Ch 7 Valuation of Inventories: A Cost-Basis Approach

Question 1

a cost flow assumption that tracks inventory items on the basis of the average cost of all similar goods available during the period

Answer 1

average-cost method

Question 2

products that are delivered by a consignor (the owner) to a consignee (the agent) for the purpose of sale, storage, or shipment, without transferring the legal ownership of the goods

Answer 2

consigned goods

Question 3

the sum of (1) the cost of goods on hand at the beginning of the period, and (2) the cost of the goods acquired or produced during the period

Answer 3

cost of goods available for sale

Question 4

the difference between (1) the cost of goods available for sale during the period, and (2) the cost of goods on hand at the end of the period

Answer 4

cost of goods sold

Question 5

overcomes the problems of redefining pools and eroding layers

determines and measures any increases and decreases in a pool in terms of total dollar value, not the physical quantity of the goods in the inventory pool

Answer 5

dollar-value LIFO

Question 6

the desired approach which consists of pricing ending inventory at the most current cost

the value of the units in inventory is extended at both base-year prices and current-year prices

Answer 6

double-extension method

Question 7

this account includes the costs identified with the completed but unsold units on hand at the end of the fiscal period

Answer 7

finished goods inventory

Question 8

the cost flow assumption that assumes that a company sells goods in the order in which it purchases them

Answer 8

first-in, first-out (FIFO) method

Question 9

title of ownership passes to buyer only when the buyer receives the goods from the common carrier i.e. upon delivery

Answer 9

f.o.b. destination

Question 10

title of ownership passes to buyer when the supplier delivers goods to the common carrier i.e. when its loaded on the shipping truck

Answer 10

f.o.b. shipping point

Question 11

a method that records the purchases and accounts payable at the invoice price

Answer 11

gross method

Question 12

asset items that a company holds for sale in the ordinary course of business

Answer 12

inventories

Question 13

the cost flow assumption that matches the cost of the last goods purchased against revenue

Answer 13

last-in, first-out (LIFO) method

Question 14

the change in the allowance balance from one period to the next

Answer 14

LIFO effect

Question 15

when older inventory is matched with current revenues which distorts net income and leads to substantial tax payments

when a company sells the most recently acquired inventory first

Answer 15

LIFO liquidation

Question 16

the allowance account is called the Allowance to Reduce Inventory to LIFO account, also referred to as the ____

Answer 16

LIFO reserve

Question 17

the cost assigned to unsold units left on hand

the value of goods in stock, whether it’s finished goods or raw materials that are ready to sell, that are intended to be resold to customers

Answer 17

merchandise inventory

Question 18

when using the perpetual inventory method, companies use ____ since the inventory account is continuously updated for purchases of inventory, the average inventory cost will change each time a purchase is made

Answer 18

moving-average method

Question 19

a method that recognizes the purchases and related accounts payable at the invoice price less the cash discount

Answer 19

net method

Question 20

costs that are indirectly related to the acquisition of goods and are generally more difficult to assign to specific inventory items

Answer 20

period costs

Question 21

under this system, a company determines the quantity of inventory on hand only periodically

Answer 21

periodic inventory system

Question 22

this system continuously tracks changes in the Inventory account i.e. records all purchases and sales of goods directly in the Inventory account as they occur

Answer 22

perpetual inventory system

Question 23

costs that are directly connected with bringing inventory to the buyer’s place of business and converting the goods to a salable condition

Answer 23

product costs

Question 24

a deduction that a company may receive if the supplier offers it and the company pays the supplier’s invoice within a specified period of time

Answer 24

purchase discounts

Question 25

this account represents the cost of goods and materials on hand but not yet placed into production

Answer 25

raw materials inventory

Question 26

this method usually results in fewer LIFO liquidations

Answer 26

specific-goods pooled LIFO approach

Question 27

a cost flow assumption that calls for identifying the specific cost of each item sold and each item left in inventory

Answer 27

specific identification

Question 28

an inventory costing method that assigns average costs to each piece of inventory when it is sold during the year

Answer 28

weighted-average method

Question 29

this account represents the cost of raw material for these unfinished units, plus the direct labor cost applied specifically to this material and a ratable share of manufacturing overhead costs

Answer 29

work in process inventory

Question 30

inventory adjustment: LIFO inventory + LIFO reserve

Answer 30

= FIFO inventory