Chapter 6

The FIFO cost flow assumption assumes that the cost of items purchased ______(earliest/latest) are the costs that will be transferred first to cost of goods sold on the _______(balance sheet/income statement).

earliest income statement

When purchase costs are _____ (rising/declining) , FIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

rising

When purchase costs are ______ (rising/declining) , FIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

rising

If Dogs R Us overstates ending inventory on the balance sheet, then total equity on the balance sheet will be overstated as well. True false

true

Assume that Sparks uses a perpetual FIFO inventory system. Its ending inventory consists of 9 units. Calculate the dollar value of its ending inventory. Date Activity Jan 1 Beginning Inventory 10 @ $12 Jan 8 Purchase 20 @ $18 Jan 15 Sale 21 units Multiple choice question. $90 $162 $288 $135

$162

Storm Windows Company understated their ending inventory during their first year of operations by $2,000. What is the effect of this error at the end of the year? Select all answers which apply. Multiple select question. $2,000 overstatement of cost of goods sold. $2,000 understatement of cost of goods sold. $2,000 overstatement of net income. $2,000 understatement of net income.

$2,000 overstatement of cost of goods sold. $2,000 understatement of net income.

Assume that Widgets, Inc. uses a perpetual specific identification inventory system. During the period, it sold 4 units from beginning inventory, 8 units from the Jan. 5 purchase, and 2 units from the Jan. 29 purchases. Calculate the dollar value of its cost of goods sold for the period. Date Activity Jan 1 Beginning Inventory 10 @ $12 Jan 5 Purchase 10 @ $15 Jan 29 Purchase 10 @ $18 Jan 30 Sale 14 units Multiple choice question. $140 $204 $210 $246

$204

Given the following information, determine the cost of goods sold for the period. Date Jan 1 Beginning Inventory $950 Jan 1-30 Purchases $1800 Jan 31 Ending Inventory $250 Multiple choice question. $3,000 $250 $1,100 $2,500

$2500

Recall the formula for figuring Days' Sales in Inventory. Multiple choice question. (Ending inventory/Average inventory) x 365 (Ending inventory/Gross profit) x 365 (Ending inventory/Cost of goods sold) x 365

(Ending inventory/Cost of goods sold) x 365

Review the steps below that apply LCM to individual items of inventory. Place them in the correct order of occurrence. Position 1 of 6 List the number of units of each product. correct toggle button unavailable List the number of units of each product.

1. list the number of units of each product 2. list the cost of each item 3. list the market price of each item 4. compute total cost and totals market value for each item 5. compare recorded cost of each inventory item with its replacement cost. list lower of cost or market 6. adjust inventory downward when market is less than cost

Assume that Wally World uses a perpetual weighted average inventory system. During the period, it had two sales. Calculate the average cost per unit on hand as of June 30 when it made its second sale. Date Item Units/Cost Jun 1 Beginning Inventory 10 @ $12 Jun 5 Purchase 10 @ $15 Jun 8 Sale 6 units Jun 28 Purchase 10 @ $18 Jun 30 Sale 8 units Multiple choice question. $15.375/unit $13.50/unit $10/unit $15/unit

15.375/unit

Which of the statements below are true about LCM? (Check all that apply.) Multiple select question. A decline in market value means a loss in value of inventory. When market value is higher than cost, a gain is recorded. Market value is used as the replacement cost when using the LIFO method. When market value is lower than cost, a loss is recorded.

A decline in market value means a loss in value of inventory. Market value is used as the replacement cost when using the LIFO method. When market value is lower than cost, a loss is recorded.

Explain the relationship of inventory and cost of goods sold by selecting the correct formula below. Multiple choice question. Beginning inventory + Ending inventory = Cost of goods sold. Beginning inventory + Net purchases - Ending inventory = Cost of goods sold. Beginning inventory + Net purchases = Cost of goods sold. Beginning inventory + Cost of goods sold = Ending inventory.

Beginning inventory + Net purchases - Ending inventory = Cost of goods sold.

Which of the following statements is correct regarding goods in transit? Multiple choice question. Goods shipped FOB shipping point will be included in the buyer's inventory. Goods shipped FOB destination will be included in the buyer's inventory. Goods shipped FOB shipping point will be included in the seller's inventory. Goods shipped FOB purchaser will be included in the buyer's inventory.

