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    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2

Which of the following statements is correct regarding goods in transit?
 
Goods shipped FOB shipping point will be included in the buyer's inventory.
   
The owner of consigned goods is called the and the one who sells goods for the owner is called the
 
Consignor; consignee
  The _____ principle states that inventory costs are expensed as cost of goods sold when inventory is sold
 
expense recognition
   
Why would the physical count of inventory be different than what is shown in perpetual inventory records? (Check all that apply.)
 
Events such as damage
Events such as loss
Events such as errors
Events such as theft
   
Show your understanding of the ownership of goods in transit by completing the following statement.
If goods are shipped FOB shipping point, then the ? (purchaser/seller) is responsible for paying freight charges and the ?
(purchaser/seller) will not include the merchandise in their inventory.
 
purchaser; seller
   
Determine which of the following statements is correct regarding consigned goods.
 
Consigned goods should be included in the consignor's inventory.
   
Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory.
(Check all that apply.)
 
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.
   
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
   
Recount the methods used to assign costs to inventory and cost of goods sold under both a perpetual and a periodic system.
(Check all that apply.)
 
Specific identification
Last-in, first-out
Weighted average
First-in, first-out
   
The LIFO cost flow assumption assumes that the cost of items purchased ______ are the costs that will be transferred
first to cost of goods sold on the ______ ______.
Latest, income, statement
   
Which of the costs below would be included in the recorded cost of merchandise inventory? (Check all that apply.)
Invoice cost
Insurance costs
Storage costs
   
Which statement(s) below is(are) correct regarding the purpose of taking a physical inventory count? (Check all that apply.)
 
The physical count is used to adjust the Inventory account balance to the actual inventory available.
The physical count is used to determine if there has been any theft, loss, damage or errors in inventory.
   
The _____ principle states that inventory costs are expensed as cost of goods sold when inventory is sold.
 
expense recognition
   
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
   
Which of the following summarizes the weighted average cost flow assumption?
 
Weighted average assumes that costs flow at an average of the costs available.
   
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.
 
204                        (4 x 12 + 8 x $15 + 2 x 18)
   
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 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.
 
June 1 at $10
June 2 at $15
July 4 unit remains in ending inventory.
   
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.
$141     (8 x 12) + (3 x 15) = $141.
   
Match the cost flow assumption on the left with its definition on the right. Instructions
 
Fifo                                                        Assumes costs flow in the order incurred
Lifo                                                        Assumes costs flow in the reverse order incurred
Weighted Average                          Assumes costs flow at an average of the costs available
Specific identification                    Assumes costs flow can be specifically matched with the physical flow of items.
   
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.
 
$264      (2 x 12 + 4 x 15 + 10 x 18)
   
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.
 
June 2 at $15
July 4 at $20
June 1 at $10 remains in ending inventory.
   
ABC Co. uses a perpetual inventory system and uses the weighted average 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.
 
$151.80               (96 + 180 / 20 = 13.80) then (13.80 x 11 = 151.80)
   
Assume that Sparks uses a perpetual FIFO inventory system. Its ending inventory consists of 9 units. Calculate the dollar value of its ending inventory.


Jan 1: Begging inventory: 10 @ 12
Jan 8: Purchase: 20 @ 18
Jan 15: Sale: 21 units
 
$162
   
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. (Check all that apply.)
 
Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal.
Companies using FIFO will report the smallest cost of goods sold.
Companies using FIFO will report the highest gross profit and net income.
Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.
   
The difference between the LIFO and FIFO disclosed in the notes to the financial statements of a company currently
utilizing the LIFO cost flow assumption is sometimes referred to what?
 
LIFO reserve
 
What are the 3 costs that are recognized in work in process for a manufacturing company?
 
1) overhead
2) raw materials
3) direct labor
   
Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production?
Raw materials inventory
   
What are the 4 methods used for inventory costing?
 
1) FIFO
2) LIFO
3) Weighted average
4) Specific identification
   
Manufacturing companies
 
Purchase goods that are used to produce another product
   
Wholesale and retail companies
 
Purchase goods that are primarily in completed form
   
In a periodic inventory account, the inventory account is (blank)
 
Not adjusted as purchases and sales are made
   
What type of companies purchase inventory that is primarily in finished form and ready for resale to customers?
 
Merchandising companies
   
Which following accounts are typically reported in the balance sheet of a manufacturing company?
 
