Accounting 210 Learnsmarts Chapter 7

Barry Bees, Inc.'s Cost of Goods Sold equal $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals _____ days (assume 365 days per year.)

36.5 days

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

In a periodic system, for Cost of Goods Sold to be updates, which of the following must occur? (Check all that apply.) a. take a physical count of inventory b. nothing has to be done. Cost of Goods Sold sold is kept up to date each time a product is sold c. compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale

a & c

Which financial statements are needed to calculate the inventory turnover ratio? (Check all that apply.) a. balance sheet b. statement of retained earnings c. income statement d. managements responsibility report e. statement of cash flows

a & c

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs? (Check all that apply.) a. LIFO b. Specific Identification c. FIFO

a & c

Assuming rising inventory prises, rank which inventory method results in the higher ending inventory value. List, from top to bottom, in order of highest ending inventory to lowest ending inventory value. a. LIFO b. FIFO c. Weighted average

b. FIFO c. Weighted average a. LIFO

Rank in order, from highest (top) to lowest (bottom), the anticipated inventory turnover ratios for the following companies. a. Toyota b. Walmart c. Bath Iron Works (sells battle ships to the US government)

b. Walmart a. Toyota c. Bath Iron Works

Applying the lower of cost or market rule results in inventory being reported at _____. a. the higher cost b. the higher market values c. the conservative amount

c

Goods in transit are _____. a. always included in the buying company's inventory b. always included in the selling company's inventory c. inventory items being transported from a seller to a buyer d. special equipment used by surveyors e. always included in the transportation company's inventory

c

When costs to purchase inventory are falling over time, using LIFO leads to reporting _____ cost of goods sold and _____ net income than FIFO. a. lower; lower b. higher; higher c. lower; higher d. higher' lower

c

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received? a. LIFO b. Weighted average c. FIFO

c

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? a. Specific identification b. LIFO c. FIFO d. Weighted average

c

True or False: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items. a. true b. false

true

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO periodic, its Cost of Goods Sold for the month is _____. a. $48 b. $252 c. $302 d. $310 e. $40

(10 gadgets x $5) + (42 gadgets x $6) = $302 c

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 _____.

(10 units x $10) + (2 units x $12) = $124

Mountain Made started the month with 3 quilts in it 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 remain unsold. If Mountain Made uses periodic weighted average cot, its Cost of Goods Sold for the month is _____. a. $1,670 b. $1,650 c. $1,640 d. $1,656 e. $414

(3 x $200) + (7 x $210) / 10 x 8 = $1,656 d

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 _____. a. $4.50 b. $5 c. $4 d. $4.25

(75 x $4) + (25 x $5) / 100 = $4.25 d

A _____ inventory turnover ratio may result in a reduction in storage and obsolescence costs as well as reduced borrowing. a. higher b. lower c. negative

a

Angus Company agreed to sell goods for Longhorn Company on consignment, but wasn't willing to take ownership of the goods in case they were difficult to sell. Which of the following statements is true? a. Longhorn owns the inventory and should report it on its balance sheet b. Angus owns the inventory, since possession is nine-tenths of the law, but should not report it on its balance sheet c. Longhorn owns the inventory, but should not report it on its balance sheet because Angus actually holds the inventory d. Angus owns the inventory and should report it on the balance sheet

a

FIFO, LIFO, and weighted average inventory costing methods are based on _____. a. assumptions that accountants make about the flow of inventory costs b. the actual physical flow of goods purchased and sold by a business c. surveys taken that ask real companies how they value their inventories d. the accounting equation: assets = liabilities + stockholders' equity

a

If companies are required to adopt IFRS, companies will _____. a. no longer be able to use LIFO b. have to switch to weighted average cost c. have to switch to FIFO d. no longer be able to use FIFO

a

Iris, Inc. uses FIFO for financial reporting purposes and LIFO for its income tax return. Iris' accounting treatment of its inventory is _____. a. not in accordance with the LIFO Conformity Rule b. in conformity with the IRS tax code c. in conformity with IFRS

a

The LIFO Conformity Rule requires that LIFO be used _____. a. for financial reporting if it is used on the company's tax return b. for both IFRS and GAAP c. every accounting period even when prices are rising

a

True or False: cost of goods sold may include the write-down of inventory to market even though the goods haven't been sold a. true b. false

a

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

a

When analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare the ratio with _____. a. prior years' ratios for the company b. other industries' ratios c. other companies' ratios

a

Which company will have the higher number of days to sell? a. Company A whose cost of goods sold equals $1,000 and whose average inventory is $100 b. Company B whose cost of goods sold equals $2,000 and whose average inventory is $100 c. There is not enough information to answer this question

a

Which of the following statements are true? (Check all that apply.) a. Managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fit their business b. GAAP require that all companies in the same industry use the same method of accounting for inventory c. Using a different inventory accounting method leads to reporting a different amount for cost of goods sold d. It doesn't matter which method you use to account for inventory as long as it mimics the actual physical flow of goods.

