Intermediate Accounting-Chapter 8

Which inventory system allocates cost of goods available for sale only at the end of each reporting period?

periodic inventory system

A _____ inventory system recognizes cost of goods sold each time a sale occurs; a _____ inventory system decreases inventory each time a sale occurs.

perpetual; perpetual

The FIFO method assumes that units sold are the _________ units acquired and that units remaining in ending inventory are the ________ units purchased.

first; last

A periodic inventory system (Select all that apply.)

-does not continuously track the quantity of merchandise. -does not continuously track the cost of merchandise sold.

The cost of inventory includes (Select all that apply.)

-expenditures to acquire the inventory -the cost to bring inventory to its desired location

Cost flow _____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory. (Enter only one word.)

Blank 1: assumptions or assumption

Items held for sale in the normal course of business are referred to as ________. (Enter only one word.)

Blank 1: inventory or inventories

Fill in the blanks to complete the sentence. A(n) _____ inventory system adjusts for each change caused by a purchase, a sale, or a return of merchandise. (Enter only one word.)

Blank 1: perpetual

Which inventory costing method assumes that items in ending inventory are the most recently acquired?

FIFO

True or false: A periodic inventory system allows management to determine the amount of goods on hand without having to take a physical count.

False

The dollar-value LIFO method extends the concept of inventory pools by allowing companies to

combine a large variety of goods in one pool.

Dollar amounts are assigned to goods sold and goods remaining in ending inventory by making an assumption regarding what?

How units of goods and their associated costs flow through the system.

Which inventory costing method assumes that the units sold are the most recent units purchased?

LIFO

Orange Co., a computer retailer, shows the following selected assets on its balance sheet. Indicate which account would be properly classified as inventory.

Mouse pads

True or false: Dollar-value LIFO allows a company to combine a large variety of goods into one pool.

True

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

a mixture of all the goods available for sale.

The average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale.

In a perpetual inventory system the inventory account is

continually adjusted.

Select all that apply What type of expenditures should be included in the cost of inventory of a manufacturing company? (Select all that apply.)

-Expenditures necessary to acquire inventory. -Expenditures necessary to bring inventory to sales location.

Select all that apply What is included in the cost of merchandise inventory? (Select all that apply.)

-The purchase price of the goods. -Necessary costs incurred to get the goods in location for sale.

Select all that apply Which of the following accounts are typically reported on the balance sheet of a manufacturing company? (Select all that apply.)

-finished goods -work in process -raw materials

Select all that apply Ownership of inventory at the end of the accounting period is determined for (Select all that apply.)

-goods shipped by suppliers. -goods shipped to customers.

Finished goods is a type of inventory found on a _____ company's balance sheet.

manufacturing

A _____ company resells goods while a _____ company produces goods.

merchandising; manufacturing

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

work in process

Smith Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $690,000. Its inventory as of December 31, 2016, was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2016?

$723,600- Reason: $722,000 giving 2 layers of $690,000 and $32,000. $690,000 x 1.0 = $690,000 $32,000 x 1.05 = $33,600 $690,000 + $33,600 = $723,600

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer?

2

Assuming that prices rise over time, which inventory cost flow assumption will result in the highest cost of goods sold?

LIFO

Which inventory costing method matches each unit sold with its actual cost?

Specific identification

Determining ownership of goods that are in transit at the end of the accounting period is important to

assure proper inventory cutoff.

A periodic inventory system allocates cost of goods available for sale _____; a perpetual inventory system allocates cost of goods available for sale _____.

at the end of the period; each time goods are sold

The specific identification method of inventory costing matches each unit with

its actual cost.

The _____ inventory method assumes that the units in ending inventory were the items acquired first.

last-in, first-out

The layer year cost index is calculated by dividing the cost in ______ year by the cost in ______ year.

layer; base

The LIFO inventory method assumes that the units sold are

the most recent units purchased.

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

the oldest units in inventory.

Western Company adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of $715,000. Its inventory as of December 31, 2016, was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31, 2016?

$758,200- Reason: $755,000 giving 2 layers of $715,000 and $40,000. $715,000 x 1.0 = $715,000 $40,000 x 1.08 = $43,200 $715,000 + $43,200 = $758,200