Work in process, raw materials, finished goods
   
The work in process inventory account typically includes which costs?
 
Indirect manufacturing costs (overhead), raw materials, and direct labor
 
Net realizable value is referred to as what?
 
The estimated selling price of inventory less costs necessary to sell the inventory
   
Manufacturing companies definition
 
Companies that produce the inventory they sell
   
A company is most likely to utilize the specific identification method if its inventory consists of what types of products?
 
Unique products and very expensive products
   
Specific identification method definition
 
The inventory costing method that matches each unit of inventory with its actual cost
   
Perpetual inventory system
 
Company recognizes cost of goods sold each time it recognizes a sale
   
Periodic inventory system
 
Company recognizes cost of goods sold after completing a physical inventory
   
FOB destination means title to the goods passes when (blank)
 
Passes when they arrive at the destination
   
On a multistep income statement, the category of revenues and expenses reported immediately after operating
income is referred to as what?
 
It's referred to as non-operating revenues and expenses
   
Freight-in
 
Added to cost of inventory
   
Freight-out
 
Recognized as operating expense
   
Items held for sale in the normal course of business are referred to as what?
 
Inventory
   
Gross profit equation
 
(Net sales revenue) - (cost of goods sold)
   
Which 3 are reported in operating income?
 
1) Selling expenses
2) Revenue
3) Advertising expenses
   
Where is inventory reported in the financial statements?
 
Balance sheet as a current asset
   
The average cost method assumes that the ending inventory consists of what?
 
A mixture of all the goods available for sale
   
Which method of valuing inventory was developed to avoid reporting inventory at an amount that is smaller
than the benefits it can provide?
 
Lower of cost and net realizable method
 
For internal record keeping, most companies carry their inventory using which basis?
FIFO basis
   
Which 3 are included in calculating operating income?
 
1) General and administrative expenses
2) Utility expense
3) Cost of goods sold
   
The lower cost and net realizable value method represents an application of what principle?
 
Conservatism principle
   
A major difference between companies that provide services and companies that manufacture or sell goods is that
those that manufacture or sell goods must account for:
 
inventory
   
The definition of inventory includes which of the following items?
Items currently in production for future sale
Items used currently in the production of goods to be sold
Items held for resale
   
Inventory is classified as
 
current asset
   
What type of company purchases raw materials and makes goods to sell?
 
Manufacturers
   
Which of the following accounts are typically reported in the balance sheet of a manufacturing company?
 
Finished goods
Work in process
Raw materials
   
Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers
must account for (Select all that apply.)
 
inventory
cost of goods sold
   
______ companies purchase inventory that is primarily in finished form and ready for resale to customers.
 
Merchandise
   
Items held for sale in the normal course of business are referred to as ______.
 
inventory
   
Raw materials, direct labor, and manufacturing _______ are the three costs related to the manufacturing of products.
 
overhead
   
Where is inventory reported in the financial statements?
 
Balance sheet as a current asset
   
A multiple-step income statement reports multiple levels of ______
 
income
   
Companies that produce the inventory they sell are referred to as ________.
 
Manufacturers
   
Gross Profit is
 
Net Sales Revenue minus Cost of Goods Sold.
   
Which of the following accounts would be found in the balance sheet of a manufacturing company?
 
Work in process
   
The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.
 
specific identification
   
Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies.
 
Merchandising
   
Which of the following costs are recognized in work in process for a manufacturing company?
 
Raw materials
Direct labor
Overhead
   
A company is most likely to utilize the specific identification method if its inventory consists of very expensive products.


unique products.
   
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before
taxes is a ______ income statement.
 
multiple-step
   
In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs
 
incurred several years earlier.
   
Net sales revenue minus cost of goods sold is
gross profit.
 
   
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?
 
LIFO
   
The specific identification method (select all that apply):
 
would be beneficial to a company that makes fine jewelry
matches each unit of inventory with its actual cost
   
Which of the following companies would be most likely to utilize the specific identification method?
 
Adams Company produces one-of-a-kind products.
   
FIFO
 
Most closely approximates the actual physical flow of inventory
   
LIFO
 
Provides better matching of current revenues with current inventory cost
   
Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.
 
Inventory
Cost of Goods Sold
   
Which inventory cost flow method approximates the physical flow of inventory items?
 
FIFO
   
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?
 
