Chapter 6 accounting

When inventory is sold, the cost of inventory is recognized as a(n)

expense

What is freight-in?

Freight-in is added to the cost of inventory

Which of the following items are readily available from an inventory account under the perpetual inventory system? cost of units sold freight-out ending inventory balance beginning inventory balance individual purchases sales revenue

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

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

outdated

Where is inventory reported in the financial statements? Statement of cash flows as an investing activity Balance sheet as a current asset Income statement as revenue Balance sheet as a noncurrent asset

Balance sheet as a current asset

Inventory is classified as a revenue. a noncurrent asset. a current asset. a current liability.

a current asset

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to: increase an asset and decrease an expense increase an asset and increase revenue decrease an asset and decrease revenue decrease an asset and increase an expense

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

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: revenue inventory gains and losses operating expenses

inventory

True or false: The inventory cost flow assumption must match the physical flow of inventory units.

False Reason: For most companies, the physical flow resembles FIFO; however, LIFO and weighted-average may be utilized.

Inventory not yet sold is classified as a(n) (blank) in the (blank) (blank)

asset Balance sheet

Gross profit divided by net sales equals gross profit ratio. net income. average days in inventory. inventory turnover.

gross profit ratio.

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

perpetual

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. credit to Cash debit to Accounts Payable debit to Purchase Returns credit to Accounts Receivable

credit to inventory debit to accounts payable

Using the perpetual inventory system, what is the effect of a sale of inventory on assets? Multiple select question. assets decrease by the sales price of the inventory assets increase by the sales price of the inventory assets increase by the cost of the inventory assets decrease by the cost of the inventory

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

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to: Multiple select question. decrease an asset and decrease revenue increase an asset and decrease an expense increase an asset and increase revenue decrease an asset and increase an expense

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

Purchasing inventory on account: Multiple select question. increases liabilities decreases equity decreases assets increases equity increases assets

increases liabilities Increases assets

Cellem, Inc.'s beginning inventory is $4,000 and its ending inventory is $2,000. The inventory turnover is 6. Cost of goods sold must equal: $18,000 $24,000 $36,000 $12,000

$18,000

Periodic inventory system

Shelly company must first take a physical inventory to determine the cost of inventory still on hand

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

FIFO

Periodic inventory system

Shermman company recognizes cost of goods sold after completing a physical inventory

What is freight-out?

Freight-out is recognized as operating expense

The gross profit ratio is calculated as gross profit divided by net sales. net sales divided by cost of goods sold. cost of goods sold divided by ending inventory. gross profit divided by cost of goods sold.

Gross profit divided by net sales

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are treated as a selling expense. included in Gerald's inventory. paid by the supplier.

Included in Geralds inventory

Average days in inventory measures average time from the sale of inventory to the collection from customers. the approximate number of days the average inventory is held. average gross profit for the year. how many times the average inventory was sold per year.

the approximate number of days the average inventory is held.

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income? Multiple choice question. LIFO FIFO Weighted-average

LIFO

Perpetual inventory system

Neumann company can determine the cost of inventory still on hand by referring to the inventory account

A multiple-step income statement reports multiple levels of

income

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.

multi-step

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption? Multiple choice question. Weighted-average LIFO FIFO

FIFO

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? FIFO Weighted-average LIFO

LIFO

The definition of inventory includes which of the following items? Materials used currently in the production of goods to be sold Items held for use or disposal Items currently in production for future sale Items held for resale

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

To calculate the amount in the inventory account, which of the following occurs? Selling expense is added to the cost of inventory Purchase returns are subtracted from the cost of inventory Freight-in is deducted from the cost of inventory Freight-in is added to the cost of inventory Purchase discounts are added to the cost of inventory Purchase discounts are subtracted from the cost of inventory Purchase returns are added to the cost of inventory

Purchase returns are subtracted from the cost of inventory Freight-in is added tot the cost of inventory Purchase discounts are subtracted from the cost of inventory

Freight charges are ____ to the cost of inventory, while purchase returns and purchase discounts are ___ from the cost of inventory by most companies.

added deducted

The ratio that indicates the approximate number of days the average inventory is held is referred to as the: weighted-average inventory average days in inventory average inventory sales

average days in inventory

Under a perpetual inventory system, the entry to record the return of goods previously purchased on the account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is: incorrect and will cause liabilities to be overstated incorrect and will cause assets to be overstated incorrect and will cause assets to be understated correct

correct

The definition of inventory includes which of the following items? Items currently in production for future sale Items held for resale Materials used currently in the production of goods to be sold Items held for use or disposal

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

What most closely approximates the actual physical flow of inventory?

