70 Multiple choice questions
- The cost to replace an inventory item in its identical form,use market value price
the amount by which the sale price of inventory exceeds its cost per
dollar of sales. It equals gross profit divided by net sales
- False, Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.
costing method that assumes both Cost of goods sold and ending
inventory consist of a random mixture of all the goods available for
results in lower income taxes payable when inventory costs are
increasing because net income in this case is lower (than if FIFO were
used).The LIFO conformity rule requires a company that uses LIFO for tax
reporting to also use LIFO for financial reporting.
- False, Companies must report inventory at the lower of cost or market value.
- Inventory costing method that assumes the first units purchased (the first in) are the first ones sold (the first out)
- False, Sales revenue minus cost of goods sold equals gross profit.
A patent is an exclusive right to manufacture a product or to use a
process. A copyright is an exclusive right of protection given to the
creator of a published work such as a song, film, painting, photograph,
book, or computer software.
- price per unit times number of units sold
- (1) update the balance of inventory for its ending amount, (2) record
cost of goods sold, and (3) close the temporary purchases accounts to zero.
LIFO assumes the last purchases are sold first, reporting the most
recent inventory cost in cost of goods sold (in the income statement).
Thus, LIFO more realistically matches the current costs
of inventory needed to produce current revenues.
- Components that will become part of the finished product but have not yet been used in production
- gross profit minus operating expenses.
- An income statement that reports multiple levels of income (or profitability)
find Cost of goods sold which is " the cost of the units sold + your
lifo/fifo/weighted average adjustment + write down to market value if
needed" . Then do net sales minus this amount to find Gross Profit.
- operating income plus nonoperating revenues and minus
- True, We use the term capitalize to describe recording an expenditure as an asset.
of freight on shipments to customers, which is included in the income
statement as either a part of cost of goods sold or as a selling expense
- Inventory costing method that matches or identifies each unit of inventory with its actual cost
- Inventory items for which the manufacturing process is complete
- refers to the
products that have started the production process but are not yet complete at the end of the
- False, Declining-balance depreciation will be higher than straight-line depreciation in earlier years, but lower in later years.
- IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting
- cost of goods sold divided by average inventory. The ratio
shows the number of times the firm sells its average inventory balance during a reporting period.
Freight charge Debit inventory credit cash
return debit cash, credit inventory
- Difference between all revenues and all expenses for the period
- increasing an asset account (cash or accounts receivable) and increasing sales revenue.
profit divided by net sales. The gross profit ratio measures the amount
by which the sale price of inventory exceeds its cost per dollar of
sales. The higher the ratio, the higher is the "markup" a
company is able to achieve on its inventories
When a change in estimate is required, the company changes depreciation
in current and future years, but not in prior periods.
- False, The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use it for financial reporting.
- Cost of the inventory that was sold during the period
- False, A higher ratio is generally a stronger signal about the company's successful management of inventory.
number of times a firm sells its average inventory balance during a
reporting period. It equals Cost of Goods Sold divided by Average
- Operating income plus nonoperating revenues less nonoperating expenses
system that periodically adjusts for purchases and sales of inventory
at the end of the reporting period based on a physical count of
inventory on hand
- Cost to transport inventory to the company, which is included as part of the inventory cost
- Profitability from normal operations that equals gross profit less operating expenses
- debit to cost of goods sold and a credit to inventory
- FIFO, Since FIFO assumes the first purchases sell first,
the amount it reports for ending inventory better approximates it.
- Debit Accounts Payable for full amount, credit inventory for discount, credit cash for the rest (what you actually paid)
lower of cost or market method, that is, at cost (specific
identification, FIFO, LIFO, or weighted average cost) or market value
(replacement cost), whichever is lower. When market value falls below
cost, we adjust inventory down from cost to market value.
- Price per unit times number of units left
- The difference between sales revenue and COGS
- Inventory system that maintains a continual record of inventory purchased and sold
where companies report inventory in the balance sheet at the lower of
cost or market value, where market value equals replacement cost
- an item is sold and when you use a perpetual inventory system.
highest reported amount for ending inventory, the oldest (or first)
items are sold first and these are the lower cost items, leaving the
higher cost items to be reported in ending inventory.
highest reported amount of net income, the oldest (or first) items are sold first and these are the lower cost items. Reporting cost of goods sold based on the lower cost items results in net income being higher
- Items a company intends for sale to customers
adjustment used to convert a company's own inventory records maintained
on a FIFO basis to LIFO basis for preparing financial statements
- The first entry is the same as that under the periodic system. The
second entry involves recording the cost of goods sold and decreasing inventory.
- Total cost/Total number of units
- False, Accumulated Depreciation is a contra-asset account; it reduces an asset account.
- False, The debit is to the Inventory account.
- Inventory costing method that assumes the last units purchased (the last in) are the first ones sold (the first out)
- Approximate number of days the average inventory is held. It is 365 days divided by the inventory turnover ratio
- whether it says sold on account or sold in cash/ paid on account or paid in cash.