LS 7: Inventory and Cost of Goods Sold

Barry Bees, Inc.'s Cost of Goods Sold equals $10,000. its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's delays to sell equals _____ days

36.5

Acme, Inc. had cost of goods sold of $2,000. if beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been $_____

400

which of these would you expect to have the highest inventory turnover ratio? - Ford Motor Company - The Boeing Company - McDonald's

McDonald's

Gross Profit equals ______

Net Sales minus Cost of Goods Sold

_____ inventory refers to goods a company is holding on behalf of the actual owner of the goods. the company is willing to try to sell the goods for the owner for a fee

consignment

in a perpetual inventory sysmtem, Inventory is initially recorded at _____

cost

which of the following is merchandise inventory? - goods held for sale in the normal course of business - equipment used to manufacture products which will be sold later - raw materials and work in process - office supplies that a company plans to use in the next few months

goods held for sale in the normal course of business

as inventory quality increases, its cost usually _____

increases

rank in order the anticipated inventory turnover ratios for the following company - WalMart - Bath Iron Works (sells battle ships to the US government) - Tiffany & Co. (exclusive jewelry store)

1. WalMart 2. Tiffany & Co. 3. Bath Iron Works

if Vito, Inc. has an inventory turnover ratio of 5 times, then its days to sell must be _____

73 days

if ending inventory in Year 1 is misstated, then Year 1's _____ also must be misstated

cost of goods sold

true or false: an error in ending inventory in Year 1 will cause ending inventory in Year 2 to be misstated as well

false

true or false: companies that use a perpetual inventory system never need to do a physical count of inventory because in a perpetual system cost of goods sold and inventory are kept up-to-date every time a sale is recorded

false

what causes LIFO and weighted average cost methods to differ when using perpetual vs. periodic?

the periodic method assumes all purchases during the period occurred before all sales during the period

ending inventory errors in 2019 _____ - will affect only 2019 - will affect the 2020 goods available for sale but will not affect the 2020 ending inventory - are offset by the end of 2020, and thus, are not considered errors

will affect the 2020 goods available for sale but will not affect the 2020 ending inventory

what inventory accounts would one expect to see in the accounting records of a company that makes furniture? - raw materials inventory - finished goods inventory - work in process inventory - cost of sales inventory

- raw materials inventory - finished goods inventory - work in process inventory

when analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare the ratio with _____ - other industries' ratios - prior years' ratios for the company - other companies' ratios

prior years' ratios for the company

goods in transit that have terms FOB destination should be included in the ______ inventory

seller's

on May 1, beginning inventory consists of 10 items at a cost of $10 each. on May 3, 10 items are purchased at $12 each. on May 8, 12 items are sold. on May 15, 10 items are purchased at $14 each. using the perpetual weighted average cost, ending inventory at May 31 is _____

$228

which financial statements are needed to calculate the inventory turnover ratio? - management's responsibility report - balance sheet - statement of cash flows - statement of retained earnings - income statement

- BS - IS

which financial statements will be misstated if the Year 1 ending inventory balance is understated? - Year 1 balance sheet - Year 1 income statement - Year 2 balance sheet - Year 2 income statement

- Year 1 balance sheet - Year 1 income statement - Year 2 income statement

which of these would explain an increase in a company's inventory turnover ratio? - an increase in the demand for the company's products - a decrease in cost of goods sold - a decrease in total inventory

- an increase in the demand for the company's products - a decrease in total inventory

if Year 1 ending inventory is overstated by $1,000, then the Year 2 _____ - beginning inventory will be overstated by $1,000 - goods available for sale will be overstated by $1,000 - ending inventory will be overstated by $1,000

- beginning inventory will be overstated by $1,000 - goods available for sale will be overstated by $1,000

in a periodic system, for Cost of Goods Sold to be updated, which of the following must occur? - nothing has to be done. CGS sold is kept up to date each time a product is sold - compute CGS sold by subtracting Ending Inventory from Goods Available for Sale - take a physical count of inventory

- compute CGS sold by subtracting Ending Inventory from Goods Available for Sale - take a physical count of inventory

which of the following 2019 financial statement line items will be affected if the 2019 ending inventory is overstated? - current liabilities will be overstated - cost of goods sold will be overstated - cost of goods sold will be understated - net income will be overstated - current assets will be overstated - net income will be understated

- cost of goods sold will be understated - net income will be overstated - current assets will be overstated

Oops, Inc. overstated its ending inventory, during its physical inventory count, by $1,000 in Year 1. which of the following will also be misstated in Year 1? - gross profit will be overstated by $1,000 - cost of goods sold will be understated by $1,000 - net income will be understated by $1,000 - purchases will be overstated by $1,000

- gross profit will be overstated by $1,000 - cost of goods sold will be understated by $1,000

which of the following statements are true? - all increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory - an increased inventory balance is desirable if the resulting inventory turnover ratio is lower - an increased inventory balance is desirable if management is building up stock in anticipation of higher sales

- increased inventory balance is undesirable if it's a result of an accumulation of unsaleable inventory - an increased inventory balance is desirable if management is building up stock in anticipation of higher sales

which of the following statements are true? - it doesn't matter which method you use to account for inventory as long as it mimics the actual physical flow of goods - managers can choose the method of accounting for inventory cost (i.e., FIFO, LIFO, etc.) that best fits their business - GAAP require that all companies in the same industry use the same method of accounting for inventory - using a different inventory accounting method leads to reporting a different amount for cost of goods sold

- managers can choose the method of accounting for inventory cost that best fits their business - using a different inventory accounting method leads to reporting a different amount for cost of goods sold

which of these will require a credit to the inventory account in a perpetual inventory system? - collecting cash for inventory previously sold on account - selling inventory on account - purchasing inventory on account - paying cash for inventory previously purchased on account - selling inventory for cash - purchasing inventory for cash

- selling inventory on account - selling inventory for cash

what may cause inventory turnover ratios to vary significantly between companies in the same industry? - companies in the same industry will have the same inventory turnover ratio - some companies may sell fewer high-cost goods - some companies may sell more lower-cost goods

- some companies may sell fewer high-cost goods - some companies may sell more lower-cost goods

which method will result in the same CGS amount whether it is computed by the periodic inventory system or the perpetual inventory system?

FIFO