Chapter 8 Flashcards Preview

Intermediate Accounting II > Chapter 8 > Flashcards

Flashcards in Chapter 8 Deck (75):
1

A significant disadvantage of the periodic inventory system is that it assumes that quantities not on hand at the end of the period were __________.

sold

2

What is the proper order to reflect the typical cost flow for a manufacturing company?

1. Raw materials are used and recorded in work in process.
2. Direct labor is applied to work in process.
3. Manufacturing overhead is applied to work in process.
4. Costs of completed units are transferred to finished goods.
5. Cost flow to cost of goods sold when goods are sold.

3

What would we classify inventory as?

an asset

4

What would we classify Cost of Goods Sold as?

an expense

5

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be:

($1,980/$900 x 100) + $200 = $420

6

A purchase return that utilizes the perpetual inventory system means a reduction in both __________ and __________.

inventory and accounts payable

7

The FIFO method assumes that units sold are the __________ units acquired.

first

8

Purchase returns are recorded in a separate contra purchase account in a __________ inventory system.

periodic

9

Work-in-process contains cots of inventory that are __________.

not yet complete

10

What type of expenditures should be included in the cost of inventory of a merchandising company?

1. Expenditures necessary to bring inventory to condition and sales location.
2. Expenditures necessary to acquire inventory.

11

In a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in the following order:

1. Work in Process
2. Finished Goods
3. Cost of Goods Sold

12

Wholesale and retail companies purchase goods that are __________. While manufacturing companies purchases goods that are __________.

primary in completed form
used to produce another product

13

The cost of components purchased from another manufacturer that will become part of the finished product are recognized in the __________ account.

raw materials

14

Inventory refers to the assets of a company:

1. items held for resale
2. items used currently in the productions of goods to be sold
3. items currently in production for future sale

15

Inventory cost flow assumptions can be used to assign dollar amounts to:

ending inventory and cost of goods sold

16

Determining ownership of goods that are in transit at the end of the accounting period is important to:

assure proper inventory cutoff

17

A LIFO liquidation occurs when inventory quantities __________.

decline

18

When inventory is sold, the cost of inventory is recognized as a(n) __________.

expense

19

The LIFO inventory method assumes that the units that remain in ending inventory are:

the oldest units in inventory

20

If price changes during a period, then __________ generally will provide a better match of revenue and expenses.

LIFO

21

If goods are shipped f.o.b. destination, at time of shipment:

the seller still has legal title of the goods

22

The specific identification method __________ each unit on hand at the end of the period with its __________ cost.

matches
actual

23

Measurement of inventory and cost of goods sold always starts with determining the _________ quantities of goods.

physical

24

Which inventory system allocates cost of goods available for sale only from time to time?

periodic inventory system

25

Freight costs are added to the inventory account in a __________ system. In a __________ system, freight costs generally are added to a temporary account called freight-in or transportation-in.

perpetual
periodic

26

In a perpetual inventory system, a new weighted-average unit cost is calculated after each __________.

purchase

27

When a company determines the quantity of inventory items, it must consider:

1. units on consignment
2. units in transit
3. units it currently possesses

28

In a consignment, a company arrange for another company to:

sell its products

29

If goods are shipped f.o.b. destination, the __________ usually is responsible for shipping

seller

30

A _________ inventory system tracks units from purchase to sale.

perpetual

31

In a perpetual inventory system the inventory account is adjusted:

1. when inventory is sold
2. when inventory is purchased
3. when inventory is returned by the company to its supplier

32

If prices rise continually during the year, cost of goods sold tends to be __________ using the periodic LIFO method then using the perpetual LIFO method.

higher

33

LIFO inventory pools are to:

1. simplify record-keeping
2. reduce the risk of LIFO layer liquidation

34

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be __________ than ending inventory determined using the FIFO inventory assumption.

lower

35

If a company uses LIFO to measure taxable income, the company must use __________ for external financial reporting. This is known as the __________.

LIFO
LIFO conformity rule

36

Which of the following cost flow assumptions are acceptable under IFRS?

