Accting Ch 6

Where is inventory reported in the financial statements?

Balance sheet as a current asset

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets increase by the sales price of the inventory,assets decrease by the cost of the inventory

Meller purchases inventory on account. As a results, Meller's

assets will increase.

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

Which inventory cost flow method approximates the physical flow of inventory items?

FIFO

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?

FIFO

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

Which of the following items are readily available from an inventory account under the perpetual inventory system?

beginning inventory balance,ending inventory balance,cost of units sold,individual purchases

Which inventory account consists of the cost of items for which the manufacturing process is complete?

Finished goods inventory

inventory consists of items for which the manufacturing process is complete.

Finished,product

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

Inventory

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

Inventory,Cost of Goods Sold

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

LIFO

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

LIFO

Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces?

LIFO

Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the

LIFO adjustment

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

What type of company purchases raw materials and makes goods to sell?

Manufacturers

The definition of inventory includes which of the following items?

Materials used currently in the production of goods to be sold,Items held for resale ,Items currently in production for future sale

Match the inventory cost flow assumptions on the left with the scenario on the right.

Most closely approximates the actual physical flow of inventory,Provides better matching of current revenues with current inventory cost

Gross Profit is

Net Sales Revenue minus Cost of Goods Sold.

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?

Perpetual inventory system

Match each scenario with the type of inventory system.

Peter Company recognizes cost of goods sold each time it recognizes a sale.,Sherman Company recognizes cost of goods sold after completing a physical inventory.

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production.

Raw materials inventory

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

Raw materials,Work in process,Finished goods

inventory includes the cost of components that will become part of the finished product but have not yet been used in production.

Raw,material

Which of the following methods are not used for inventory costing? (Select all that apply.)

Simple-average,NIFO

Which of the following methods are available for costing inventory? (Select all that apply.)

Specific identification,LIFO,Weighted-average,FIFO

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

Two

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

Work in process

Blank______ inventory refers to the products that have been started in production, but are still incomplete.

Work-in-process

Inventory is classified as

a current asset.

question

answers

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)

cost of goods sold.,inventory.

A periodic inventory system measures cost of goods sold by:

counting inventory at the end of the period.

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

first-in-first-out

The shipping term FOB stands for

free on board.

Net sales revenue minus cost of goods sold is

gross profit.

Freight-in is

included as a cost of inventory.

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

increase an asset and increase revenue,decrease an asset and increase an expense

Purchasing inventory on account:

increases assets ,increases liabilities

The Work-in-Process inventory account typically includes which costs? (Select all that apply.)

indirect manufacturing costs,direct labor,raw materials

Items held for sale in the normal course of business are referred to as .

inventories

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold. The reported amounts for ending inventory and cost of goods sold will not be the same across inventory reporting methods because:

inventory costs generally change over time.

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be than cost of goods sold determined using the FIFO inventory assumption.

larger

The cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

last-in-first-out

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

last-in-first-out

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be than ending inventory determined using the FIFO inventory assumption.

less

The Blank______ method of valuing inventory was developed to avoid reporting inventory at an amount that is Blank______ than the benefits it can provide.

lower of cost and net realizable value; greater

Companies that produce the inventory they sell are referred to as . (Enter one word per blank)

manufacturer

The specific identification method (select all that apply):

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

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a Blank______ income statement.

multiple-step

Revenues and expenses arising from activities that are not part of the company's operations are classified as Blank______ revenues and expenses.

nonoperating

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as revenues and expenses.

other

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO .

reserve

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the Blank______ method.

specific identification

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)

stockholders' equity increases,total assets increase,net income increases

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis.

FOB shipping point means title to the goods passes:

when they are shipped.

FOB destination means title to the goods passes

when they arrive at the destination.

Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use?

FIFO

Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

Debit Accounts Receivable $1,000; credit Sales Revenue $1,000,Debit Cost of Goods Sold $700; credit Inventory $700

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit Inventory

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

FIFO

For internal record keeping, most companies carry their inventory using the Blank______ basis.

FIFO

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are:

paid by the supplier.

Freight-in on inventory purchases is typically recognized as

part of the cost of purchasing inventory.

Under the inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.

perpetual

A multiple-step income statement reports multiple levels of .

profitability