Chapter 6

Question 1

Q 6.22: The inventory turnover is the cost of goods sold ____ average inventory

Answer 1

divided by

Question 2

Q 6.23: If a company carries a lower inventory than the industry average, but are still a highly successful company, outselling the competition, what can explain their success?

Answer 2

They have a just-in-time inventory system.

Question 3

Q 6.24: ________ methods such as FIFO and LIFO deal more with flow of costs than with flow of goods.

Answer 3

Inventory

Question 4

Q 6.25: Goods that are held for sale by one party although ownership of the goods is retained by another party are called

Answer 4

consigned goods –

Question 5

Q 6.26: When goods are shipped FOB destination, the ________ holds the legal title until the goods reach the buyer.

Answer 5

seller

Question 6

Q 6.27: Goods in transit are included in the inventory of buyer when the terms of sale are

Answer 6

FOB shipping point —

Question 7

Q 6.28: What is the meaning of work in process inventory?

Answer 7

that portion of manufactured inventory that has begun the production process but is not yet complete

Question 8

Q 6.29: In a period of increasing prices of goods, if two companies report the same cost of goods available for sale but each employs a different inventory costing method, then the company using the
method will have the highest ending inventory.

Answer 8

FIFO

Question 9

Q 6.30: Which of the following are categories manufacturers use to classify inventory? Select all that apply.

Answer 9

Raw materials, work in progress, finished goods

Question 10

Q 6.31: The inventory turnover is calculated as cost of goods sold ______ by average inventory.

Answer 10

divided

Question 11

Q 6.32: The ________ is the difference between ending inventory using LIFO and ending inventory if FIFO were used instead.

Answer 11

LIFO reserve

Question 12

Q 6.33: The best term to describe the assumptions made in applying the four inventory methods is “cost flow.”

Answer 12

True

Question 13

Q 6.34: If companies have identical inventoriable costs available for sale, but use different inventory flow assumptions when the prices of goods have not been constant, which of the following will be true?

Answer 13

The cost of goods purchased during the year will be identical.

Question 14

Q 6.35: A company interested in the lowest amount of income tax expense in a period of increasing prices should use which inventory cost flow assumption?

Answer 14

LIFO costing–

Question 15

Q 6.36: Given equal circumstances and generally rising costs, the ________________
method will increase the tax expense more than any other inventory method.

Answer 15

FIFO

Question 16

Q 6.37: Which of the following are items that will eventually be used in production?

Answer 16

raw materials

Question 17

Q 6.38: The category Current Assets on the balance sheet includes

Answer 17

all inventory —

Question 18

Q 6.39: Which of the following is the inventory ready for sale in a manufacturing company?

Answer 18

finished goods inventory –

Question 19

Q 6.40: What are consigned goods?

Answer 19

goods that are held for sale by one party although ownership of the goods is retained by another party

Question 20

Q 6.42: Physical possession of inventory determines whether or not goods should be included in a physical count of inventory.

Answer 20

False

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Question 21

Q 6.43: When is a physical inventory usually taken?

Answer 21

at the end of the company’s fiscal year

—-

Question 22

Q 6.44: FOB shipping point means that legal title of goods

Question 23

Q 6.45: Which of the following statements is correct?

Answer 23

Raw materials are basic goods that will be used in production but not have yet placed into production. ———

Question 24

Q 6.46: Under the perpetual inventory system, what is not a reason to take physical inventory?

Answer 24

determining ownership of the goods

Question 25

Q 6.47: Companies that use a
inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

Answer 25

periodic

Question 26

Q 6.48: Consigned goods should be included in the ending inventory of the person or company

Answer 26

that consigned the goods —

Question 27

Q 6.49: When goods are shipped FOB destination, when does the legal title transfer from the seller to the buyer?

Answer 27

when the buyer receives the goods—

Question 28

Q 6.50: Which of the following should be included in the buyer’s ending inventory?

Answer 28

goods in transit shipped FOB shipping point

Question 29

Q 6.51: Manufactured goods that are partially built but still in production are considered

Answer 29

work in process

Question 30

Q 6.52: Which of the following is correct?

Answer 30

A manufacturer’s inventory consists of raw material, work in process, and finished goods.

Question 31

Q 6.54: Inventory should be reported

Answer 31

as a current asset on the balance sheet

Question 32

Q 6.55: Inventory ready for sale in a manufacturing company is called

Answer 32

finished goods inventory

Question 33

Q 6.56: Consigned goods are goods that are

Answer 33

sold by a dealer on behalf of a party who retains the ownership —

Question 34

Q 6.57: Which one of the following determines whether or not goods should be included in a physical count of inventory?

Answer 34

legal title of goods —-

Question 35

Q 6.58: At the end of the company’s fiscal year, a company takes a physical inventory to

Answer 35

count the inventory on hand

Question 36

Q 6.59: Calculate the days in inventory by dividing

Answer 36

365 by the inventory turnover

Question 37

Q 6.60: One type of inventory costing method is

Answer 37

specific identification

Question 38

Q 6.61: The LIFO inventory method assumes that the cost of the latest units purchased is the first to be allocated to cost of goods sold.

Answer 38

true

Question 39

Q 6.62: Companies that use LIFO are not required to disclose LIFO reserve.

Answer 39

False

Question 40

Q 6.63: Which of the following statements concerning lower-of-cost-or-market (LCM) are correct? Select all that apply.

Answer 40

LCM is applied after one of the cost flow assumptions has been applied.

LCM is an example of a company choosing the accounting method that will be least likely to overstate assets and income.
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The LCM basis uses current replacement cost because a decline in this cost usually leads to a decline in the selling price of the inventory item.

Question 41

Finished goods inventory

Answer 41

is manufactured items that are completed and ready for sale.

Question 42

Work in process

Answer 42

is that portion of manufactured inventory that has begun the production process but is not yet complete.

Question 43

Raw materials

Answer 43

are basic goods that will be used in production but have not yet been placed into production.

Question 44

Just-in-Time (JIT) inventory

Answer 44

Many companies have significantly lowered inventory levels and costs using JIT, under this method, companies manufacture or purchase goods just in time for use. (ex, dell developed a system for making computers in response to individual customer requests).

Question 45

Inventory turnover formula

Answer 45

= Cost of goods sold ÷ average inventory (Beg + End/2)

Question 46

Days in Inventory Formula

Answer 46

= 365 ÷ Inventory Turnover.