ch 5 sb

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Cards (46)

  • Which of the following statements is correct regarding goods in transit? Goods shipped FOB shipping point will be included in the buyer's inventory.
  • Which of the costs below would be included in the recorded cost of merchandise inventory?
    • Storage costs
    • Invoice cost
    • Insurance costs
  • Why would the physical count of inventory be different than what is shown in perpetual inventory records?
    • Events such as loss
    • Events such as damage
    • Events such as theft
    • Events such as errors
  • Which of the following lists the four methods used to assign costs to inventory and to cost of goods sold?
    FIFO, LIFO, weighted average and specific Identification
  • The FIFO cost flow assumption assumes that the cost of items purchased earliest, are the costs that will be transferred first to cost of goods sold on the income, statement.
  • If goods are shipped FOB shipping point, then the buyer, is responsible for paying freight charges and the seller, will not include the merchandise in their inventory.
  • Assume that Sparks uses a perpetual specific identification inventory system. Its ending inventory consists of 2 units from beginning inventory, 4 units from the Jan. 5 purchase, and 10 units from the Jan. 29 purchases. Calculate the dollar value of its ending inventory.
     
     
    Date
    Activity
     
    Jan 1
    Beginning Inventory
    10 @ $12
    Jan 5
    Purchase
    10 @ $15
    Jan 29
    Purchase
    10 @ $18
    Jan 30
    Sale
    14 units
    $264
  • The Blank______ principle states that inventory costs are expensed as cost of goods sold when inventory is sold.
    expense recognition
  • Which statements below are correct regarding the purpose of taking a physical inventory count?
    • 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.
  • Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory. 
    • Physical flow refers to the actual movement of goods.
    • A business may adopt any cost flow assumption when accounting for perishable items.
    • Cost flow is an assumption about which goods/items are sold.
    • Perishable items usually have an actual physical flow of FIFO.
  • 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.
    The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.
  • Assume that Q-Mart uses a perpetual FIFO inventory system. During the period, it sold 12 units. Calculate the dollar value of its cost of goods sold for the period.
    Jan 1
    Beginning Inventory
    10 @ $12
    Jan 5
    Purchase
    10 @ $15
    Jan 30
    Purchase
    10 @ $18
    Feb 8
    Sale
    12 units
    $150
  • The kind of business that would use the specific identification method of inventory costing includes: A car dealership
  • 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
    $15.375/unit
    Reason: 
    (10x12)+(10x15)=$270/20 units=$13.50 per unit as of 6/8 sale. Sold 6x13.50=$81 on 6/8. New balance=$270-81=$189. Purchased 10 x $18 = $180 on 6/28. New average= $180+189 = $369/24 units =$15.375 per unit.
  • Assuming purchase costs are rising, determine which of the statements below are correct regarding the cost of goods sold under FIFO, LIFO and weighted average cost flow methods.
    • Companies using FIFO will report the highest gross profit and net income.
    • Companies using FIFO 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 pay higher taxes than companies using LIFO, assuming all else being equal.
  • Recount the methods used to assign costs to inventory and cost of goods sold under both a perpetual and a periodic system.
    • Specific identification
    • First-in, first-out
    • Last-in, first-out
    • Weighted average
  • When costs regularly decliner, FIFO gives the highest cost of goods sold yielding the lowest gross profit and income.
  • 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
    $162
  • Explain what lower of cost or market means in regards to reporting merchandise inventory on the balance sheet.
    Inventory should be reported at the current market value of replacing it when lower than cost.
  • 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
    $13.50/unit
  • Many companies choose to use LIFO inventory costing during periods of rising purchase costs because reported cost of goods sold will be highest. This means that income taxes paid will be lower than if the company used FIFO or weighted average inventory costing.
  • Determine cost of goods sold for X-mart, assuming that beginning inventory was $5,000. Net purchases were $20,000 and ending inventory was $9,000.
    $16,000
  • Assuming purchase costs are declining, determine which statements below correctly describe what happens to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.
    • Companies using LIFO will report the highest ending inventory on their balance sheets
    • In a situation where prices are declining, companies using LIFO will report the smallest cost of goods sold.
    • Companies using LIFO will pay higher taxes than companies using FIFO, assuming all else being equal.
    • Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.
  • Company's must ensure that they are reporting their inventory at lower of cost or market.
  • Explain the relationship of inventory and cost of goods sold by selecting the correct formula below.
    Beginning inventory + Net purchases - Ending inventory = Cost of goods sold.
  • 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.
    Cost of goods sold will be too low by $5,000.
  • 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.
    Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5,000.
  • Chocolate Inc. uses a perpetual inventory system and uses the FIFO cost flow assumption. Calculate the cost of goods sold for the sale made on Mar. 20.
     
     
    Date
    Activity
     
    Mar 1
    Beginning Inventory
      3 @ $12 = $36
    Mar 15
    Purchase
    17 @ $15= $255
    Mar 20
    Sale
    12 @ $50 each
    $171
  • If Dogs R Us overstates ending inventory on the balance sheet, then total equity on the balance sheet will be overstated as well. true or false?

    True
  • Recall the formula for computing a company's inventory turnover ratio.
    Inventory turnover = Cost of goods sold/Average 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.
    • This year's cost of goods sold will be too low.
    • This year's net income will be too high.
  • 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.
    • The current year's net income will be too low.
    • The current year's cost of goods sold will be too high.
  • 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.
    • This year's total equity will be understated.
    • This year's total assets will be understated.
  • Analyze the information below and select the correct statements regarding XYZ Inc.'s inventory turnover.
     
     
     
    XYZ Inc.
    Industry
    2018 Ratio
    16.1 times
    10.3 times
    2019 Ratio
    19.2 times
    11.2 times
    • XYZ Inc. is more efficiently using its assets.
    • XYZ Inc. turned over its inventory 16.1 times in 2018.
    • XYZ Inc.'s inventory is turning over more frequently than competitors in its industry.
  • Assume that Toy-Cars Inc. uses a periodic specific identification inventory system. Its ending inventory consists of 2 cars from beginning inventory, 4 cars from the Jan. 5 purchase, and 10 cars from the Jan. 30 purchase. Calculate the dollar value of its ending inventory, based on the information provided below.
     
     
    Date
    Activity
     
    Jan 1
    Beginning Inventory
    10 cars @ $12
    Jan 5
    Purchase
    10 cars@ $15
    Jan 30
    Purchase
    10 cars@ $18
    $264
  • Assume that Q-Mart uses a periodic FIFO inventory system. During the year, it sold 14 units. 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. 30
    Purchase
    10 @ $18
    Feb. 8
    Sale
    14 units
    $180
  • All of the following are inventory costing methods used under a periodic inventory system except: last in, last out
  • Assume that Q-Mart uses a periodic LIFO inventory system. During the year, it sold 14 units. 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. 30
    Purchase
    10 @ $18
    Feb. 8
    Sale
    14 units
    $240
  • If Dogs R Us overstates ending inventory on the balance sheet, then total equity on the balance sheet will be overstated as well. true or false?

    True
  • Assume that Wally World uses a periodic weighted average inventory system. During the year, it had two sales. Calculate the weighted average cost per unit on hand as of June 30 when it figured its cost of goods sold for the month.
     
     
    Date
    Activity
     
    Jan. 1
    Beginning Inventory
    8 @ $12
    Jun. 5
    Purchase
    12 @ $15
    Jun. 28
    Purchase
    10 @ $18
    Jun. 8
    Sale
    6 units
    Jun. 30
    Sale
    8 units
    $15.20/unit