Goods shipped FOB shipping point will be included in the buyer's inventory.

Which of the following lists the four methods used to assign costs to inventory and to cost of goods sold? Multiple choice question. FIFO, FILO, weighted average and Individual FIFO, LIFO, weighted average and specific Identification FIFO, FILO, weighted average and specific identification LIFO, LILO, weighted average and specific identification

FIFO, LIFO, weighted average and specific Identification

If goods are shipped FOB shipping point, ______then the (buyer/seller) is responsible for paying freight charges and the ________(purchaser/seller) will not include the merchandise in their inventory.

buyer seller

Determine which of the following statements is correct regarding consigned goods. Multiple choice question. Consigned goods are located on the premises of the consignor where customers can see the product. Consigned goods should be included in the consignee's inventory. Consigned goods should be included in the consignor's inventory. Consigned goods are owned by the consignee.

consigned goods should be included in the consignor's inventory.

The owner of consigned goods is called the _____ (consignor/consignee) and the one who sells goods for the owner is called the _______ (consignor/consignee).

consignor consignee

An advantage of the LIFO method is that it best matches Multiple choice question. erratic changes in costs current costs with revenues the costs of items with the revenues they generate the flow of goods for most businesses

current costs of revenue

An advantage of the LIFO method is that it best matches Multiple choice question. the flow of goods for most businesses erratic changes in costs the costs of items with the revenues they generate current costs with revenues

current costs with revenues

Assume that J-Mart uses a perpetual weighted average inventory system. During the period, it had two sales. Calculate the average cost per unit on hand as of June 8 when it made its first sale. Date Item Units/Cost Jun 1 Beginning Inventory 10 @ $12 Jun 5 Purchase 10 @ $15 Jun 8 Sale 6 units Jun 28 Purchase 10 @ $18 Jun 30 Sale 8 units Multiple choice question. $13.50/unit $10/unit $33/unit $15/unit

$13.50

ABC Co. uses a perpetual inventory system and uses the FIFO cost flow assumption. During the month, it had two sales. Calculate the dollar value of its cost of goods sold for the first sale made on Jan. 10. Date Activity Jan 1 Beginning Inventory 8 @ $12 = $96 Jan 5 Purchase 12 @ $15= $180 Jan 25 Purchase 10 @ $18= $180 Jan 10 Sale 11 @ $50 each Jan 30 Sale 3 @ $55 each Multiple choice question. $180 $141 $550 $195

$141

Assuming purchase costs are rising in a periodic inventory system, determine which of the statements below are correct regarding the cost of goods sold under FIFO, LIFO and weighted average cost flow methods. Multiple select question. Companies using FIFO will report the smallest cost of goods sold. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal. Companies using LIFO will report the smallest cost of goods sold. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using FIFO will report the highest gross profit and net income.

Companies using FIFO will report the smallest cost of goods sold. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using FIFO will report the highest gross profit and net income.

Which statement(s) below correctly describe(s) the relationship of cost of goods sold and ending inventory? Multiple select question. Cost of goods sold will equal total ending inventory. Cost of goods sold plus ending inventory will equal the total goods available for sale. Cost of goods sold plus goods available for sale will equal total goods in ending inventory. Cost of goods available for sale must be allocated between cost of goods sold and ending inventory.

Cost of goods sold plus ending inventory will equal the total goods available for sale. Cost of goods available for sale must be allocated between cost of goods sold and ending inventory.

If ending inventory at the end of the year is understated, what is the effect on cost of goods sold and net income? Multiple choice question. Cost of goods sold will be overstated and net income will be overstated. Cost of goods sold will be understated and net income will be understated. Cost of goods sold will be overstated and net income will be understated.

Cost of goods sold will be overstated and net income will be understated.

Cake Mart understated its ending inventory in the current year by $5,000. The company incorrectly reported net income of $100,000. Determine the effect this error had on the financial statements. Multiple choice question. Cost of goods sold was too low by $5,000, which caused net income to be overstated. Cost of goods sold will be too high by $5,000, and this caused net income to be overstated by $5,000. Total assets on the balance sheet will be too high by $5,000. Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5,000.

Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5,000.

Grow R Us overstated its ending inventory in the current year by $5,000. The company incorrectly reported $100,000 of net income. Explain the consequences of this error on the current period's income statement. Multiple choice question. Cost of goods sold will be too low by $5,000. The correct net income amount should have been $105,000. Cost of goods sold will be too high by $5,000.

