Accounting Ch. 6 smaartbook

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for...

- inventory - cost of goods sold

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

-Cost of Goods Sold -Inventory

Which of the following methods are available for costing inventory?

-FIFO -Weighted-average -LIFO -Specific identification

Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

-Finished goods -Raw materials -Work in process

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

-Inventory -Cost of Goods Sold

The definition of inventory includes which of the following items?

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

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

-NIFO -Simple-average

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

-assets decrease by the cost of the inventory -assets increase by the sales price of the inventory

Purchasing inventory on account:

-increases assets -increases liabilities

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

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

1

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

Manufacturers

Which of the following inventory systems requires a physical count in order to determine cost of goods sold?

Periodic inventory system

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

Perpetual inventory system

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

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

Where is inventory reported in the financial statements?

balance sheet as a current asset

Under the periodic inventory system, purchase returns and purchase discounts accounts represent...

contra purchases accounts.

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

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

LIFO

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

LIFO reserve

FOB destination means title to the goods passes...

when they arrive at the destination.

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

work in progress

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

2

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

Perpetual inventory system

Peter Company recognizes cost of goods sold each time it recognizes a sale

Periodic inventory system

Sherman Company recognizes cost of goods sold after completing a physical inventory

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

assests will increase

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

debit inventory

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

fifo

The shipping term FOB stands for...

free on board

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

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

incurred several years earlier.

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

inventory

In a perpetual inventory system, when inventory is purchased, the_______________account is debited, whereas in a periodic system, the________________account is debited

inventory; purchases

In a perpetual inventory system, when inventory is purchased, the_____________account is debited, whereas in a periodic system, the_____________account is debited.

inventory; purchases

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

lower of cost and net realizable value; greater

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.

multi step

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

old

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

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

A multiple-step income statement reports multiple levels of...

profit

FOB shipping point means title to the goods passes...

when they are shipped.