Ch 8 LearnSmart

Which of the following would be recognized as inventory?

An item that is manufactured and held for future resale.

Match the account names with the correct financial statement.

Balance Sheet-Inventory Income Statement-Cost of Goods Sold

which of the following correctly reflects the determination of COGS in a periodic inventory system?

COGS=BI+NP-EI

Determining the physical quantities of goods is the first step in measuring what?

Cost of Goods Sold and Inventory

Expense is classified as____

Cost of goods sold

Which of the following inventory methods result in the same ending inventory and cost of goods sold?

FIFO perpetual inventory and FIFO periodic inventory system

The FIFO method assumes that units sold are the___ units acquired.

First

Which of the following are included in inventory?

Goods that manufactures produce for resale and assets a retail company acquires for resale.

In a perpetual inventory system, which buyer accounts are reduced at the time a purchase return occurs?

Inventory and accounts payable

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

LIFO

Turn Co utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes?

LIFO only

Use of LIFO inventory pools reduces the chance of unintentional LIFO layer___

Liquidations

Inventory for a ____ company consists of raw materials, work in process, and finished goods.

Manufacturing

Perpetual inventory system

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

Inventory units are grouped in LIFO inventory pools based on similar ____ characteristics.

Physical

The cost of components purchased from outside companies that will become part of the finished product are referred to as what?

Raw materials

Timothy Co purchases merchandise costing $100,000. The payment terms are 3/10, n/30. If Timothy Co. utilizes the gross method and pays the amount within the 10-day period.

The cost of inventory will be reduced by $3000

Which of the following cost flow assumptions currently are acceptable under US GAAP?

Weighted-average FIFO LIFO

The average cost method assumes that the ending inventory consists of

a mixture of all the goods available for sale.

In a periodic inventory system, purchase returns___

are recorded in a separate contra purchases account.

Unsold inventory is classified as a(n) ____ on the _____ _____.

asset; balance sheet

Cost flow ____ are made to assign dollar amounts to the physical quantities of goods sold and remaining in ending inventory.

assumptions

Within LIFO inventory pools, all purchases during the period are considered to be made

at the same cost and at the same time

Arranging for another company to sell a company' products is referred to as a _____

consignment

At the end of an accounting period,it is important to ensure proper inventory___to determine the ownership of goods in transit.

cutoff

A periodic inventory system

does not continuously track the cost of merchandise sold.

When inventory is sold, the cost of inventory is recognized as a(n) _____

expense

Once products are completely manufactured, the related costs are transferred to _______>

finished goods

Perpetual inventory

freight is added directly to the inventory account

Asset is classified as___

inventory

The cost of freight-in paid by the purchaser is most commonly included in the cost of

inventory

Steiner Company's average days in inventory as decreased during 2012 as compared to the prior year. From this information, we can conclude that Steiner___

is selling its inventory faster and has a higher inventory turnover ratio.

FIFO

most closely approximates the actual physical flow of inventory

In a periodic inventory system, items that were stolen can

not be identified by reviewing the inventory account.

Work in process contains costs of inventory items that are

not yet complete

Freight-in on purchases is typically recognized as

part of the cost of purchasing inventory.

A physical count of inventory is necessary in a(n) _____ inventory system to determine cost of goods sold.

periodic

When a company determines the quantity of inventory items, it must consider...

units on consignment, units in transit, and units it currently possesses.

Under the dollar-value LIFO method, inventory is viewed as a quantity of _____, rather than a quantity of _______.

value; goods

The LIFO reserve shows how ending inventory would have differed if the company had utilized _____ or _____, instead of LIFO.

Weighted-average and FIFO

A ______ inventory system continuously records changes in inventory, whereas the _____ inventory system makes an adjustment at the end of the period.

perpetual; periodic

LIFO

provides better matching of current revenues with current inventory cost

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

inventory.

Consistent with IFRS, which of the following cost flow assumptions are currently permitted?

FIFO; weighted-average

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

LIFO

What is included in the cost of merchandise inventory?

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

The gross profit ratio highlights the relationship between which of the following?

Net sales revenue and cost of goods sold

In a(n) _____ inventory system, cost of goods sold is recorded at the end of the accounting period.

Periodic

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

Periodic

Which inventory system allocates cost of goods available for sale only from time to time??

