Chapter 5 Questions Flashcards
Merchandise inventory includes all of the following except: Goods held for sale, Goods located in the warehouse, Goods sold, Goods located in an off-site warehouse
Goods Sold
Goods in transit shipped to Abbey (purchaser) FOB Destination. How would this item be handled in Abbey Company’s inventory?
Exclude from inventory
Goods in transit shipped to Abbey (purchaser) FOB Shipping Point. How would this item be handled in Abbey Company’s inventory?
Include in inventory
Goods in transit shipped by Abbey (seller) FOB Destination. How would this item be handled in Abbey Company’s inventory?
Include in inventory
Goods in transit shipped by Abbey (seller) FOB Shipping Point. How would this item be handled in Abbey Company’s inventory?
Exclude from inventory
Goods on consignment (Abbey is consignee). How would this item be handled in Abbey Company’s inventory?
Exclude from inventory
Goods on consignment (Abbey is consignor). How would this item be handled in Abbey Company’s inventory?
Included in inventory
Obsolete inventory that can be sold. How would this item be handled in Abbey Company’s inventory?
Include in inventory
Damaged inventory that cannot be resold. How would this item be handled in Abbey Company’s inventory?
Exclude from inventory
If a perpetual inventory system is in use _____.
a physical inventory count should be taken at least annually.
During a period of regularly rising purchase costs, this method yields the highest reported cost of goods sold amount on the income statement.
LIFO
During a period of regularly rising purchase costs, this method yields the lowest income tax expense.
LIFO
During a period of steadily rising costs, this method results in the highest amount of inventory reported on the balance sheet.
FIFO
An advantage of the _____ costing method is that the cost of goods sold approximates its current cost.
LIFO
Under the conformity rule, companies who use the _____ method for tax reporting, are required by the IRS to also use it in their financial statements.
LIFO
Market value is replacement cost for LIFO, but net ___ value is used for FIFO, Specific Identification and Weighted Average methods.
realizable
An error in the ending inventory balance in Year 1 will also affect:
Year 1 Cost of Goods
Year 2 Beginning Inventory
Year 2 Cost of Goods Sold
Colman Company reports ending inventory in year 1 of $25,000 instead of the correct amount of $20,000. The effects of this error include: (x2 only year 1)
Year 1 ending inventory is overstated and year 1 cost of goods sold is understated
A company overstated its ending inventory at the end of Year 1. If the error was not detected, cost of goods sold would be _____ for Year 1.
Understated
A company overstated its ending inventory at the end of Year 1. If the error was not detected, cost of goods sold would be _____ for Year 2.
Overstated
A company overstated its ending inventory for Year 1. If the error was not detected, total assets would be _____ for Year 1.
Overstated
If all units are purchased at the same unit cost, cost of goods sold will ____?
be the same for all four methods
What are the two reasons that inventory must be estimated?
- A company experiences a casualty
- Interim financial statements are prepared
The formula for Step 1 of the retail inventory method is:
Goods available for sale at retail minus net sales at retail.
The gross profit method estimates the cost of ending inventory by applying:
Gross profit ratio to net sales.
