Financial Accounting

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

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

- Inventory - Cost of Goods Sold

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

-inventory -cost of goods sold

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)

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

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 ______ basis.

FIFO

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

FIFO

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

FIFO

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

LIFO

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

LIFO reserve

Inventory is classified as _______

a current asset.

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

assets will increase

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

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.

less

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

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.

more

______ _______ 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 LIFO adjustment is used internally to convert the inventory

to the LIFO basis

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

- FIFO - LIFO - Specific identification - Weighted-average

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

- NIFO - Simple-average

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

Manufacturers

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

Perpetual inventory system

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

Two

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

LIFO

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

LIFO

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

LIFO

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

LIFO

Match each scenario with the type of inventory system.

Perpetual inventory system- Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. Periodic inventory system- Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

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 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

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 liabilities - increases assets

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

FIFO

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

LIFO FIFO

LIFO-matches Choice Provides better matching of current revenues with current inventory cost FIFO-matches Choice Most closely approximates the actual physical flow of inventory

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

included in Gerald's inventory

A multiple-step income statement reports multiple levels of______

income

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

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.

more

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.

more

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

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

paid by the supplier.

FOB shipping point means title to the goods passes:

when they are shipped

Select all that apply Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

-Work in process -Finished goods -Raw materials

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

Where is inventory reported in the financial statements?

Balance sheet as a current asset

The shipping term FOB stands for

free on board

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

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

Companies that produce the inventory they sell are referred to as _______

manufacturers

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

work in progress