Periodic inventory system

In a(n) _____ inventory system, the average cost method is applied by computing a moving average unit cost each time inventory is purchased.

Perpetual

The dollar-value LIFO (DVL) method

Reduces the risk of liquidation of layers and simplifies recordkeeping.

Which of following is not a characteristic of an asset classified as inventory?

The item is currently used as part of the company's day to day operations.

When merchandise is shipped fob shipping point, who includes the inventory on their balance sheet when the goods are with the common carrier?

The purchaser.

In a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order...

Work in Process Finished goods Cost of Goods Sold

Periodic inventory

a separate freight-in account is used

Rank the steps necessary to calculate ending inventory using the dollar-value LIFO method

1.Convert the ending inventory to base year cost 2.compare ending inventory to beginning inventory at base year cost. 3.identify any new layers and multiply by acquisition year index. 4.Total the cost to determine ending inventory

Place the following in the proper order to reflect the typical cost flow for a manufacturing company.

1.Raw materials are used and recorded in work in progress. 2.Direct labor is applied to work in process. 3.Manufacturing overhead is applied to work in progress. 4.Costs of completed units are transferred to finished goods. 5.Costs flow to cost of goods sold when goods are sold.

Rudy Company reports gross sales revenue of $5.2 million, net sales revenue of $5 million, and cost of goods sold of $3 million. Rounding to the nearest percent, the company's gross profit ration would be___

40% ($5m-$3m)/$5m

Neumann Co places 100 units on consignment with Hartman Consignments Co. At the end of the accounting period, 45 of those units remain unsold. How many units should be included in Neumann's ending inventory?

45 units

The specific identification method___

matches each unit of inventory with its actual cost and would be beneficial to a company that makes fine jewelry.

Weighted-average unit cost is determined by dividing cost of goods available for sale by

total quantity available for sale.

A perpetual inventory system is designed to

track inventory quantities from purchase to sale

A company is most likely to utilize the specific identification method if its inventory consists of

very expensive products and unique products

In a perpetual inventory system the inventory account is adjusted

when inventory is sold and when inventory is purchased.

Pernell Co reported LIFO reserves of $150000 and $100000 in 2010 and 2009, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's cost of goods sold for the 2010 fiscal year would have been...

$50000 lower if it had used FIFO

Smith Co has 150 units costing $450 in beginning inventory. During the year, the company purchases 1000 units for a total cost of $3300. At the end of the year, a physical count reveals that 200 units remain in the ending inventory. If the company uses the FIFO method, ending inventory will be

$660 200 units remain. (3300/1000)=3.30x200=$660

Parker Co reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Its inventory balance was $150,000 ad the beginning of the accounting period and $200,000 at the end of the accounting period. The company's inventory turnover ratio is closet to ____

20 $3.5m/(150000+200000/2)

A LIFO liquidation occurs when inventory quantities____.

Decline

Which of the following are characteristics of inventory?

It will be sold in the normal course of business and it will be used in the production of goods to be sold.

If goods are shipped fob destination, the ___ seller usually is responsible for shipping.

Seller

Periodic inventory system

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

Daryl Corp. purchases 10,000 units of inventory on account for $50,000. Two days after receiving the inventory, Daryl discovers that 1000 units are defective and returns the defective units to the vendor. The company utilizes a perpetual inventory system. As a result of this return, ____

the inventory balance decreases and the accounts payable balance decreases.

Bern Co has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1980. At the end of the year, 200 units remain unsold. If Bern Co utilizes the LIFO method, ending inventory will be...

$420 (1980/900X100)+200=$420

What type of expenditures should be included in the cost of inventory of a merchandising company?

Expenditures necessary to bring inventory to necessary condition and sales location and expenditures necessary to acquire inventory

The dollar-value LIFO inventory method extends the concept of inventory pools by allowing a company to combine a large variety of inventory items to one ___

pool

Terms like 2/10, n/30 represent what?

purchase discount

Wholesale and retail companies

purchase goods that are primarily in completed form

Manufacturing companies

purchase goods that are used to produce another product

When a buyer returns goods to the seller, the buyer records a(n)____

purchase return

In a perpetual LIFO system, each time inventory is ____or_____, the LIFO layers are adjusted.

purchased; sold