FIFO

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs? Periodic inventory system Perpetual inventory system Both periodic and perpetual inventory systems

Perpetual inventory system

Perpetual inventory system

Peter company recognizes cost of goods sold each time it recognizes a sale

Where is inventory reported in the financial statements? Multiple choice question. Balance sheet as a noncurrent asset Balance sheet as a current asset Statement of cash flows as an investing activity Income statement as revenue

Balance sheet as a current asset

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? Multiple select question. Debit Cost of Goods Sold $1,000; credit Inventory $1,000 Debit Cost of Goods Sold $700; credit Net Income $300; credit Service Revenues $1,000 Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

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

Which of the following is a correct interpretation of the information provided by the gross profit ratio? It measures the amount by which the inventory sale exceeds its cost. It measures the percentage of each sales dollar available as income. It measures the amount by which sales exceed operating expenses.

It measures the amount by which the inventory sale exceeds its cost.

What provides better matching of current reveenues with current inventory cost?

LIFO

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. To increase the average days in inventory.

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

A periodic inventory system measures cost of goods sold by: Multiple choice question. debiting cost of goods sold for all purchases of inventory. making entries to the inventory account for each purchase and sale. estimating the amount of inventory sold. counting inventory at the end of the period.

counting inventory at the end of the period.

The shipping term FOB stands for freight over board. freight on board. free on board. free onto buyer.

free on board

Steiner Company's average days in inventory has decreased during the current year as compared to the prior year. From this information, we can conclude that Steiner has a higher inventory turnover ratio. is selling its inventory slower. is selling its inventory faster. has a lower inventory turnover ratio.

has a higher inventory turnover ratio. is selling its inventory faster.

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: operating expenses inventory gains and losses revenue

inventory

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

inventory

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: Multiple choice question. Raw Materials Purchases Inventory Cost of Goods Sold

inventory

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are: treated as a selling expense. paid by the supplier. deducted from Ronald's inventory.

paid by the supplier

Weighted-average unit cost is determined by dividing cost of goods available for sale by Multiple choice question. quantity in beginning inventory. quantity most recently purchased. quantity in ending inventory. total quantity available for sale.

total quantity available for sale

FOB destination means title to the goods passes when they arrive at the destination. when they are shipped to the customer.

when they arrive at the destination

Select all that apply Which of these would explain an increase in a company's inventory turnover ratio? A decrease in inventory. A decrease in cost of goods sold. An increase in the demand for the company's products.

A decrease in inventory. An increase in the demand for the company's products.

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? Multiple choice question. Debit Cost of Goods Sold $1,500; credit Sales Revenue $1,500 Debit Inventory $1,500; credit Cost of Goods Sold $1,500 Debit Accounts Receivable $2,000; credit Inventory $2,000 Debit Cost of Goods Sold $1,500; credit Inventory $1,500

Debit costs of goods sold 1,500; credit inventory 1,500

Which of the following is a correct interpretation of the information provided by the gross profit ratio? It measures the percentage of each sales dollar available to cover nonoperating expenses. It measures the amount by which the sale of inventory exceeds its cost per dollar of sales. It measures the percentage of each sales dollar available as income.

It measures the amount by which the sale of inventory exceeds its cost per dollar of sales.

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

LIFO

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

LIFO

In a perpetual inventory system, when a company sells inventory on account, how many entries are required? Multiple choice question. Two Three Zero one

Two One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______. miscellaneous expenses; selling expense selling expense; cost of goods sold inventory; selling expense

inventory; selling expense

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.) Multiple select question. current assets. inventory. cost of goods sold. liabilities.

inventory cost of goods

FOB shipping point means title to the goods passes: when they arrive at the destination. when they are shipped.

when they are shipped

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals _____ times. 5 10 15

10 Reason: Inventory turnover ratio=cost of goods sold/average inventory or $10,000/ (($800 + $1,200)/2).

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) Multiple select question. net income increases total assets increase stockholders' equity increases total assets decrease stockholders' equity decreases

net income increases total assets increases stockholders equity increases

Meller purchases inventory on account. As a results, Meller's Multiple choice question. stockholders' equity will decrease. assets will increase. income will decrease. liabilities will decrease.

assets will increase

A periodic inventory system measures cost of goods sold by: Multiple choice question. counting inventory at the end of the period. estimating the amount of inventory sold. making entries to the inventory account for each purchase and sale. debiting cost of goods sold for all purchases of inventory.

counting inventory at the end of the period

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following? Debit Sales Revenue Debit Inventory Debit Purchases Debit Accounts Payable

debit inventory

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following? Multiple choice question. Debit Accounts Payable Debit Sales Revenue Debit Inventory Debit Purchases

debit inventory

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company is allowed to use either the FIFO or Weighted-average cost flow assumptions. is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions. is required to use the FIFO inventory cost flow assumption. is required to use the LIFO inventory cost flow assumption.

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.