Chapter 6 - Multiple Choice

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory? A. LIFO B. FIFO C. Weighted-average

A. LIFO

Gross Profit is... A. Beginning Inventory plus Purchases minus Ending Inventory B. Net Sales Revenue minus Cost of Good Sold. C. Revenue minus Expenses D. Revenue minus Inventory

B. Net sales Revenue minus cost of good sold

In a LIFO inventory system, inventory cost shown in the balance sheet may be distorted because they may represent costs A. incurred solely on the balance sheet date. B. incurred several years earlier C. that have not yet been incurred

B.Incurred several years earlier

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? A. FIFO B. Weighted-Average C. LIFO

FIFO

When prices increase, the________________ inventory method tends to decrease a company's tax liability during a particular fiscal period

LIFO

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

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

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

first

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

inventory

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

inventory; selling expense

The specific identification method...

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

_____________ companies purchase inventory that is primarily in finished form and ready for resale to customers?

merchandising

Which of the following amounts or balances affected by an inventory error that was not discovered are correct at the end of the year after the error occurred?

retained earnings Inventory

In a perpetual inventory system, when a company sells inventory on account, how many entries are required? A. Three B. Two C. Zero D. One

B. two

FOB shipping point means title to the goods passes.... A. when they are shipped B. when they arrive at the destination

A. When they are shipped

Purchasing inventory on account.......... (two)

increases assets increases liabilities

Freight-in is A. treated as a miscellaneous expense B. included as a cost of inventory C. a selling expense

B. included as a cost of inventory

Which of the following represent reasons why managers closely monitor inventory levels?

To minimize costs of inventory write-downs due to obsolete inventory To ensure that sufficient units are available

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

expired

Bernie Corp. uses the FIFO inventory method to calculate the cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes? A. FIFO and weighted-average only B. LIFO and FIFO only C. LIFO, FIFO, or weighted-average

A. FIFO and weighted-average only

Weighted-average unit cost is determined by dividing cost of good available for sale by A. total quantity available for sale B. quantity in beginning inventory C. quantity in ending inventory D. quantity most recently purchased

A. Total quantity available for sale

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are A. treated as a selling expense B. paid by a supplier C. deducted from Ronald's inventory

B. paid by the supplier

The LIFO inventory method assumes that the units that remain in ending inventory are..... A. the most recent units purchased B. the oldest units in inventory

B. the oldest units in inventory

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to: A. purchases B. Raw materials C. Inventory D. Cost of Goods sold

C. Inventory

The weighted average cost method assumes that ending inventory consists of A. the oldest units in inventory B. the most recently purchased units. C. a mixture of all the goods available for sale

C. Mixture of all the goods available for sale.

A periodic inventory system measures costs of goods sold by.... A. estimating the amount of inventory sold B. denting cost of goods sold for all purchases of inventory C. counting inventory at the end of the period D. Making entries to the inventory account for each purpose and sale

C. counting inventory at he end of the period

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are A. treated as a selling expense B. paid by the supplier C. included in Gerald's inventory

C. included in Gerald's inventory

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the ______ method? A. matching unit B. actual cost C. weighted-average D. specific identification

D.specific Identification

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods sold $1,500; credit Inventory $1,500

The__________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

Bernie Corp. uses the FIFO inventory method to calculate cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes?

FIFO and weighted-average only

Net sales revenue minus cost of goods sold is.. A. Operating income B. Gross profit C. Earnings before taxes D. Net income

Gross profit

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

Inventory

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

Inventory and cost of goods sold

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

Inventory; selling expense

When prices rise, which inventory method tends to result in lower income and lower tax liability? A. FIFO B. Weighted-average cost C. LIFO D. NIFO

LIFO

The FIFO inventory method assumes that units remaining in ending inventory are the ___________ units purchased?

Last

The estimated selling price of inventory less costs necessary to sell the inventory is referred to as net_____________ _________________

Realize Value

Inventory errors that are discovered more than one accounting period after the error occurred

do not require a correcting entry because the error self-corrects

When inventory is sold, the cost of inventory is recognized as COGS or a(n)___________.

expense

The shipping term FOB stands for

free on board

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.

higher

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.

higher

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

The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as:

net realizable value

The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when.....

the value declines below cost