FIFO
weighted-average

37

Freight-in on purchases is typically recognized as:

part of the cost of purchasing inventory

38

A periodic inventory system __________ track the cost of merchandise sold.

does not

39

The average cost method assumes that ending inventory consists of:

a mixture of all the goods available for sale

40

Cost of goods sold amounts are always the same in a perpetual inventory system as in a periodic inventory system because the same __________ and __________ are first in and first out regardless of when cost of goods sold is recognized.

units
costs

41

The costs included in inventory are called __________.

product costs

42

What is the formula for cost of goods sold in a periodic inventory system?

Beg. Inventory + Net purchases - Ending inventory = COGS

43

Managers closely monitor inventory levels to:

1. ensure that sufficient units are available
2. minimize costs of ordering and carrying inventory

44

To calculate the cost index in layer year:

= Cost in layer year/Cost in base year

45

When a company returns inventory to the seller, net purchases __________.

decrease

46

The dollar-value LIFO inventory method extends the concept of inventory pools by allowing a company to combine a large variety of inventory items into one __________.

pool

47

When the price increases, the __________ inventory method tends to decrease a company's tax liability during a particular fiscal period.

LIFO

48

Under the DVL method, a layer may only be added during the current year if inventory at base-year cost has __________.

increased

49

Differences between the quantity of inventory determined by physical count and the quantity of inventory according to the perpetual system could be caused by:

1. system errors
2. theft
3. breakage
4. spoilage

50

Within LIFO inventory pools, all purchases during the period are considered to be made at the:

same time and same cost

51

When a company uses a perpetual inventory system, a physical inventory is:

still performed

52

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

53

In a perpetual inventory system, weighted-average cost becomes a(n) __________ average cost.

moving

54

Under the DVL approach, cost indexes are used to determine whether:

a real increase in inventory has occurred

55

At the end of the accounting period, the freight-in account is:

closed to cost of goods sold

56

Some companies refer to the LIFO reserve as a LIFO __________.

allowance

57

Under the dollar-value LIFO method, inventory is viewed as a quantity of _________, rather than a quantity of __________.

value
units

58

Purchase returns are recorded in a separate contra purchase account in a __________ inventory system.

periodic

59

A just-in-time (JIT) inventory system:

1. requires close coordination with suppliers
2. assists managers with inventory management

60

The __________ __________ principle and the __________ principle provide guidance for measuring inventory and cost of goods sold.

historical cost
matching

61

If prices rise continually during the year, cost of goods sold tends to be __________ using the periodic LIFO method than using the perpetual LIFO method.

higher

62

If a company uses the gross method in accounting for purchase discounts, discounts that are not taken are __________ and __________.

not recognized separately
result in higher cost of inventory

63

In the periodic inventory system, the inventory account during the accounting period reflects the:

cost of beginning inventory

64

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent:

costs incurred several years earlier

65

Periodic LIFO applies the LIFO concept to sales and total purchases at the __________ of the reporting period, while perpetual LIFO applies the concept after every __________ is made.

end
sale

66

In a perpetual inventory system, freight costs on purchases are:

added to the inventory account

67

What factors may influence a company's choice of inventory cost flow assumption?

1. Tax implications of choice
2. Actual physical flow of inventory
3. Financial statement effect

68

Generally, product costs are expensed when the related products are __________.

sold

69

Adoption of IFRS by a company that currently utilizes the LIFO method would likely result in:

1. lower cost of goods sold
2. higher taxable income

70

What would increase the gross profit ratio?

1. Sales price of a product increases by a higher % than does COGS
2. Sales price decreases by exactly the same amount as COGS

71

The inventory turnover ratio is a measure of a company's __________ in managing its investment in inventory.

effectiveness

72

The disclosure of a LIFO reserve enhances financial statement __________.

comparability

73

The __________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

74

GAAP requires disclosure of significant LIFO liquidations with respect to the effect on:

income

75

Ending inventory determined under the FIFO perpetual system method is the same as under the FIFO periodic inventory system __________.

under all circumstances