Cost of goods sold will be too low by $5,000.

There are advantages to using each of the four inventory costing methods. Identify the statements below that are correct regarding these advantages. Multiple select question. LIFO mimics the actual flow of goods for most businesses. FIFO assigns an amount to inventory on the balance sheet that approximates its current cost. Weighted average tends to smooth out erratic changes in costs. FIFO assigns an amount to cost of goods sold on the income statement that approximates its current replacement cost.

FIFO assigns an amount to inventory on the balance sheet that approximates its current cost. Weighted average tends to smooth out erratic changes in costs.

Explain what lower of cost or market means in regards to reporting merchandise inventory on the balance sheet. Multiple choice question. Inventory should be reported at the original cost paid for it and not what it can be sold for in the market place. Inventory should be reported at its original cost if the replacement market value (cost) is less. Inventory should be reported at the current market value of replacing it when lower than cost.

Inventory should be reported at the current market value of replacing it when lower than cost.

Recall the formula for computing a company's inventory turnover ratio. Multiple choice question. Inventory turnover = Cost of goods sold/Gross profit Inventory turnover = Merchandise Inventory/Cost of goods sold Inventory turnover = Merchandise Inventory/Average inventory Inventory turnover = Cost of goods sold/Average inventory

Inventory turnover = Cost of goods sold/Average inventory

Identify the ways in which lower of cost or market can be applied to merchandise inventory. Multiple select question. It can be applied to the inventory as a whole. It can be applied to major categories of items. It can be applied to each item individually. It can be applied to individual sales departments.

It can be applied to the inventory as a whole. It can be applied to major categories of items. It can be applied to each item individually.

XYZ Company made a mistake in counting its ending inventory. Determine which of the items below will be affected by this error. Multiple select question. Net income Current assets Cost of goods sold Long-term assets Revenues

Net income Current assets Cost of goods sold

Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory. Multiple select question. Perishable items usually have an actual physical flow of FIFO. A business may adopt any cost flow assumption when accounting for perishable items. Physical flow refers to the actual movement of goods. Perishable items have an actual physical flow of LIFO. Cost flow is an assumption about which goods/items are sold.

Perishable items usually have an actual physical flow of FIFO. A business may adopt any cost flow assumption when accounting for perishable items. Physical flow refers to the actual movement of goods. Cost flow is an assumption about which goods/items are sold.

Recount the methods used to assign costs to inventory and cost of goods sold under both a perpetual and a periodic system. Multiple select question. First-in, last-out Specific identification Weighted average Last-in, first-out First-in, first-out Last-in, last-out

Specific identification Weighted average Last-in, first-out First-in, first-out

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10; June 2 at $15; and July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption. Multiple choice question. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remain in ending inventory.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10; June 2 at $15; and July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption. Multiple choice question. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remain in ending inventory. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

Assume that three identical units are purchased separately on the following three dates and at the respective costs: June 1 at $10 June 2 at $15 July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the LIFO perpetual cost flow assumption. Multiple choice question. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remains in ending inventory.

The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory.

Q-mart failed to include inventory that was kept in a separate warehouse in its 12/31 end-of-the-period inventory count. Consequently, the ending inventory on 12/31 was understated on the balance sheet. Explain how this error affects the current year's income statement. Multiple select question. The current year's net income will be too low. The current year's cost of goods sold will be too high. The current year's net income will be too high. The current year's cost of goods sold will be too low.

The current year's net income will be too low. The current year's cost of goods sold will be too high.

Determine which of the following statements is correct regarding the relationship of ending inventory and beginning inventory. Multiple choice question. The beginning inventory of the current period is the beginning inventory of the previous period. The ending inventory of the previous period is the beginning inventory of the current period. The ending inventory of the previous period is the ending inventory of the current period. The beginning inventory of the previous period is the ending inventory of the current period.

The ending inventory of the previous period is the beginning inventory of the current period.

Which of the following statements correctly explains what the inventory turnover ratio assesses. Multiple choice question. The inventory turnover ratio assesses the company's ability to generate a profit from the sales of its inventory. The inventory turnover ratio assesses whether management is doing a good job controlling the amount of inventory. The inventory turnover ratio assesses what percentage of a company's assets are tied up in its inventory.