a & c

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts _____. (Check all that apply) a. detect theft b. detect shrinkage c. detect bookkeeping errors d. are not needed when a perpetual system is used

a, b, & c

Which of these accounting methods are acceptable under US GAAP? (Check all that apply.) a. Weighted average b. Specific identification c. LUDO d. FIFO e. FEFO f. LIFO g. Count and carry

a, b, d, & f

Acme Company's balance sheet shows three inventory accounts- raw materials, work in process, and finished goods. Acme Company must be a _____. a. service business b. manufacturer c. merchandiser d. wholesale distributor

b

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. a. 15 b. 10 c. 5

b

Days to sell measures the average number of _____. a. times per year receivables are collected b. days from the time the inventory is purchased to the time it is sold c. times per year inventory is purchased d. days' sales in accounts payable

b

To find a description of the inventory accounting method used by a company, you need to look at the _____. a. bottom section of the balance sheet b. notes to the financial statements c. balance sheet d. income statement

b

Which of the following is merchandise inventory? a. Equipment used to manufacture products which will be sold later b. Goods held for sale in the normal course of business c. Raw materials and work in process d. Office supplies that a company plans to use in the next few months

b

A lower of cost or market write-down _____. (Check all that apply.) a. is viewed by analysts as a positive sign because it means the inventory is easily replaced b. recorded incorrectly is one of the most common types of financial statement misstatements c. is views by analysts as a negative sign because it may indicate a problem with the company's inventory management d. is viewed by analysts as a positive sign because it indicates the company is good at selling products quickly

b & c

The weighted average cost method uses the weighted average cost to calculate the value of _____. (Check all that apply.) a. Sales b. Costs of Goods Sold c. Inventory d. Supplies e. Payment to Suppliers f. Equipment

b & c

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record _____. (Check all that apply.) a. an increase in its inventory b. a decrease in its inventory c. Cost of Goods Sold, which will be reported on the income statement d. Cost of Goods Sold, which will be reported on the balance sheet

b & c

What may cause inventory turnover ratios to vary significantly between companies in the same industry? (Check all that apply.) a. companies in the same industry will have the same inventory turnover ratios b. some companies may sell fewer higher-cost goods c. some companies may sell more lower-cost goods

b & c

Which of the following may occur with a higher inventory turnover ratio (Check all that apply.) a. increase in sales allowances b. reduction in inventory storage costs c. reduction in obsolescence d. reduction in bad debt expense

b & c

Which of the following statements are true? (Check all that apply.) a. an increased inventory balance is desirable if the resulting inventory turnover ratio is lower b. an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory c. an increased inventory balance is desirable if management is building up stock in anticipation of higher sales

b & c

The assumption that a company makes about its inventory cost flow has _____. (Check all that apply.) a. no effect on the company's income statement b. a significant effect on the company's income statement c. no effect on the company's balance sheet d. a significant effect on the company's balance sheet

b & d

Which of these might cause the value of inventory to fall below its original cost? (Check all that apply.) a. decrease in gross profit b. damage c. increased competition d. obsolescence

b, c, & d

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO? (Check all that apply.) a. Gross Profit will be higher b. Cost of Goods Sold will be higher c. Gross Profit will be lower d. Income Tax Expense will be higher e. Sales will be higher f. Income Tax Expense will be lower

b, c, & f

Why is inventory reported as a current asset? a. inventory is reported as a current asset b. inventory is not reported as a current asset; it is a non-current asset because inventory is held for sale in the ordinary course of business and is not available to meet current obligations c. inventory is reported as a current asset because it will be converted to cash within a year of the balance sheet date d. inventory is not reported as a current asset

c

The journal entry to record a write-down of inventory from cost to lower its lower market value includes a _____. (Check all that apply.) a. credit to Sales Revenue b. debit to Sales Revenue c. credit to Inventory d. debit to Cost of Goods Sold (or Inventory write-down) e. debit to Inventory

c & d

FIFO uses the _____ cost for Cost of Goods Sold on the income statement and the _____ cost for Inventory on the balance sheet. a. oldest; oldest b. newest; oldest c. newest; newest d. oldest; newest

d

Gross Profit equals _____. a. Revenues minus Inventory b. Beginning Inventory plus Purchases minus Ending Inventory c. Revenues minus Expenses d. Net Sales minus Cost of Goods Sold

d

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its _____ and inventory on its _____. a. income statement; income statement b. balance sheet; balance sheet c. balance sheet; income statement d. income statement; balance sheet

d

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) _____. (Check all that apply.) a. decerase in liabilities b. increase in assets c. increase in stockholders' equity d. decrease in stockholders' equity e. increase in liabilities f. decrease in assets

d & f

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

decreases

Delta Diamonds had a 5 one-carat diamonds available for sale this year: 1 purchased on 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 perpetual specific identification, its Inventory after the December 24 sale is _____. a. $2,300 b. $1,650 c. $2,240 d. $550 e. $2,250 f. $2,200

e

In a perpetual inventory system, Inventory is initially recorded at _____. a. gross profit b. expected profit c. expected selling price d. expected resale value e. cost

e

As inventory quality increases, its cost usually _____.

increases