BA Ch 6 smartbook

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

LIFO

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

LIFO

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

lower

Freight-in is

included as a cost of inventory.

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

Manufacturers

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

indirect manufacturing costs raw materials direct labor

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

Cost of goods sold divided by average inventory is

inventory turnover

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

inventory; selling expense

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

manufacturers

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

multiple-step

Beginning inventory is $60,000. Purchases of inventory during the year are $100,000. Cost of goods sold is $120,000. What is ending inventory?

$40,000

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

specific identification

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.

higher

The inventory turnover ratio directly measures ______.

the times per period the average inventory balance is sold

The LIFO difference (sometimes called LIFO reserve) helps investors

compare the performance of companies that use different cost flow assumptions.

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is:

correct

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

included in Gerald's inventory.

Average days in inventory measures

the average time the inventory is held.

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

unique products. very expensive products.

FOB destination means title to the goods passes

when they arrive at the destination.

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

LIFO

When prices rise, which inventory method tends to result in lower income and a lower tax liability?

LIFO

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

LIFO only

- companies purchase inventory that is primarily in finished form and ready for resale to customers.

Merchandising

Average days in inventory is calculated as

365 divided by the inventory turnover ratio.

Which of the following statements is correct?

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

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

Cost of Goods Sold Inventory

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

Debit Inventory

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

FIFO

The cost of goods not yet sold is recorded in the ______ account, whereas the cost of goods that are sold to customers is recorded in _____.

Inventory; Cost of Goods Sold

The definition of inventory includes which of the following items?

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

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

Perpetual inventory system

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

a mixture of all the goods available for sale.

Which of the following represent reasons why managers closely monitor inventory levels?

To minimize costs of inventory write-downs due to obsolete inventory. To ensure that sufficient units are available.

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

assets will increase.

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

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

Catalina Bookstore pays freight on books shipped to its store. The shipping cost is debited to Inventory. When the books are sold, the freight costs pertaining to the books are included in:

cost of goods sold

Net sales revenue minus cost of goods sold is

gross profit.

Purchasing inventory on account:

increases liabilities increases assets

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

incurred several years earlier.

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

inventory

Gross Profit is

net sales - cost of goods sold

The FIFO inventory method assumes that units remaining in ending inventory are the - units purchased. Note: this question is asking about ending inventory. (Enter one word per blank)

newest

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

Work-in-process

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

nonoperating

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

Work in process

The LIFO inventory method assumes that the units sold are

the most recent units purchased.

A multiple-step income statement reports multiple levels of .

income

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

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

nonoperating

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming -.

outdated

Costs related to manufacturing products typically include

overhead direct labor raw materials

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

Finished goods 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

The weighted average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale.

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.

The purchase discount term, 2/10, n/30, means that the purchaser ______.

has 10 days from the purchase date in which to pay and receive a 2% discount

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

the oldest units in inventory.

FOB shipping point means title to the goods passes

when they are shipped

If a company pays freight-in for its inventory, that amount will later be included in

cost of goods sold.

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

Inventory is classified as

current asset

Which of the following costs are recognized in work in process for a manufacturing company?

Raw materials Direct labor Overhead

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

Raw materials Work in process Finished goods

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

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.

$20,000

Prather Inc. has sales of $100,000, sales returns of $5,000, cost of goods sold of $60,000, and selling expenses of $3,000. Calculate gross profit.

$35,000

Beginning inventory is $20,000. Purchases of inventory during the year are $100,000. Ending inventory is $50,000. What is cost of goods sold?

$70,000

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was:

$990

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

Adams Company produces one-of-a-kind products.

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

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

Two

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

FIFO

Bernie Corp. uses the FIFO inventory method to calculate cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes?

FIFO and weighted-average only

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

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

LIFO

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

LIFO

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

LIFO

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

LIFO reserve

Which disclosure allows financial statement users to compare companies that use LIFO to companies that use FIFO?

LIFO reserve

True or false: A company may use more than one inventory cost method.

True

True or false: When goods are sold, the cost of the goods is transferred from the Inventory account to the Cost of Goods Sold account.

True

If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____. (Answer from the viewpoint of the buyer.)

credit to Inventory. debit to Accounts Payable

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

finished goods

The FIFO method assumes that units sold are the - units acquired. (Enter one word per blank)

first

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

lower of cost and net realizable value; greater

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

Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies.

merchandising

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.

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

raw materials

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