Chapter 7: Inventories Flashcards

1
Q

How is inventory measured under FIFO?

A

The lower of cost or net realizable value (NRV)

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2
Q

How do you calculate goods available for sale?

A

Beginning Inventory + Purchases + Freight-in

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3
Q

How do you calculate COGS using gross margin %?

A

100% - Gross margin % = COGS %

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4
Q

How do you calculate COGS with goods available for sale?

A

(Goods available for sale) - Ending Inventory

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5
Q

How can you calculate a price index?

A

Ending inventory at current-year cost/ending inventory at base-year cost

Dividing the ending inventory at current-year cost by the ending inventory at the base-year cost. Base year will always have a 1.0 price index

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6
Q

How do you calculate the cost of goods sold for manufacturer?

A

Beginning finished goods inventory + Cost of goods manufactured = Goods available for sale - Ending finished goods inventory = COGS

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7
Q

How do you calculate the costs of goods manufactured?

A

Beginning WIP inventory + Manufacturing costs - Ending WIP inventory

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8
Q

How do you calculate manufacturing costs?

A

Direct materials costs + Direct labor costs + Manufacturing overhead costs

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9
Q

How do you calculate direct materials used?

A

Beginning raw materials inventory + Net purchases, including freight - Ending raw materials inventory

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10
Q

What are the three manufacturing inventory accounts?

A

Raw materials
WIP
Finished goods

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11
Q

What are the two inventory systems? And what is the difference?

A

Perpetual - Always up to date, JE will hit the inventory immediately
Periodic - Up to date with a physical count at year-end, JE hits purchases and then at year end, we DB inventory and costs of goods sold and CR purchases

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12
Q

What does a right of return journal entry look like?

A

When inventory is sold:
(DB) Cash
(CR) Sales
(CR) Refund Liability
(DB) Costs of goods sold
(DB) Return asset
(CR) Inventory

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13
Q

What are the five cost flow methods for inventory?

A

Moving average
Weighted average
FIFO
LIFO periodic
LIFO perpetual

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14
Q

In inflationary times, FIFO and LIFO will

A

FIFO will have highest ending inventory and highest net income
LIFO will have the lowest ending inventory and lowest net income

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15
Q

What are the four steps for dollar-value LIFO

A
  1. Restate at base-year cost
  2. Identify layers of inventory
  3. Determine price index for each layer
  4. Restate each layer of inventory using price index
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16
Q

How is LIFO inventory measured?

A

Lower of cost or market (LCM), Market has to be between the ceiling and the floor (ceiling = NRV) (floor = NRV - normal profit margin). Market is current replacement cost

17
Q

What would an overstatement of ending inventory result in for COGS and NI?

A

Because Cost of Goods Available for Sale - Ending inventory = COGS, an overstated ending inventory would result in an understated COGS. Because Revenue - COGS = NI, an understated COGS would result in an overstated NI.

18
Q

Accelerating purchases at the end of the year when using last-in, first-out inventory method in times of rising prices will result in what for NI?

A

A decrease in income.

19
Q

What does the moving-average require you to do?

A

It requires that you calculate the determination of new weighted-average cost after each purchase.

20
Q

What is the cost of goods sold equal to for the moving-average?

A

It will be the average after each purchase prior to the sale x the amount sold