AC 210- chapter 7 (learnsmart)

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet?

FIFO

At year end, CurlZ, Inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. CurlZ should report its inventory at ______.

1,000

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using last-in, first-out, Cost of Goods Sold equals ______.

33

Barrry Bees, Inc.'s Cost of Goods Sold equals $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals ____ days

36.5

If Barry Bees, Inc.'s days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals ____ times

5

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

LIFO

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased?

LIFO

Which inventory costing method uses the newest cost for Cost of Goods Sold on the income statement and the oldest cost for Inventory on the balance sheet?

LIFO

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?

Only the items that have market values lower than the costs will be written down.

Which of these inventory accounting methods are acceptable under US GAAP? (Check all that apply.)

Weighted average FIFO Specific identification LIFO

The assumption that a company makes about its inventory cost flow has ______. (Check all that apply.)

an effect on the company's balance sheet; an effect on the company's income statement

Specific identification is ______.

an inventory method that tracks which item is actually sold and debits Cost of Goods Sold for the actual cost of the item

FIFO, LIFO, and weighted average inventory costing methods are based on ______.

assumptions that accountants make about the flow of inventory costs

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

balance sheet as a current asset; Cost of Goods Sold on the income statement

Which financial statements are needed to calculate the inventory turnover ratio? (Check all that apply.)

balance sheet; income statement

It is more useful to compare a company's inventory turnover with its own results from prior periods than with other companies' ratios ______.

because companies may use different accounting methods which may cause the turnovers to vary significantly

Which company will have the higher number of days to sell? Company A whose cost of goods sold equals $1,000 and whose average inventory is $100. Company B whose cost of goods sold equals $2,000 and whose average inventory is $100.

company a

When using the specific identification inventory method, cost of goods sold equals the ______.

cost of the actual item sold

Inventory is reported as a(n) ______.

current asset on the balance sheet

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) _______. (Check all that apply.)

decrease in assets; decrease in stockholders' equity

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit

decreases

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, the 3 goods sold are assumed to be ______.

from the beginning inventory

To find a description of the inventory accounting method used by a company, you need to look at the ______.

notes to the financial statements

Companies generally report their accounting method for inventory in the ______.

notes to the the financial statements

The inventory turnover measures the ______.

number of times the average inventory balance is bought and sold

Which of the following would be considered merchandise inventory?

purchased finished goods

What is the inventory costing method that adds together the total cost of all goods available for sale during the period, and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory?

weighted average cost

In times of rising prices, why would a company choose LIFO over FIFO?

LIFO would result in a higher Cost of Goods Sold making the Income Tax Expense lower than FIFO.

Which of the following statements are true? (Check all that apply.)

Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business. Using a different inventory accounting method leads to reporting a different amount for cost of goods sold.

Which of these would you expect to have the highest inventory turnover ratio?

McDonald's

What may cause inventory turnover ratios to vary significantly between companies in the same industry? (Check all that apply.)

some companies may sell more lower-cost goods; some companies may sell fewer higher-cost goods

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

market value if lower than cost

_____ inventory consists of products acquired in a finished condition, ready for sale without further processing. (Enter one word per blank.)

merchandise

A company had beginning inventory of 3 units that cost $5 each. During the month, 17 units were purchased for $6 each. The company sold 15 units during the month and had 5 remaining in ending inventory. If the company uses FIFO instead of LIFO to calculate cost of goods sold, then cost of goods sold will be ______.

lower using FIFO, leading to higher gross profit and higher income taxes

When costs to purchase inventory are rising, using LIFO leads to reporting a ______ than FIFO.

lower value for inventory on the balance sheet

Acme Company's balance sheet shows three inventory accounts—raw materials, work in process, and finished goods. Acme Company must be a ______.

manufacturer

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 7 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 2 quilts remained unsold. If Mountain Made uses periodic weighted average cost, its Cost of Goods Sold for the month is ______.

1,656

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ______ times.

10

Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each. It sold 90 units for $25 each. Beta's weighted average cost is ______.

12.10

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using FIFO, its Inventory at December 31 is ______.

