Chapter 7

Question 1

Increased customer demand might cause inventory prices to – – –?

Answer 1

Increase

Question 2

A company wrote down it’s inventory to the lower replacement value. The effect on the company’s accounting equation includes a – – –/– – –

Answer 2

Decrease in assets/decrease in stockholders equity

Question 3

The journal entry to record a right down of inventory from cost to his lower market value includes a – – –/– – –

Answer 3

Credit to inventory/debit to cost of good sold

Question 4

FIFO, and inventory costing method, actually describes how to calculate the cost of – – –

Answer 4

Goods sold

Question 5

True or false: FIFO perpetual and FIFO periodic inventory methods result in the same amount of cost of good sold.

Answer 5

True

Question 6

A company had 5 1carat diamonds available for sale this year: one purchased June 1 for $500, two purchased July 9 for $550 each, and two purchased September 23 for $600 each. On December 24 it sold one of the diamonds. Using FIFO periodic, it’s cost of goods sold for the year ended is – – –

Answer 6

$500

Question 7

Company B bought inventory FOB shipping point from company S for $4000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by a company C, in transit between Company B and Company S. Which company should include these goods in its December 31 inventory?

Answer 7

Company B should include the $4000 and it’s inventory

Question 8

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs? -/-

Answer 8

LIFO/FIFO

Question 9

The assumption that a company makes about it’s inventory cost flow has a significant effect on the companies – – –/– – –

Answer 9

Balance sheet/income statement

Question 10

A company started the month with three quilts in its beginning inventory that cost $200 each. During the month, the company purchased seven additional quilts for $210 each. At the end of the month, the company counted inventory and found that two quilts remained unsold. If the company uses periodic weighted average cost, it’s cost of goods sold for the month is – – –

Answer 10

$1656

Question 11

On May 1, beginning inventory consist of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual FIFO, the cost of goods sold for the month ended may 31 equals – – –

Answer 11

$124

Question 12

On May 1, beginning inventory consist of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual LIFO, the cost of goods sold for the month ended may 31 equals – – –

Answer 12

$140

Question 13

Reduction in obsolescence and in inventory storage costs may occur with a – – – inventory turnover ratio.

Answer 13

Higher

Question 14

Beginning inventory plus purchases minus ending inventory equals

Answer 14

Gross profit

Question 15

A companies cost of good sold equals $10,000. It’s beginning inventory was $800, and it’s ending inventory was $1200. The companies days to sell equals – – – days.

Answer 15

36.5

Question 16

Inventory items being transported from a seller to a buyer

Answer 16

Goods in transit

Question 17

On May 1, beginning inventory consist of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual Weighted average cost, the cost of goods sold for the month ended may 31 equals – – –

Answer 17

$132

Question 18

On May 1, beginning inventory consist of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Will the cost of goods sold we higher using FIFO periodic inventory system or FIFO perpetual inventory system?

Answer 18

Cost of goods sold will be the same

Question 19

Using LIFO, Cost of goods sold will be higher, gross profit will be lower, income tax expense will be higher, if cost of acquiring inventory is – – –

Answer 19

Rising

Question 20

An increase in the demand for the company’s products, I decrease in total inventory, can explain a — in a company’s inventory turnover ratio

Answer 20

Increase

Question 21

A company started the month with three quilts in its beginning inventory that cost $200 each. During the month, the company purchased seven additional quilts for $210 each. At the end of the month, the company counted inventory and found that two quilts remained unsold. If the company uses periodic LIFO, it’s cost of goods sold for the month is – – –

Answer 21

$3780

Question 22

If a companies days to sell equals 73 days based on a 365 days a year, then it’s inventory turnover ratio equals – – – times

Answer 22

Five

Question 23

A company had 5 1carat diamonds available for sale this year: one purchased June 1 for $500, two purchased July 9 for $550 each, and two purchased September 23 for $600 each. On December 24 it sold one of the diamonds. Using periodic weighted average cost, it’s cost of goods sold for the year ended is – – –

