Chapter 5 Smartbook

Ted's Sports Center purchased two identical basketballs for resale. One was purchased in June at a cost of $30 and the other was purchased in July at a cost of $34. Assume Ted's uses the first-in, first-out (FIFO) cost flow method. If Ted's sells one of the balls in August, the amount charged to the Cost of Goods Sold account is ______

$30

Ted's Sports Center purchased two identical basketballs for resale. One was purchased in June at a cost of $30 and other other was purchased in July at a cost of $34. Assume Ted's uses the last-in, first-out (LIFO) cost flow method. If Ted's sells one of the balls in August, which of the following amounts would be charged to the Cost of Goods Sold account?

$34

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. During the year, Benson sold 700 units. If Benson uses LIFO, reported ending inventory equals ______.

$61,500

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. During the year, Benson sold 700 units. If Benson uses the weighted-average cost flow method, reported ending inventory equals ______.

$63,600

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases. Purchase 1 consisted of 500 units at a cost of $210. Purchase 2 consisted of 350 units that cost $220 each. If Benson uses FIFO and sells 700 units of inventory during the year, ending inventory equals ______.

$66,000

Edward Company purchased two identical inventory items. The item purchased first cost $70. The second item cost $75. If Edward sells the first item purchased, cost of goods sold using the weighted-average cost flow method will be $______

$73

A company purchased two identical items. Item 101 purchased in October cost $100. Item 102 purchased in November cost $110. The business uses the weighted average (WA) cost flow method. If item 101 is sold to a customer, the amount assigned to cost of goods sold is ______

$105

A company purchased two identical items. Item 101 purchased in October cost $100. Item 102 purchased in November cost $110. The business uses the first-in, first-out (FIFO) cost flow method. If item 102 is sold to a customer, the ending balance in the inventory account is ______

$110

Inventory item 101 cost $100. Inventory item 102 cost $110. If the business uses the specific identification cost flow method and Item 102 is sold to a customer, the amount assigned to cost of goods sold is ______

$110

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. During the year, Benson sold 700 units. If Benson uses FIFO, cost of goods sold equals ______.

$146,000

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. During the year, Benson sold 700 units. If Benson uses the weighted-average cost flow method, cost of goods sold equals ______.

$148,400

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. During the year, Benson sold 700 units. If Benson uses LIFO, cost of goods sold equals ______.

$150,500

An analysis of the inventory owned by Owens Company as of the company's fiscal closing date is shown in the following table. Item Quantity Cost per Unit Market Value per Unit A 200 $20 $17 B 190 $50 $52 C 400 $34 $30 D 320 $25 $29Assuming Owens applies the lower of cost or market rule on an individual basis, the company would be required to recognize an inventory write-down of ______.

$2,200

Benson Company had beginning inventory of 150 units that cost $200 each. During the year, Benson made two inventory purchases: Purchase 1 for 500 units that cost $210 each and Purchase 2 for 350 units that cost $220 each. Benson's cost of goods available for sale is ______.

$212,000

Ted's Sports Center purchased two basketballs for resale. One was purchased in June at the cost of $30 and the other was purchased in July at a cost of $34. Assume Ted's uses the specific identification cost flow method. If ted sells the ball purchased in June, the amount charged to the Cost of Goods Sold account is ______

$30

The method companies most often for the physical flow of goods is ______

FIFO

Which inventory cost flow method will produce the highest income and asset values in an inflationary environment?

FIFO

True or false: Financial statement analysis is not affected by the inventory cost flow method used by a company.

False

True or false: Inventory must be shown on the balance sheet at its cost (the price paid) regardless of its current value.

False

Which of the following statements are true? - GAAP requires that ending inventory be reported at lower-of-cost-or-market, regardless of the cost flow method used - If market value is less that actual cost, the inventory must be valued at actual cost - The most common practice is to apply lower-of-cost-or-market to rack individual inventory item

GAAP requires that ending inventory be reported at lower-of-cost-or-market, regardless of the cost flow method used. The most common practice is to apply lower-of-cost-or-market to each individual inventory item.

Companies may use one accounting method for financial reporting and a different method to compute income taxes, unless they are using the ______ method for tax purposes.