FIFO
   
In times of rising prices, ending inventory determined using the LIFO inventory assumption will be _______ than ending
inventory determined using the FIFO inventory assumption.
lower
   
When prices increase, the _______ inventory method provides the best matching of revenue and expenses.
Last-In-First-Out
   
The _____ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.
 
FIFO
   
There are advantages to using each of the four inventory costing methods. Identify the statements below that are
correct regarding these advantages. (Check all that apply.)
 
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.
   
Chocolate Inc. uses the weighted average cost flow assumption in a perpetual inventory system. During the month, it had
two sales totaling 15 units. Calculate the cost of goods sold for the first sale made on Mar. 20.
 
$276     (250 + 440) / 30 = 23) then (23 x 12 = 276)
   
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.
   
An advantage of the LIFO method is that it best matches
current costs with revenues
   
Identify the ways in which lower of cost or market can be applied to merchandise inventory. (Check all that apply.)
 
It can be applied to major categories of items.
It can be applied to the inventory as a whole.
It can be applied to each item individually.
   
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
 
ending inventory of one period is the beginning inventory of the next period.
   
Which of the statements below are true about LCM? (Check all that apply.)
 
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.
   
Explain the inventory and cost of goods sold relationship by selecting the correct formula below.
 
Beginning inventory + Net purchases - Ending inventory = Cost of goods sold.
   
Review the steps below that apply LCM to individual items of inventory. Place them in the correct order of occurrence.
 
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 total market value for each item
5. Compare recorded cost of each inventory item with its replacement cost.
6. Adjust inventory downward when market is less than cost
   
XYZ Company made a mistake in counting its ending inventory. Determine which of the items below will be affected by
this error. (Check all that apply.)
 
Net income
Current assets
Cost of goods sold
   
Determine which of the following statements is correct regarding the relationship of ending inventory and beginning inventory.
 
The ending inventory of the previous period is the beginning inventory of the current period.
   
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.
 
$2,000 overstatement of cost of goods sold.
$2,000 understatement of net income.
   
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. (Check all that apply.)
 
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. (Check all that apply.)
 
The current year's cost of goods sold will be too high.
The current year's net income will be too low.
   
In year 1, Shell Company understated their ending inventory. What is the effect of this error in year 2? (Check all that apply).
 
Cost of goods sold is understated.
Beginning inventory is understated.
   
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 (5,000 + 20,000 - 9,000 = 16,000)
   
True or false: If Dogs R Us overstates ending inventory on the balance sheet, then total equity on the balance sheet will be overstated as well.
 
True
   
If ending inventory at the end of the year is understated, what is the effect on cost of goods sold and net income?
 
Cost of goods sold will be overstated and net income will be understated.
   
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.
   
In year 1 ending inventory is overstated by $2,000. Explain the effect on cost of goods sold, gross profit and net income
in year 1 and year 2 Select all answers that apply.
 
Gross profit in the current year, year 1, will be overstated.
Cost of goods sold in the following year, year 2, will be overstated.
Gross profit in the next year, year 2, will be understated.
Cost of goods sold in the current year, year 1, will be understated.
   
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. (Check all that apply.)
 
This year's total assets will be understated.
This year's total equity will be understated.
   
Which of the following statements correctly explains what the inventory turnover ratio assesses.
 
The inventory turnover ratio assesses whether management is doing a good job controlling the amount of inventory.
   
Review the statements below and select the ones that are correct regarding the days' sales in inventory ratio.
(Check all that apply.)
 
The ratio reveals how much inventory is available in terms of the number of days' sales.
The ratio estimates how many days it will take to convert inventory into accounts receivable or cash.
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.
   
Recall the four inventory costing methods used to assign costs to inventory and cost of goods sold under the periodic
inventory system. (Check all that apply.)
 
Specific identification
Last-in, first-out
First-in, first-out
Weighted average
   
Recall the formula for computing a company’s inventory turnover ratio.
 
Inventory turnover = Cost of goods sold/Average inventory
   
Recall the formula for figuring Days' Sales in Inventory.
 
(Ending inventory / Cost of goods sold) x 365
   
All of the following are inventory costing methods used under a periodic inventory system except:
 
last in, last out
   
Assume that J-Mart uses a periodic weighted average inventory system. Calculate the average cost per unit.
 
$14.50                                 (180 + 75+ 180) / 30 = 14.50)
   
Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which
correctly describe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.
(Check all that apply.)
 
Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.
Companies using LIFO will report the highest ending inventory on their balance sheets, as compared to companies using FIFO or weighted average.
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.

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2