Financial Accounting Chapter 7

beginning inventory was 5,000. during the month, the company purchased an additional 25,000 of inventory and sold goods that cost 20,000. ending inventory is...

5,000 25,000 xxxxxx 20,000 x = 10,000

goods available for sale will ___ when sold

become COGS on the income statement

goods available for sale will ___ when sold

become cogs on the income statement

most companies report their lower of cost or net realizable value write-down expense as ___ even if the goods haven'ts been sold, because its necessary cost of carrying and (eventually) selling the goods

cost of goods sold

Which company is more likely to use specific identification to value its inventory and cogs?

custom home builder

under the perpetual system, the purchase of merchandise is recorded as ___

debit inventory credit accounts payable

Using a perpetual inventory system, the purchase of inventory on account would be recorded as:

debits to AP credit to inventory

using gross method, taking a discount when paying for goods is written as

decrease in assets and liabilities

using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes___

decreases in assets and liabilities

an increase in a company's inventory balance from a prior year is ___ if the inventory turnover ratio is ___

desirable and lower

in times of rising prices, which of the following will be greater as result of LIFO liquidation?

gross profit and income tax expense

when costs are rising and a purchase occurs after the last sale, COGS will be ___ using LIFO periodic than using LIFO perpetual

higher remember...using perpetual LIFO i got 4000 but using periodic lifo i got 1000

using FIFO for financial reporting and LIFO for income tax return is not ___

in conformity with LIFO conformity rule

in times of rising prices, which will result in the higher cost of good sold, FIFO perpetual or FIFO periodic?

it will be both the same

LIFO liquidation occurs when ___

items from beginning inventory become part of COGS

what are the two stages of accounting for a purchase discount using the gross method?

the purchase is first recorded at full cost the inventory account is later reduced if payment is made within the discount period

in a perpetual inventory system, which of the following statements are true?

the seller should record freight-out as a selling expense the purchaser should record freight-in as an asset, inventory

journal entry to record the payment discount period for goods causes

total assets and liabilities to decrease

which of the following are true about a perpetual inventory system?

until inventory is sold, it is an asset reported at its cost on the balance sheet after inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense

accounting rules require a company to ___

justify any changes in inventory accounting methods and consistently use the same inventory method over time

when costs to purchase inventory are falling over time, using LIFO leads to reporting ___ COGS and ___ net income than FIFO

lower and higher

under the __ inventory system, inventory records are updated only at the END of the accounting period

periodic

if you use LIFO you must also

report the FIFO value i the notes of financial statements

GAAP require that any company using LIFO to

report the FIFO value of the same inventory in the notes of the financial statements

beginning 3 @ 200 purchases 7 @ 210 2 remain periodic weighted average cost, what is COGS

(3 x 200) + (7 x 210) / 10 x 8 sold = 1656

Which inventory costing method uses the oldest cost for COGS on the INCOME STATEMENT and newest for INVENTORY on the BALANCE SHEET?

FIFO

assuming rising inventory prices, rank which inventory method results in the higher ending inventory value

FIFO Weight Averaged LIFO (low = more money)

which are based on assumptions about the flow of inventory costs

FIFO and LIFO

unsold inventory is classified as an ___ on the ___

asset, balance sheet

the weighted average cost method uses the __ cost for COGS on the income statement and __ cost for inventory on the balance sheet

average;average

the assumption that a company makes about its inventory cost flow has an effect on the ___ and ___

balance sheet and income statement

The definition of inventory includes which of the following items?

1. held for resale 2. used currently in productions of goods to be sold 3. currently in production for future sales

sales = 30,000 COGS = 10,000 beginning = 800 ending = 1200 inventory turnover ratio =

10,000/1,000 = 10

beginning: 3 @ 200 purchases: 20 @ 210 ending inventory: 5 LIFO periodic what is the COGS

18 x 210

1 @ 500 2 @ 550 2 @ 600 sold 1 for july 9 price what is the perpetual specific identification, its COGS is __

550, just as july.. SIMPLE

paid for invoice for 1,000 with 1/7, n/30. the net amount paid was..

990

COGS Equation

Beginning inventory + purchases - Ending Inventory = COGS

if EI of year 1 is misstaed, then year 1's ___ is alost mistated

COGS

1 @ 500 2 @ 550 2 @ 600 what is the perpetual specific idenfitication?

all multipled 2250

average days to sell inventory measures the average number of ____

day from the time inventory is purchased to the time it is sold

journal entry: write down of inventory from cost to its lower net realizable value

debit COGS credit inventory

lower net realizable value, would be recorded as

decrease in OE and Assets

the assumption that a company makes about its inventory cost flow can affect COGS on its ___ and inventory on its ___

income statement, and balance sheet

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?

income tax expense will be lower, cogs will be higher, gross profit will be higher

in a perpetual system, the ___ account is debited when a company purchase merchandise on account

inventory

if year 1 ending balance is overstated. than year 2 beginning inventory is ___

overstated

what may cause inventory turnover ratios to vary significantly between companies in the same industry?

some comapnies may sell fewer higher costs or more lower-costs

an increase in inventory will be ___ net income when determining net cash flow provided by operating activities

subtracted from

beginning = 4000 ending = 2000 inventory turnover = 6 what is the COGS?

(4000+2000)/2 = 3000 3000 x 6 18000

200 @ 1 100 @ 10 realizables: 1.20 & 8 LCM?

200 x 1 100 x 8 1000

acme had COGS of 2000 beginning inventory was 2100 ending inventory was 500 purchases = ___

2100 + x - 500 = 2000 x = 400

beginning = 5 @ 2 purchases = 30 @ 2.5 end = 8 remains what is FIFO periodic?

35 - 8 = 27 sold FIFO 5 @ 2 22 @ 2.5 =65

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record ___

COGS on income statement, and a decrease in inventory

in a perpetual inventory system, inventory is initially recorded at __

Cost

FIFO or LIFO would result in higher inventory turnover for a company?

LIFO

Which inventory costing method assumes that inventory costs flow out in the opposite order from which goods were purchased?

LIFO

what would increase in a company's inventory turnover ratio

a decrease in total inventory & an increase in the demand for the company's product

when costs to purchase inventory are falling over time, using LIFO leads to reporting ___ COGS and ___ net income than FIFO

lower, higher

who decides the inventory cost methods

management

___ companies sell goods that they have produced

manufacturing

applying the lower of cost or net realizable value rule results in inventory being reported at the ____

market value if lower than the cost

Weighted average

matches the average cost of each unit of inventory

Specific Identification

matches the expense of a particular item

FIFO

matches the expense of the first item purchaed

LIFO

matches the expense of the last items purchased

LIFO perpetual is rarely used in practice because it is ___

more cumbersome and dificult to know the latest costs at the time of the sale

1 @ 500 2 @ 550 2 @ 600 periodici weight average costs, COGS is =

multiply all and add up / 5 = 560

gross profit =

net sales - cogs

if companies are required to adopt IRFS, companies will ___

no longer be able to use LIFO

to find a description of the inventory accounting method used by a company, you need to look at the ___

notes to the financial statemetnms

FIFO uses the ____ cost for cost of goods sold on income statement and ____ cost for inventory on the balance sheet

oldest, newest

in a perpetual inventory system, the journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause ___

one asset to increase and another asset to decrease

a ___ inventory system tracks units from purchase to sale on transaction-by-transaction basis

perpetual

at the end of the accounting period, LIFO amounts of COGS and EI ...

tend to be different and companies track on perpetual basis to make adjustment to convert to a periodic basis

ending inventory errors in 2018 will affect

the 2019 goods available for sale but not affect the 2019 ending inventory