CHAPTER 6 SMARTBOOK

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by supplier

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

perpetual inventory system

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

debit to 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:

inventory

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.

multiple-step

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

Purchasing inventory on account:

increases assets and increases liabilities

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

inventory

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

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

assets will increase

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

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

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

LIFO reserve

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

Which of the following methods are not used for inventory costing? (Select all that apply.)

NIFO Simple-average

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

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

incurred several years earlier.

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

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

FOB destination means title to the goods passes

when they arrive at the destination.

The definition of inventory includes which of the following items?

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

Which of the following methods are available for costing inventory?

Specific Identification, FIFO, LIFO, Weighted Average

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

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)

Cost of Goods Sold / Inventory

The shipping term FOB stands for

free on board

A multiple-step income statement reports multiple levels of

income

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

Cost of Goods Sold / Inventory

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

FIFO