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The inventory subsidiary ledger is used |
a. to keep track of proper inventory maximum and minimum levels. b. All of these choices are correct. c. to keep track of inventory sold. d. to keep track of inventory purchased. Correct answer: B |
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A physical inventory is used to |
a. help prevent employee thefts or misuses of inventory. b. All of these choices are correct. c. investigate major errors. d. compare physical inventory to book inventory. Correct answer: B |
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The inventory is added to the inventory records after all of the following are reconciled, except the |
sales invoice |
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Determine the gross profit using the weighted average cost flow method, assuming that only one item was sold on March 24 for $14. March 3 $4 |
$8 |
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Determine the ending inventory using the LIFO cost flow method, assuming that only one item was sold on March 24 for $14. March 3 $4 |
$10 |
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Determine the gross profit using the FIFO cost flow method, assuming that only one item was sold on May 24 for $14. March 3 $6 |
$8 |
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Inventory cost flow assumptions address accounting issues except when |
both of these choices address inventory accounting issues |
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When the weighted average cost method is used for the perpetual inventory system, a weighted average unit cost for each item is determined |
each time a purchase is made |
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Which of the following is a benefit of using a computerized perpetual inventory system? |
a. Computerized perpetual inventory systems help managers track inventory. b. All of these choices are benefits of using a computerized perpetual inventory system. c. Sales patterns can be analyzed easily when using computerized perpetual inventory systems. d. Computerized perpetual inventory systems are helpful when recording many inventory transactions. Correct answer: B |
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Determine the cost of merchandise sold for the transaction on September 25 using the perpetual inventory system and the FIFO method. |
$77 |
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Which of the following is true regarding the perpetual FIFO inventory method? |
Costs are included in the cost of merchandise sold in the order in which units were purchased. |
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Determine the ending inventory using the periodic inventory system and the LIFO inventory method, assuming that 18 units were sold at a sales price of $14. |
$30 |
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Determine the gross profit using the periodic inventory system and the FIFO inventory method, assuming that 18 units were sold at a sales price of $14. |
$182 |
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Determine the gross profit using periodic inventory system and the LIFO inventory method, assuming that 18 units were sold at a sales price of $14. |
$172 Feedback: LIFO: (18 × $14) – [(8 × $5) + (10 × $4)] = $172. |
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When a periodic inventory system is used |
only revenue is recorded each time a sale is made |
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The inventory cost method that will yield a higher ending inventory during times of inflation will be the |
FIFO inventory cost method |
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The cost method that will yield the highest taxable income during times of inflation is the |
FIFO inventory cost method |
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Morgan Industries is comparing and contrasting its ending inventory value in terms of the three common inventory costing methods in order to help management determine the most appropriate method to use. The company determines three values, which are: $96,000, $100,000, and $105,000. If management determines that $100,000 is the most appropriate value for its ending inventory, what inventory cost method has it most likely chosen? |
weighted average inventory cost method |
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Merchandise inventory is found on the balance sheet as a |
current asset. |
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During the taking of the physical inventory, the company inadvertently counted its inventory as $89,000 instead of the correct amount of $87,000. Indicate the effect of the misstatement on the balance sheet of the current year. |
Owner’s equity is overstated by $2,000. |
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During the taking of the physical inventory, the company inadvertently counted its inventory as $34,000 instead of the correct amount of $43,000. Indicate the effect of the misstatement on the balance sheet of the current year. |
Assets are understated by $9,000 |
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Merchandise inventory should be reported as follows except: |
as a long-term asset on the balance sheet |
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Financial statement data at December 31 for Alpine Company is shown below: Cost of merchandise sold $1,050,000 |
3.0 |
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Financial statement data at December 31 for Ecco Company is shown below: Cost of merchandise sold $552,500 |
3.25 |
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Inventory turnover measures |
a. the relationship between cost of merchandise sold and the amount of inventory carried during the period. b. neither of these are measured by inventory turnover. c. both of these are measured by inventory turnover. d. the efficiency and effectiveness of inventory management. Correct answer: C |
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Gordon Company uses the retail method of inventory costing. The retail value of the ending inventory is $325,000. If the ratio of cost to retail price is 66%, what is the amount of the ending inventory to be reported on the financial statements? |
$214,500 |
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Purchase Order |
Authorizes the purchase of the inventory from an approved vendor |
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Receiving Report |
Establishes an initial record of the receipt of the inventory |
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Physical Inventory |
(Count of inventory) should be taken near year-end to make sure that the quantity of inventory reported in the financial statements is accurate |
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Safeguarding Inventory |
Purchase Order Receiving Report Vendor’s Invoice |
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Specific identification inventory cost flow method |
the unit sold is identified with a specific purchase |
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First-in, first-out (FIFO) inventory cost flow method |
the first units purchased are assumed to be sold and the ending inventory is made up of the most recent purchases |
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Last-in, first-out (LIFO) inventory cost flow method |
the last units purchased are assumed to be sold and the ending inventory is made up of the most recent purchases |
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Weighted average inventory cost flow method |
(average cost flow method) the cost of the units sold and in ending inventory is a weighted average of the purchase costs |
