

Which of the following is true of a period of falling inventory costs? a. LIFO will report higher cost of goods sold than FIFO. b. LIFO will report higher gross profit than FIFO. c. FIFO will report higher ending inventory than LIFO. d. LIFO will result in lower tax payments than FIFO.

c. Purchasing raw materials (1) purchasing raw materials (2) converting raw materials into finished products (3) selling finished products to merchandising companies.

Which of the following steps in the flow of inventory costs for a manufacturing company occurs first? a. Converting raw materials into finished products b. Selling finished products to merchandising companies c. Purchasing raw materials

False Wholesalers resell inventory to retail companies or professional users, while retail companies resell inventory to end users (buy inventory from wholesalers or manufacturing)

Wholesalers resell inventory to end users. True or False