2,300

Lux Company started the month with 20 lamps in its beginning inventory that cost $30 each. During the month, Lux purchased 80 additional lamps for $31 each. At the end of the month, Lux counted its inventory and found that 25 lamps remained unsold. If Lux uses periodic weighted average cost, its Cost of Goods Sold for the month is ______.

2,310

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.

20000

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using a periodic specific identification, its Inventory after the December 24 sale is ______.

2250

Beginning Inventory consists of 4 items at $10 each. During the month, the company purchased 3 items for $11 each and it sold 3 items. Using first-in, first-out, Cost of Goods Sold equals ______.

30

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

3000

King Costume started the month with 8 masks in its beginning inventory that cost $10 each. During the month, King Costume purchased 40 additional masks for $12 each. At the end of the month, King counted its inventory and found that 5 masks remained unsold. If King Costume uses LIFO periodic, its Cost of Goods Sold for the month is ______.

510

Chicken Little started the month with 5 eggs in its inventory that cost $2 each. During the month, Chicken Little bought 30 more eggs that cost $2.50 each. At the end of the month, Chicken Little counted its inventory and found that 8 eggs remained unsold. If Chicken Little uses FIFO periodic, its Cost of Goods Sold for the month is ______.

65

If Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be ______.

73 days

Which company is most likely to have a higher inventory turnover than its competitors within the same industry?

A company with lower-priced goods and lower gross profit

______ inventory will enter the production process and become ______ inventory. Once complete, the goods will become ______ inventory.

Raw materials; work in process; finished goods

Which of the following may occur with a higher inventory turnover ratio? (Check all that apply.)

Reduction in obsolescence; Reduction in inventory storage costs

Which inventory method is typically used when accounting for expensive and unique inventory items?

Specific identification

Which statement is true?

Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO? (Check all that apply.)

gross profit will be lower; income tax expense will be lower; cost of goods sold will be higher

A company had beginning inventory of 5 units that cost $10 each. During the month, 15 units were purchased for $11 each. The company sold 12 units during the month and had 8 remaining in ending inventory. If the company uses FIFO to calculate cost of goods sold, then its gross profit will be $5 _____ than if it had used LIFO

higher

When costs to purchase inventory are falling over time, using LIFO leads to reporting ______ than FIFO.

higher Inventory on the balance sheet

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

higher; lower

Which of the following income statement line items are affected by the inventory method chosen? (Select all that apply.)

income before income tax expense' income from operations gross profit; net income; income tax expense

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.

income statement; balance sheet

Which of these might cause the value of inventory to fall below its original cost? (Check all that apply.)

increased competition; damage; obsolescence from going out of style

As inventory quality increases, its cost usually

increases

If you had 1 unit that cost $3 in beginning inventory, purchased 1 more at $2 and then later another at $1, which method would result in the higher Cost of Goods Sold and lower Gross Profit if you sold 2 of the units?

FIFO

The weighted average cost method uses the weighted average cost to calculate the value of ______. (Check all that apply.)

inventory cost of goods sold

True or false: Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.

true

Dumb Waiters, Inc. has 2 units in beginning inventory with a cost of $10. It purchased 3 more at $12. It sold 4 units during the period. What is the Cost of Goods Sold using the weighted average cost method?

44.80

How does the inventory costing methods affect the income statement when costs tend to rise over time?

Cost of Goods Sold on the income statement differs between the methods causing Income Tax Expense to differ.

Alpha Company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is ______.

4.25

Merchandise inventory ______. (Select all that apply.)

is reported as a current asset on the balance sheet consists of products acquired in a finished condition that are available for sale

If a company were to ignore the fact that the market value of its inventory is lower than its cost, then ______.

its assets and stockholders' equity would be overstated

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

good if the inventory turnover ratio is higher

The goals of inventory managers include ______. (Check all that apply.)

keeping the costs of buying and storing inventory as low as possible having enough inventory on hand to meet customer demand making sure that inventory quality meets customer expectations

On May 1, there were 4 inventory items that cost $30 each. On May 5, 2 items were purchased for $35 each. Given one item from the beginning inventory and one from the May 5 inventory were sold, under the ____ ____ inventory method, cost of goods sold would equal $65

specific identification