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Total Cost of Units Available for Sale/Units Available for Sale |
Weighted Average Unit Cost |
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Lower-of-cost-or-market (LCM) method |
used to value inventory |
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Estimated Selling Price – Direct Costs of Disposal |
Net Realizable Value |
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Inventory turnover |
measures the relationship between the cost of merchandise sold and the amount of inventory carried during the period |
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Cost of Merchandise Sold/Average Inventory |
Inventory Turnover |
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Number of Days’ Sales in Inventory |
measures the length of time it takes to acquire, sell, and replace inventory |
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Average Inventory/Average Daily Cost of Merchandise Sold |
Number of Days’ Sales in Inventory |
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Retail Inventory Method |
estimating inventory cost requires costs and retail prices to be maintained for the merchandise available for sale |
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The retail inventory method is applied as follows: |
1. Determine the total merchandise available for sale at cost and retail 2. Determine the ratio of the cost to retail of the merchandise available for sale 3. Determine the ending inventory at retail by deducting the sales from the merchandise amiable for sale at retail 4. Estimate the ending inventory cost by multiplying the ending inventory at retail by the cost to retail ratio |
|
Gross Profit method |
Uses the estimated gross profit for the period to estimate the inventory at the end of the period |
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The gross profit method is applied as follows: |
1. Determine the merchandise available for sale at cost 2. Determine the estimated gross profit by multiplying the sales by the gross profit percentage 3. Determine the estimated cost of merchandise sold by debuting the estimated gross profit from the sales 4. Estimate the ending inventory cost by deducting the estimated cost of merchandise sold from the merchandise available for sale |
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The lower-of-cost or market method can be applied to |
A. Each item of inventory B. Each major class or category of inventory C. Total inventory as a whole D. All of these choices are correct Correct Answer: D |
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Merchandise inventory is classified as a ________ on the balance sheet? |
a current asset |
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Inventory turnover is calculated as |
cost of merchandise sold divided by average inventory |
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The number of days’ sales in inventory is calculated as |
the average inventory divided by the average daily cost of merchandise sold |
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Some examples of security measures to safeguard inventory include |
a. storing inventory is areas that are restricted to only authorized employees b. locking high-priced inventory in cabinets c. using two-way mirrors, cameras, security tags, and guards d. all of these choices are correct Correct answer: D |
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With a perpetual inventory system, when should a physical count of inventory be taken |
Near fiscal year-end, when inventory is at its lowest level |
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Which cost flow assumption assumes that the first units purchased are the first units sold |
FIFO |
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Which cost flow assumption assumes that the last units purchased are the first units sold |
LIFO |
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When the weighted average cost method is used in a perpetual inventory system, a weighted average unit cost for each item is computed |
each time a purchase is made |
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Jacobs Company has inventory of 15 units at a cost of $12 each on June 1. On June 5, Jacobs purchased 10 units at $13 per unit. On June 12, it purchased 20 units at $14 per unit. On June 17, it sold 30 units. Using FIFO, what is the value of the inventory at June 17 after the sale |
$210 |
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Which inventory method results in the highest net income during periods of using prices |
FIFO |
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Which inventory method results in the highest net income during periods of falling prices |
LIFO |
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Income Statement |
Sales – net Cost of Merchandise Sold Beginning Inventory Add: Purchases Available for Sale Less: Ending inventory Cost of Merchandise sold Gross Profit Operating Expenses Selling Administration Net income Capital |
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Listed on Balance Sheet |
-Merchandise inventory -Current assets -Total assets -Owners equity |
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Listed on Income Statement |
Cost of merchandise sold Gross profit Net income |
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consigned inventory |
Merchandise that is shipped by manufactures to retailers who act as the manufacturer’s selling agent |
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Cosignee |
The name for the retailer in a consigned inventory arrangement |
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Cosignor |
The name for the manufacturer in a consigned inventory arrangemet |
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First-in, first-out (FIFO) inventory cost flow method |
The method of inventory costing based on the assumption that the costs of merchandise sold should be charge against revenue in the order in which the costs were incurred |
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Gross profit method |
The method of estimating inventory cost that is based on the relationship of gross profit for sales |
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Last-in, first-out (LIFO) inventory cost flow method |
A method of inventory costing based not he assumption that the most recent merchandise inventory costs should be charged against revenue |
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Lower-of-cost-or-market (LCM) method |
A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost) |
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Net realizable value |
The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions |
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Number of days’ sales in inventory |
The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of good sold |
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Physical inventory |
A detailed listening of merchandise on hand |
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Purchase order |
Authorizes the purchase of the inventory from an approved vendor |
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Receiving report |
The form or electronic transmission used by the receiving personnel to indicate that materials have been received and inspected |
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Retail inventory method |
A method of estimating inventory cost that is based not the relationship of gross profit to sales |
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Subsidiary inventory ledger |
containing individual accounts for items of inventory |
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