The inventory turnover ratio assesses whether management is doing a good job controlling the amount of inventory.

Which statements below are correct regarding the purpose of taking a physical inventory count? (Check all that apply.) Multiple select question. The physical count is used to determine if there has been any theft, loss, damage or errors in inventory. The physical count is used to determine if management needs to reassign sales responsibilities. The physical count is used to adjust the Inventory account balance to the actual inventory available. The physical count is used to determine if customers are paying within the discount period.

The physical count is used to determine if there has been any theft, loss, damage or errors in inventory. The physical count is used to adjust the Inventory account balance to the actual inventory available.

Review the statements below and select the ones that are correct regarding the days' sales in inventory ratio. (Check all that apply.) Multiple select question. The ratio estimates how many days it will take to convert inventory into accounts receivable or cash. The ratio reveals how much inventory is available in terms of the number of days' sales. The ratio is useful in evaluating how quickly inventory is being sold. The ratio measures what percentage of profit the company is making for every dollar of inventory it sells. The ratio is often viewed as a measure of the buffer against out-of-stock inventory.

The ratio estimates how many days it will take to convert inventory into accounts receivable or cash. The ratio reveals how much inventory is available in terms of the number of days' sales. The ratio is useful in evaluating how quickly inventory is being sold. The ratio is often viewed as a measure of the buffer against out-of-stock inventory.

Sparky's incorrectly included inventory that was on consignment in its ending inventory count. Consequently, the ending inventory was overstated on the balance sheet. Explain how this error will affect this year's income statement. Multiple select question. This year's net income will be too high. This year's net income will be too low. This year's cost of goods sold will be too high. This year's cost of goods sold will be too low.

This year's net income will be too high. This year's cost of goods sold will be too low.

Q-mart failed to include inventory that was kept in a separate warehouse in its end-of-the-period inventory count. Explain how this error will affect this year's balance sheet. Multiple select question. This year's total equity will be understated. This year's total equity will be overstated. This year's total assets will be overstated. This year's total assets will be understated.

This year's total equity will be understated. This year's total assets will be understated.

Which of the following summarizes the weighted average cost flow assumption? Multiple choice question. Weighted average assumes that costs flow in the reverse order incurred. Weighted average assumes that costs flow at an average of the costs available. Weighted average assumes that costs flow in the order incurred. Weighted average assumes that cost flow is allocated by the physical weight of items purchased.

Weighted average assumes that costs flow at an average of the costs available.

The kind of business that would use the specific identification method of inventory costing includes: Multiple choice question. A department store A grocery store A car dealership

a car dealership

An inventory error not only affects the current year's cost of goods sold, gross profit, net income, current assets and equity, but also the next period's statements because Multiple choice question. cost of goods sold of one period is the cost of goods sold in the next period. net purchases in one period is also the net purchases in the next period. ending inventory of one period is the beginning inventory of the next period. beginning inventory of one period is the ending inventory of the next period.

ending inventory of one period is the beginning inventory of the next period.

Why would the physical count of inventory be different than what is shown in perpetual inventory records? (Check all that apply.) Multiple select question. Events such as damage Events such as theft Events such as sales discounts Events such as errors Events such as loss

events such as damage events such as theft events such as errors events such as loss

The Blank______ principle states that inventory costs are expensed as cost of goods sold when inventory is sold. Multiple choice question. revenue recognition inventory recognition expense recognition cost

expense recognition

Which of the following statements is correct regarding goods in transit? Multiple choice question. Goods shipped FOB shipping point will be included in the seller's inventory. Goods shipped FOB purchaser will be included in the buyer's inventory. Goods shipped FOB destination will be included in the buyer's inventory. Goods shipped FOB shipping point will be included in the buyer's inventory.

goods shipped FOB shipping point will be included in the buyers inventory

Which of the costs below would be included in the recorded cost of merchandise inventory? (Check all that apply.) Multiple select question. Insurance costs Wages costs Storage costs Invoice cost Selling costs

insurance costs storage costs invoice cost

The LIFO cost flow assumption assumes that the cost of items purchased Blank______ are the costs that will be transferred first to cost of goods sold on the Blank______ Blank______. Multiple choice question. latest/income statement earliest/balance sheet

latest/ income statement