Chapter 7 ACC 212

If a periodic inventory method is used, what is "forced out" using the cost of goods sold equation?

Cost of goods sold

What is the cost of goods available for sale allocated to?

Cost of goods sold reported on the income statement and ending inventory reported on the balance sheet

When costs are rising, which method would result in the largest amount of income tax expense?

FIFO

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

FIFO

Which of these inventory accounting methods are acceptable under US GAAP?

FIFO LIFO Weighted Average Specific identification

An increase in a company's inventory balance from a prior year is...

Good if the inventory turnover ratio is higher

What is the turnover ratio?

cost of goods sold/average inventory

Which of the following is merchandise inventory?

goods held for sale in the normal course of business

When costs to purchase inventory are rising, using LIFO leads to reporting ____ cost of goods sold and ____ net income than FIFO

higher; lower

Goods in transit are ________

inventory items being transported from a seller to a buyer

Applying the lower of cost or market rule results in inventory being reported at the....

market value if lower than cost

T or F: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items

true

Which of the following would be considered merchandise inventory?

Purchasing finished goods

At year-end, Waring Company determined that it should write down its inventory by $475. What account(s) will be included in the entry to write-down the inventory?

cost of goods sold inventory

Which financial statements are needed to calculate the inventory turnover ratio?

income statement balance sheet

Acme, Inc. had cost of goods sold of $2,000. If beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been...

$400

Which of the following describe the ways in which the cost of inventory is reported?

-as a current asset -as costs of goods sold -on the balance sheet -on the income statement

A company has inventory of 17 units at a cost of $11 each on May 1. On May 5, they purchased 11 units at $16 per unit. On May 12, they purchased 18 units at $17 per unit. On May 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at May 15 after the sale?

272

Numeric Company uses the periodic inventory method and had no beginning inventory. The company purchased 7 units of inventory at $8 per unit during January, 5 units of inventory at $10 per unit during February, and 6 units of inventory at $11.00 per unit during June. The company sold 6 units of inventory during October. There were no additional purchases or sales during the remainder of the year. If Numeric Company uses the weighted average method, what is the cost of its ending inventory?

115 Total units available for sale = 7+5+6 = 18 Units Cost of goods available for sale = (7*8+5*10+6*11) = 172 Cost of ending inventory = (172/18*12) = 115

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual FIFO, the cost of goods sold for the month ended May 31 equals

124

An understatement of the 2018 ending inventory will affect...

2019 beginning inventory 2019 cost of goods sold 2018 cost of goods sold

If a perpetual inventory method is used, what is "forced out" using the cost of goods sold equation?

Cost of ending inventory

Goods in transit that have terms FOB shipping point should be included in the ________ inventory.

Buyers

The gross profit percentage measures the percentage of profit earned and each dollar of sales before deducting all expenses other than the cost of good sold. This ratio is used to

Compare one company with another Make comparisons over time

What effect does the inventory costing method have on the income statement? The inventory methods affected the amount of the ______.

Cost of Goods sold Gross profit Income from operations Income before income tax expense income tax expense net income

Gross profit is....

Net Sales - COGS a subtotal on the income statement

Which of the following can be used to calculate cost of goods sold?

Net sales minus gross profit

The ______ Inventory system requires that the inventory account be updated only at the end of the accounting period

Periodic

Which of these will require a credit to the inventory account in a perpetual inventory system?

Selling inventory on account Selling inventory for cash

The cost of carrying inventory include the costs of _______.

Spoilage storage theft Obsolescence

A company had inventory on July 1 of 5 units at a cost of $16 each. On July 2, they purchased 9 units at $28 each. On July 6 they purchased 5 units at $25 each. On July 8, 8 units were sold for $58 each. Using the LIFO periodic inventory method, what was the value of the inventory on July 8 after the sale?

Units available for sale = 5 + 9 + 5 = 19 Units in ending inventory = Units available for sale of 19 − Units sold of 8 = 11 Cost of ending inventory = (5 units × $16 per unit) + (6 units × $28 per unit) = $248

Raw materials that have been moved into the production process become _______ inventory.

Work in process

Which of the following inventories are held and reported by a manufacturer?

Work in process inventory

If a new company calculates the average cost of its inventory by adding together the total cost of all purchases and then dividing it by the number of units purchased during the period, it is using the weighted _______ cost method.

average

inventory Is reported on the ______. Later when inventory is sold, it becomes ________.

balance sheet as a current asset; cost of goods sold on the income statement.

Which of these might cause the value of inventory to fall below its original cost?

damage increased competition obsolescence from going out of style

Assuming sales remain unchanged if cost of goods sold increases then gross profit...

decreases

Which of the following are goals of a manager charged with overseeing inventory?

-maintaining a sufficient quantity of inventory -minimizing the cost of carrying inventory -ensuring inventory quality meets the customers' expectations and company standards.

Accounts Payable is

Credited for purchases made on account Debuted when amounts owed are paid

Cable Knit, Inc. reported cost of goods sold of $3,800 for the current year. Its beginning inventory was $3,900 and its ending inventory was $1,400. What was the amount of purchases made during the year?

1300

What is the term used to describe the process of buying and selling inventory?

Inventory turnover

Spree Company sold $769,300 of goods during the year at a cost of goods sold of $548,600. Inventory was $31,283 at the beginning of the year and $35,538 at the end of the year. What was the inventory turnover ratio for the year?

Inventory turnover ratio = 548600/33410.50 = 16.4

If a company assumes that its inventory costs flow out in the opposite order from which of the goods were purchased, it uses _____ to value its inventory.

LIFO