MGT200 CHP6

Perpetual matches

"Inventory"

When a sale occurs under the periodic inventory system, we record:

only the sale, but not the related cost of goods sold

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

One: In a periodic system, the cost of goods sold entry is made at the end of the period.

Periodic inventory system

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

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

assets will increase.

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

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.

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

Companies that produce the inventory they sell are referred to as

manufactures.

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

LIFO reserve

Which of the following methods are not used for inventory costing?

NIFO Simple-average

Perpetual inventory system

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

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

Perpetual inventory system

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

FIFO

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

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

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

LIFO

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

In a perpetual inventory system, purchase discounts and purchase returns

directly reduce the Inventory account balance.

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

inventory, purchase

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

outdated

Inventory is classified as

A current asset.

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

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

Mueller Inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be

a separate freight-in account.

The shipping term FOB stands for

free on board.

Purchasing inventory on account:

increases liabilities increases assets

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

INFO

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

Inventory Cost of Goods Sold

Where is inventory reported in the financial statements?

Balance sheet as a current asset

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

FIFO

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

paid by the supplier.

Purchase returns are recorded in a separate contra purchase account in a ______ inventory system.

periodic

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

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

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

included in Gerald's inventory.

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

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

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

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

Periodic

"Purchases"

Which of the following methods are available for costing inventory?

-FIFO -LIFO -Weighted-average -Specific identification

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

Debit Inventory

True or false: Under the perpetual inventory system, an adjusting entry is needed to close temporary inventory-related accounts, record cost of goods sold, and adjust the inventory account balance.

False Rationale: Under the perpetual system, the inventory account is continually updated and cost of goods sold recognized at the time of sale.

The definition of inventory includes which of the following items?

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

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

Lifo Reserve

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

Manufacturers

In a perpetual inventory system, freight costs on purchases are

a separate freight-in account.

in a perpetual inventory system, freight costs on purchases are

added to the inventory account.

In a periodic inventory system, purchase returns

are recorded in a separate contra purchases account

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.

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

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

Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:

overstated net income

Period-end adjustments are necessary for the:

periodic inventory system

Purchase discounts and purchase returns are recorded as a reduction in inventory cost in a ______ inventory system.

perpetual

The ______ inventory system records all inventory-related transactions in the Inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The _______ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

perpetual; periodic

A multiple-step income statement reports multiple levels of

profitability

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)

total assets increase stockholders' equity increases net income increases

Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:

understated assets, retained earnings, and net income

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

wer of cost and net realizable value; greater

FOB shipping point means title to the goods passes

when they are shipped.