Chapter 6: Inventor and Cost of Goods Sold
Which of the following methods are not used for inventory costing?
(1) Simple-average (2) NIFO
Which of the following methods are available for costing inventory?
(1) FIFO (2) Weighted-average (3) LIFO (4) Specific identification
Where is inventory classified in the financial statements?
Current asset in the balance sheet
FIFO
Most closely approximates the actual physical flow of inventory
Which of the following sells inventory to end users?
Retailers
Raw materials
cost of components that will become part of the finished product but have not yet been used in production
Merchandising companies purchase inventory in __________ form, whereas manufacturing firms __________ the goods.
finished; produce
Net sales revenue minus cost of goods sold is
gross profit
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
Finished goods
items for which the manufacturing process is complete
When a sale occurs under the periodic inventory system, we record:
only the sale, but not the related cost of goods sold
Which of the following accounts are typically reported in the balance sheet of a manufacturing company?
(1) Finished goods (2) Raw materials (3) Work in process
Inventory cost flow assumptions can be used to assign dollar amounts to
(1) ending inventory (2) cost of goods sold
A multi-step income statement reports multiple levels of
income
For internal record keeping, most companies carry their inventory using the __________ basis.
FIFO
True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements
False
Perpetual inventory system
Neumann Company can determine the cost of inventory still on hand by referring to the inventory account.
LIFO
Provides better matching of current revenues with current inventory costs
Wholesale and retail companies
Purchase goods that are primarily in completed form
Manufacturing companies
Purchase goods that are used to produce another product
The average cost method assumes that ending inventory consists of
a mixture of all the goods available for sale
Work-in-process
cost of products that have been started in production but not yet completed
Items held for sale in the normal course of business are referred to as __________.
inventory
Income before income taxes is calculated by combining operating income with
non-operating income
On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as __________ revenues and expenses.
nonoperating
Raw materials, direct labor, and manufacturing __________ are the three costs related to the manufacturing of products.
overhead
Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are
paid by the supplier
The __________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.
FIFO
Meller purchases inventory on account. As a results, Meller's
assets will increase
__________ __________ inventory consists of items for which the manufacturing process is complete.
Finished goods
Perpetual
"Inventory"
Periodic
"Purchases"
__________ inventory refers to the products that have been started in production, but are still incomplete.
Work-in-process
The estimated __________ __________ of inventory less costs necessary to sell the inventory is referred to as net realizable value.
selling price
Purchasing inventory on account
(1) increases assets (2) increases liabilities
The Work-in-Process inventory account typically includes which costs?
(1) raw materials (2) direct labor (3) indirect manufacturing costs
A company is most likely to utilize the specific identification method if its inventory consists of
(1) unique products (2) very expensive products
In a perpetual inventory system the inventory account is adjusted
(1) when inventory is sold (2) when inventory is purchased
In a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order:
(1) work in process (2) finished goods
The specific identification method:
(1) would be beneficial to a company that makes fine jewelry (2) matches each unit of inventory with its actual cost
Which of the following companies would be unlikely to utilize the specific identification method?
A company with many different low-cost inventory items
Which of the following concepts or principles is especially relevant to the lower of cost and net realizable value rule?
Conservatism
True or false: The inventory cost flow assumption must match the physical flow of inventory units
False
__________ __________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production.
Raw materials
The FIFO inventory method assumes that units remaining in ending inventory are the __________ units purchased.
newest
Periodic inventory system
Shelly Company must first take a physical inventory to determine the cost of inventory stll on hand.
__________ resell inventory to retail companies or to professional users, whereas retailers ell inventory to end users.
Wholesalers
In a periodic inventory system, the inventory account is adjusted
at the end of the accounting period
The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as:
net realizable value
The LIFO inventory method assumes that the units sold are
the most recent units purchased
The LIFO Inventory method assumes that the units that remain in ending inventory are
the oldest units in inventory
FOB shipping point means title to the goods passes
when they are shipped
How is the cost of goods sold classified in the financial statements?
Expense in the income statement
Companies that serve as intermediaries between manufacturers and end users typically are referred to as __________ companies.
merchandising