Chapter 6 - ACTG 2200

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

Debit Inventory

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

A multiple-step income statement reports multiple levels of

income, earnings, profit, or profitability

Which of the following inventory systems requires a physical count in order to determine cost of goods sold?

Periodic inventory system

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

assets will increase.

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

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

inventory.

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

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 definition of inventory includes which of the following items?

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

Perpetual inventory system

- Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. - "Inventory"

Periodic inventory system

- Shelly Company must first take a physical inventory to determine the cost of inventory still on hand. - "Purchases"

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.

In a perpetual inventory system, when inventory is purchased, the _________ account is debited, whereas in a periodic system, the _______ account is debited.

Blank 1: inventory Blank 2: purchases

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

FIFO

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

FIFO

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

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

LIFO reserve

If a company uses the periodic inventory system, how many entries are made when a sale occurs?

One

Which of the following methods are NOT used for inventory costing? (Select all that apply.) Specific identification LIFO Simple-average FIFO NIFO Weighted-average

Simple-average NIFO

If a company uses the perpetual inventory system, how many entries are made when a sale occurs?

Two

In a perpetual inventory system, freight costs on purchases are

added to the inventory account.

Accounting errors must be corrected

as soon as they are discovered.

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

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

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 shipping term FOB stands for

free on board.

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, greater, more, or larger

Robert Skinner, an accountant, discovers an error in accounting for an inventory purchase. He should correct the error

immediately

Purchasing inventory on account:

increases liabilities increases assets

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

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

outdated, spoiled, obsolete, old, expired, or aged

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

A ____________ inventory system updates the inventory account each time a sale or purchase is made, whereas a _________ inventory system calculates cost of goods sold and ending inventory at the end of the reporting period.

perpetual; periodic

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.