accounting chapter 6

Card Set Information

accounting chapter 6
2013-04-16 23:20:44
kimmel accounting chapter

accounting chapter 6
Show Answers:

  1. What are legitimate reasons for taking a physical inventory?
    • To check the accuracy of the perpetual inventory records,
    • To determine cost of goods sold,
    • To determine if any inventory has been lost from waste, shoplifting, or employee theft
  2. Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped
    • FOB destination. 
    • Under these terms, title transfers when the buyer receives the purchased goods from the public carrier, not when the public carrier accepts them from the seller.
  3. Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped
    • FOB shipping point.
  4. A manufacturing company will normally have ...
    raw materials, work in process, and finished goods as inventory account classifications.
  5. Ceil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?
    • Ceil. 
    • Correct! Ownership remains with Ceil, so Ceil reports them as assets.
  6. Inventory costing methods place primary reliance on assumptions about the flow of
    • costs.
  7. Manufacturing firms usually classify their inventory into raw materials, work in process and finished goods.
  8. Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?
    • $40,000 
    • Ending inventory plus cost of goods sold minus purchases results in beginning inventory: $20,000 + $540,000 -$520,000 = $40,000.
  9. Under FIFO, cost of goods sold consists of the units with the oldest costs.
  10. What are acceptable inventory costing methods
    • Average cost
    • Last-in, first-out
    • First-in, first-out
  11. What does FIFO assume
    It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.
  12. In a period of rising prices which inventory method will result in the greatest amount of income tax expense?
    FIFO. FIFO will result in the lowest cost of goods sold, highest net income, and highest income tax expense.
  13. What does LIFO provide
    Correct! LIFO provides the closest relationship of replacement cost to cost of goods sold on the income statement.
  14. In a period of falling prices, which of the following methods will give the largest net income?
    LIFO will provide the highest net income during a period of falling prices.
  15. Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true?
    • The company using FIFO will have the highest ending inventory.
  16. Which situation requires a departure from the cost basis of accounting to the lower-of-cost-or-market basis in valuing inventory?
    A decline in the value of the inventory
  17. hat accounting concept is employed when using the lower-of-cost-or-market valuation?
    • Conservatism
  18. If inventory at the end of 2012and 2011is $30,000 and$40,000, respectively, and cost of goods sold is $276,000 and $290,000 respectively, the inventory turnover ratio for 2012 is ? 
    The inventory turnover ratio is computed by dividing cost of goods sold by average inventory. $276,000 / [($30,000 + $40,000)/2] = 7.89
  19. The following information came from the income statement of the Wilkens Company at December 31, 2012: sales $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. How much is Wilkens' days in inventory for 2012?
    Dividing 365 days of the year by the inventory turnover of 6 rsults in an average of 60.8 days in inventory.
  20. Net sales are $2,000,000, cost of goods sold is $960,000, and average inventory is $30,000. How many days sales are in inventory?
    Days sales in inventory is calculated as 365 days divided by inventory turnover.Inventory turnover = $960,000 / $30,000 = 32 timesDays sales in inventory = 365 / 32 = 11.4 days
  21. The inventory turnover ratio is calculated by dividing cost of goods sold by
    • average inventory.
  22. Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods?
    • LIFO reserve
  23. In 2012, a company shows inventory of $250,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $40,000 and $30,000 in 2012 and 2011, respectively. How much is the company's LIFO reserve in 2012?
    Correct! The LIFO reserve of $40,000 is the value for the year.
  24. If a firm is using a perpetual inventory system and is using the average-cost method of valuation, when is a new average cost computed?
    • After each purchase
  25. How do the results under FIFO in a perpetual system compare to the results using a periodic system?
    They are the same. The results under FIFO in a perpetual system are the same as in a periodic system. Regardless of the system, the first costs acquired are the costs assigned to cost of goods sold.
  26. Which is true if the ending inventory is overstated?
    • Net income will be overstated and the stockholders' equity will be overstated.
  27. If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?
    • It will have the reverse effect on the net income during the next accounting period.
  28. How do write downs of inventory differ under IFRS compared to GAAP?
    • GAAP allows write-downs, but disallows increases in value if the cost increases in value, while IFRS allows reversals of write-downs.
  29. Which one of the following methods is allowed under U.S. GAAP but not under IFRS?
    • LIFO
  30. At December 31, 2012, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following:•     $112,000 in inventory purchases made by Sunrise shipped from the seller December 27, 2012 terms FOB destination, but not due to be received until January 2, 2013•     $74,000 in goods sold by Sunrise with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6, 2013•     $6,000 of goods received on consignment from Wallwood Company  What is Sunrise's correct ending inventory balance at December 31, 2012?
    Correct! The balance of $752,000 should not include the $112,000 since ownership passes at destination on January 2. It should include the $74,000 because ownership passes at the shipping point on December 27. It should not include the $6,000 on consignment because these goods are not owned by Sunrise. Corrected balance = $752,000 - $412,000 - $6,000 = $634,000.
  31. A company just starting business made the following inventory transactions in August:    Purchase on August 1      350 units     $1,820    Sale on August 8           200 units      3,400    Purchase on August 12    400 units      1,340    Sale on August 24        350 units     5,950

    Using the average cost perpetual inventory method, how much is the average cost of the units sold on August 24?
    Correct! The average cost per unit on August 12 must consider the 150 remaining units and the August 12 purchase of 400 units. [(150 × $5.20) + (400 × $3.35)] / (150 + 400) = $3.85