LIFO

Hector Company purchased two identical inventory items. The item purchased first cost less the item purchased last. Which of the following cost flow methods results in the lowest ending inventory?

LIFO

The Internal Revenue Service requires that companies using the _____ method(s) for income taxes purposes must use the same method for financial reporting purposes.

LIFO

Which inventory cost flow method will produce the highest income and asset values in an deflationary environment?

LIFO

Which of the following statements is true regarding the impact of income taxes? - GAAP requires consistency between the cost flow method used for financial reporting and that used for tax reporting. - LIFO may be the preferred cost flow method even when it results in lower reported income and asset values. - Companies that use FIFO for physical flow must use FIFO for cost flow, regardless of tax consequences.

LIFO may be the preferred cost flow method even when it results in lower reported income and asset values.

A company purchased two identical items. Item 101 purchased in October cost $100. Item 102 purchased in November cost $110. If item 102 is sold to a customer for $150, which of the following cost flow methods results in the lowest amount of ending inventory?

Last-in, First-out (LIFO)

True or False: A company may use LIFO or weighted average for financial reporting even if its goods flow physically on a FIFO basis

True

True or false: When sales and purchases occur intermittently, the cost of the items purchased is frequently unknown at the time a sale occurs. Even so, companies can still use the perpetual inventory method.

True

Because of liquidity, companies commonly report inventory right below ______ on the balance sheet.

accounts mreceievable

The choice of inventory cost flow method impacts amounts reported on the ______.

balance sheet income statement

Cost of goods available for sale = ______

beginning inventory + all purchases made during an accounting period

Ratio analysis ______ significantly influenced by the accounting methods a company chooses.

can be

When inventory is written-down to comply with the lower of cost or market rule, the total amount of ______.

cash flow from operating activities is not affected

The GAAP principle of ______ generally requires that companies use the same inventory cost flow method from one accounting period to the next.

consistency

When inventory is sold, inventory cost methods are used to determine how much cost to assign to ______

cost of goods sold

Hector Company purchased two identical inventory items. The item purchased first cost less the item purchased last. If Hector uses the FIFO cost flow system, cost of goods sold will be ______

cost of goods will be lower than if LIFO is used lower than if weighted average is used

Blane Company maintains its inventory under the perpetual system and uses a LIFO cost flow. The company purchases and sells inventory intermittently throughout its accounting cycle. Based on this information alone, the amount of the cost of goods sold will be determined at the ______.

end of the accounting period

When inventory is written-down to comply with the lower of cost or market rule, the total amount of ______.

equity decreases

When inventory is written-down to comply with the lower-of-cost-or-market rule, the total amount of ______.

equity decreases

Companies are required to indicate the inventory cost flow methods used to prepare the financial statements under the GAAP principle of ______ ______

full disclosure

Hector Company purchased two identical inventory items. The item purchased first cost less the item purchased last. If Hector uses the weight average cost flow system, the cost of goods sold will be ______

higher than if FIFO is used lower than if LIFO is used

Overall profitability depends upon two elements: gross margin and ______ ______

inventory turnover

Benson Company purchased two identical inventory items. The item purchased first cost $40. The second item cost $42. If one of the items were sold, which cost flow method would produce the highest amount of cost of goods sold?

last-in, first-out

When assets are reported on the balance based upon how quickly they are expected to be converted to cash they are said to be shown in order of ______.

liquidity

Disadvantages of the specific identification method for determining the amount of cost flows include ______

low-priced, high turnover goods require significant record-keeping managers can increase net income by selling low price inventory first

The amount a company would have to pay to replace its merchandise is called the ______.

market value

Which of the following is not an inventory cost flow method? - last in first out (LIFO) - specific identification - next in first out (NIFO) - first in first out (FIFO) - weighted average

next in first out (NIFO)

The specific identification cost flow method is most likely to be used when ______

sales volume is low and cost per unit of inventory is high

Hector Company purchased two identical inventory items. The item purchased first cost less the item purchased last. The cash outflow for inventory is ______,

the same under all methods

A slow inventory turnover is likely to occur in ______.

upscale department stores