Chapter 6: Economics - Goods

Merchandise inventory includes: All goods owned by a company and held for sale. All goods in transit. All goods on consignment. Only damaged goods. Only non-damaged goods.

Goods in transit are included in a purchaser's inventory: At any time during transit. When the purchaser is responsible for paying freight charges. When the supplier is responsible for freight charges. If the goods are shipped FOB destination. After the half-way point between the buyer and seller.

Damaged and obsolete goods that can be sold: Are never counted as inventory. Are included in inventory at their full cost. Are included in inventory at their net realizable value. Should be disposed of immediately. Are assigned a value of zero.

Consignment goods are: Goods shipped by the owner to the consignee who sells the goods for the owner. Reported in the consignee's books as inventory. Goods shipped to the consignor who sells the goods for the owner. Not reported in the consignor's inventory since they do not have possession of the inventory. Always paid for by the consignee when they take possession.

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between beginning inventory and net purchases during the period. ending inventory and beginning inventory. net purchases during the period and ending inventory. ending inventory and cost of goods sold. beginning inventory and cost of goods sold.

Physical counts of inventory: Are not necessary under the perpetual system. Are necessary to adjust the Inventory account to the actual inventory available. Must be taken at least once a month. Requires the use of hand-held portable computers. Are not necessary under the cost-to benefit constraint.

Costs included in the Merchandise Inventory account can include all of the following except: Invoice price minus any discount. Transportation-in. Storage. Insurance. Damaged inventory that cannot be sold.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is: Specific identification method. Average cost method. Weighted-average method. FIFO method. LIFO method.

The inventory valuation method that tends to smooth out erratic changes in costs is: FIFO. Weighted average. LIFO. Specific identification. WIFO.

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is: FIFO. Weighted average. LIFO. Specific identification. Lower of cost or market.

The inventory valuation method that results in the lowest taxable income in a period of inflation is: LIFO method. FIFO method. Weighted-average cost method. Specific identification method. Gross profit method.

The consistency concept: Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting. Requires a company to use one method of inventory valuation exclusively. Requires that all companies in the same industry use the same accounting methods of inventory valuation. Is also called the full disclosure principle. Is also called the matching principle.

The full disclosure principle: Prescribes that the notes to the financial statements report the change from one inventory valuation method to another. Requires that companies use the same accounting method for inventory valuation period after period. Is not subject to the consideration of materiality. Is only applied to retailers and manufacturers. Is also called the consistency principle.

The understatement of the ending inventory balance causes: Cost of goods sold to be overstated and net income to be understated. Cost of goods sold to be overstated and net income to be overstated. Cost of goods sold to be understated and net income to be understated. Cost of goods sold to be understated and net income to be overstated. Cost of goods sold to be overstated and net income to be correct.

An understatement of ending inventory will cause An overstatement of assets and equity on the balance sheet. An understatement of assets and equity on the balance sheet. An overstatement of assets and an understatement of equity on the balance sheet. An understatement of assets and an overstatement of equity on the balance sheet. No effect on the balance sheet.

The inventory turnover ratio is calculated as: Cost of goods sold divided by average merchandise inventory. Sales divided by cost of goods sold. Ending inventory divided by cost of goods sold. Cost of goods sold divided by ending inventory. Cost of goods sold divided by ending inventory times 365.

Days' sales in inventory is calculated as: Ending inventory divided by cost of goods sold. Cost of goods sold divided by ending inventory. Ending inventory divided by cost of goods sold times 365. Cost of goods sold divided by ending inventory times 365. Ending inventory times cost of goods sold

Giorgio had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals: 0.21. 4.51. 4.79. 76.1 days. 80.9 days.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except: LIFO method. FIFO method. Specific identification method. Weighted average method. Retail method.

Decisions management must make in accounting for inventory cost include all of the following except: Costing method. Perpetual or periodic inventory system. Customer demand for inventory. Use of market values or other estimates. Items included in inventory and their costs.

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the: Weighted average inventory method. First-in, first-out method. Last-in, first-out method. Specific identification method. Retail inventory method.

The conservatism constraint prescribes that: When multiple estimates of amounts to be received or paid in the future are equally likely, then the least optimistic amount should be used. A company use the same accounting methods period after period. Revenues and expenses are reported in the period in which they are earned or incurred. All items of a material nature are included in financial statements. All inventory items are reported at full cost.

Generally accepted accounting principles require that the inventory of a company be reported at: Market value. Historical cost. Lower of cost or market. Replacement cost. Retail value.

In applying the lower of cost or market method to inventory valuation, market is defined as: Historical cost. Current replacement cost. Current sales price. FIFO. LIFO.

Interim financial statements: Are required by the Congress. Are necessary to achieve full disclosure about a business's operations. Are statements prepared for periods of less than one year. Require the use of the perpetual method for inventories. Cannot be prepared if the company follows the conservatism principle.

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets. True False

The reliability of the gross profit method depends on a good estimate of the gross profit ratio. True False

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale? $304 $296 $288 $280 $276

Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold? $120. $124. $128. $130. $140.

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,000 Net sales: $80,000 Net purchases: $78,000 The company's gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be: $60,000. $20,000. $58,500. $63,000. $19,500.