chapter 7 &8

when prices are declining which inventory method has higher inventory on balance sheet

LIFO

goods purchased for resale are recorded according to historical coast principle and generally a cost flow assumption (t/f)

true

In a period of rising prices, the inventory method that always produces the lowest ending inventory is the:

LIFO periodic method.

purchases of merchandise inventory are debited to purchases in a perpetual inventory system and inventory in a periodic inventory system (t/f)

false

when inventory cost is rising fifo results in _________ gross profit, income tax and net income and higher inventory on BS

highest

The first step in the process for revenue recognition is to

identify the contract with customers.

if ending inventory is understated then net income is understated (t/f)

true

Assume the company uses the periodic inventory system. If the beginning inventory for 2025 is understated, the effects of this error on cost of goods sold for 2025, net income for 2025, and total assets at December 31, 2025, respectively, are

understatement, overstatement, no effect

Assume the company uses the periodic inventory system. If the beginning inventory for 2025 is overstated, the effects of this error on cost of goods sold for 2024, net income for 2024, and total assets at December 31, 2024, respectively, are

understatement, overstatement, overstatement.

When a perpetual inventory system is used, a. no Purchases account is used. b. Cost of Goods Sold account is debited when goods are sold. c. two entries are required to record a sale. d. All of the choices are correct.

D

debit and credit of perpetual system

debit: beginning balance, purchases, freight in, cost of goods sold credit: returns/allowances, discounts, sales

White Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the beginning of 2026 was $320,000. At the end of 2026, it was determiend that the balance in the account should be $480,000. Prior to the year-end adjustments, White's Cost of Goods Sold account had a balance of $2,400,000 from sales transactions recorded during 2026. After adjusting journal entries, what amount should White report as Cost of Goods Sold in the 2026 income statement?

$2,560,000

White Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the beginning of 2026 was $320,000. At the end of 2026, it was determiend that the balance in the account should be $480,000. Prior to the year-end adjustments, White's Cost of Goods Sold account had a balance of $2,400,000 from sales transactions recorded during 2026. After adjusting journal entries, what amount should White report as Cost of Goods Sold in the 2026 income statement? a. $2,100,000 b. $2,240,000 c. $2,560,000 d. $2,880,000

$2,560,000

First Phone Inc. took a physical inventory at the end of the year and determined that $782,000 of goods were on hand. In addition, the following items were not considered when taking the final physical count. First Phone noted that $42,000 of goods purchased FOB destination and in transit at year-end arrived two days after year-end. Additionally, because of high rates of return on some products, First Phone has established an estimate of items that will be returned of $26,000. What amount should First Phone report in their year-end balance sheet for the inventory account?

$808,000

perpetual inventory system accounting

1.Purchases of merchandise for resale or raw materials for production are debited to Inventory rather than to Purchases. 2.Freight-in is debited to Inventory, not Purchases. Purchase returns and allowances and purchase discounts are credited to Inventory rather than to separate accounts. 3.Cost of goods sold is recorded at the time of each sale by debiting Cost of Goods Sold and crediting Inventory. 4.A subsidiary ledger of individual inventory records is maintained as a control measure. The subsidiary records show the quantity and cost of each type of inventory on hand.

A correction of an error in prior periods' income will be reported 1) in the income statement 2) net of tax 1) I only 2) II only 3) both I and II 4) none of these choices are correct

2

lifo reseve is a _________ account

CONTRA INVENTORY ACCOUNT

When prices are rising who has the highest gross profit

FIFO

Assuming no beginning inventory, which of the following is true about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? a. prices decreased b. prices remained unchanged c. prices increased d. price trend cannot be determined from information given

a. prices decreased

For 2025, the cost of goods available for sale for Tate Corporation was $4,500,000. The gross profit rate on sales was 20%. Sales for the year were $4,000,000. Using the gross profit method, Tate will report ending inventory of a. $0. b. $1,300,000. c. $900,000. d. $800,000.

b avlible for sales - sales * 100-gp)

On January 1, 2025, the inventory of Glaus, Inc. was $1,600,000. In 2025, Glaus purchased $3,200,000 of merchandise and recorded sales of $4,000,000. The gross profit rate on these sales was 25%. What is the inventory of Glaus at December 31, 2025 using the gross profit method? a. $800,000 b. $1,000,000 c. $1,800,000 d. $3,000,000

c. $1,800,000

Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) was $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the company's ending inventory value at cost? a. $1,535,600 b. $1,082,850 c. $981,248 d. $1,050,350

c. $981,248

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10Purchase, March 7 1,400 units @ $2.20Purchase, March 16 280 units @ $2.25Inventory, March 31 520 units The value assigned to cost of goods sold if Niles uses FIFO is a. $1,160 .b. $1,104 .c. $3,448 .d. $3,392.

d

When a perpetual inventory system is used, a. no Purchases account is used. b. Cost of Goods Sold account is debited when goods are sold. c. two entries are required to record a sale. d. All of the choices are correct.

d. All of the choices are correct.

ttanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

down

Ajusting journal entry for lifo reserve

dr COGS cr allowance to reduce lifo

In a perpetual inventory system, the inventory account?

is debited for purchases and credited when the goods are sold and the cost is transferred to cost of goods sold

What if inventory costs are declining during the period (lifo fifo)

lifo result in higher gross profit income tax and net income,higher inventory on BS fifo would result in lower gross profit, income tax and net income, lower balance on BS

If ending inventory is overstated

net income retained earnings and working capital are over stated. cost of goods sold will be understated.

Does a perpetual inventory system have a purchase account

no

in lifo EI is the newer or older inventory

older

if current asset account balance is overstated working capital is

overstated

what account is not used in a perpetual inventory system

purchase discounts.