Answer 23

$560

Question 24

Chicken little started the month with five eggs in it’s inventory that cost $2 each. During the month, chicken little bought 30 more eggs that cost $2.50 each. At the end of the month, chicken little counted it’s inventory and found that eight eggs remained unsold. If chicken little uses FIFO periodic, it’s cost of goods sold for the month is —

Answer 24

$65

Question 25

A company wrote down it’s inventory to the lower replacement value. The effect on the companies accounting equation includes – – –/– – –

Answer 25

Decrease in assets/decrease in stockholders equity

Question 26

A company had 5 1carat diamonds available for sale this year: one purchased June 1 for $500, two purchased July 9 for $550 each, and two purchased September 23 for $600 each. On December 24 it sold one of the diamonds. Using LIFO periodic, it’s ending inventory is – – –

Answer 26

$2200

Question 27

The journal entry to record a write down of inventory from cost to it’s lower market value includes a – – –/– – –

Answer 27

Debit to cost of good sold/credit to inventory

Question 28

When analyzing a company’s inventory turnover ratio, it is more important and more meaningful to compare the ratio with – – –

Answer 28

Prior years ratios for the company

Question 29

A company has net sales of $50,000, cost of good sold of $30,000, and selling expenses of $5000. It’s gross profit is

Answer 29

$20,000

Question 30

A company started the month with 20 lamps in its beginning inventory that cost $30 each. During the month, the company purchased 80 additional lamps for $31 each. At the end of the month, the company counted inventory and found that 25 lamps remained unsold. if the company uses periodic weighted average cost, it’s cost of good sold for the month is – – –

Answer 30

$2310

Question 31

When costs to purchase inventory are falling over time, using LIFO leads to reporting – – – inventory on the balance sheet then FIFO.

Answer 31

Higher

Question 32

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, ending inventory at May 31 is – – –

Answer 32

$228

Question 33

King costume started the month with eight masks in its beginning inventory that cost $10 each. During the month, king costume purchased 40 additional masks for $12 each. At the end of the month, King counted it’s inventory and found that five masks remained unsold. If king costume uses LIFO periodic, it’s cost of good sold for the month is

Answer 33

$510

Question 34

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual LIFO, ending inventory at May 31 is – – –

Answer 34

$220

Question 35

A company started the month with 10 gadgets in its inventory that cost $5 each. During the month, the company bought 50 more gadgets that cost $6 each. At the end of the month, the company counted it’s inventory and found that eight gadgets remained in sold. If the company uses FIFO periodic, it’s cost of goods sold for the month is – – –

Answer 35

$302

Question 36

Most companies report their lower cost of market write down expense as – – – even if the goods haven’t been sold, because it’s a necessary cost of carrying and selling the good.

Answer 36

Cost of goods sold

Question 37

FIFO, LIFO, and weighted average inventory costing methods are based on —

Answer 37

Assumptions that accountants make about the flow of inventory costs

Question 38

Gross profit will be lower, income tax expense will be lower, and cost of good sold will be higher if cost of acquiring inventory is – – – and using LIFO

Answer 38

Rising

Question 39

A company had 5 1carat diamonds available for sale this year: one purchased June 1 for $500, two purchased July 9 for $550 each, and two purchased September 23 for $600 each. On December 24 it sold one of the diamonds. Using periodic weighted average cost, its inventory after the December 24 sale is – – –

Answer 39

$2240

Question 40

A company had 5 1carat diamonds available for sale this year: one purchased June 1 for $500, two purchased July 9 for $550 each, and two purchased September 23 for $600 each. On December 24 it sold one of the diamonds. Using FIFO periodic, it’s inventory at December 31 is – – –

Answer 40

$2300

Question 41

If companies are required to adopt IFRS, companies will no longer be able to use —.

Answer 41

LIFO