ACCT 3210 Chapter 8 Preview: Inventories - Measurement

A(n) _____ inventory system adjusts inventory at the end of each reporting period. (Enter only one word.)

periodic

A _____ inventory system recognizes cost of goods sold each time a sale occurs; a _____ inventory system decreases inventory each time a sale occurs.

perpetual; perpetual

In a perpetual inventory system the inventory account is adjusted (Select all that apply.)

when inventory is purchased. when inventory is sold.

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.

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.

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

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%.

Use of LIFO inventory pools reduces the chance of unintentional LIFO layer _____. (Enter only one word.)

Blank 1: liquidations or liquidation

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

FIFO

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

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

LIFO

Which inventory costing method assumes that the units sold are the most recent units purchased?

LIFO

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.

Which of the following are disadvantages of unit LIFO? (Select all that apply.)

Significant recordkeeping costs Possibility of LIFO liquidation

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

True

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

a mixture of all the goods available for sale.

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

assure proper inventory cutoff.

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

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

combine a large variety of goods in one pool.

When inventory quantities _____ during a period, out-of-date inventory layers are liquidated and cost of goods sold will match noncurrent costs with current selling prices in a LIFO inventory costing system.

decline

A LIFO liquidation occurs when inventory quantities ______.

decrease

Inventory cost flow assumptions can be used to assign dollar amounts to (Select all that apply.)

ending inventory. goods sold.

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

gross profit

The definition of inventory includes which of the following items? (Select all that apply.)

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

The specific identification method of inventory costing matches each unit with

its actual cost.

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

last-in, first-out

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

layer; base

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

merchandising; manufacturing

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

net sales

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

periodic inventory system

A(n) _____ inventory system adjusts for each change caused by a purchase, a sale, or a return of merchandise. (Enter only one word.)

perpetual

The dollar-value LIFO (DVL) method (Select all that apply.)

reduces the risk of liquidation of layers. simplifies recordkeeping.

LIFO inventory pools

simplify recordkeeping.

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

specific identification

A DVL pool is made up of items

that are likely to have similar cost change pressures.

High recordkeeping costs and possible LIFO liquidation are disadvantages of

unit LIFO.

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.

A periodic inventory system (Select all that apply.)

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

The cost of inventory includes (Select all that apply.)

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

Ownership of inventory at the end of the accounting period is determined for (Select all that apply.)

goods shipped to customers. goods shipped by suppliers.

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

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

Cost flow _____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory. (Enter only one word.)

Blank 1: assumptions or assumption

What type of expenditures should be included in the cost of inventory of a manufacturing company? (Select all that apply.)

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

The LIFO reserve shows how ending inventory would have differed if the company had utilized _______ or ______, instead of LIFO. (Select all that apply.)

FIFO weighted-average

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

LIFO

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

LIFO

The goods a wholesale company purchases in finished form are referred to as what?

Merchandise inventory

Advantages of using LIFO inventory pools include which of the following? (Select all that apply.)

Simplify recordkeeping Reduce the risk of LIFO layer liquidations

Which of the following situations would result in a LIFO liquidation for a company that has 200 units in beginning inventory and sales of 1,000 units?

The company purchases 950 units during the year.

What is included in the cost of merchandise inventory? (Select all that apply.)

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

The dollar-value LIFO (DVL) inventory method

allows a broader range of goods to be included in pools.

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

cutoff

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

manufacturing