# Shared Flashcard Set

## Details

Chapter 06.1 Test
Accounting 01
29
Accounting
12/01/2015

Term
 Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period? A. retail method of inventory costing B. Fixed asset turnover C. inventory turnover D. gross profit method of inventory costing
Definition
 C. inventory turnover
Term
 Which of the following is not an example for safeguarding inventory? A. Returning inventory that is defective or broken. B. Storing inventory in restricted areas. C. Matching receiving documents, purchase orders, and vendor’s invoice. D. Physical devices such as two-way mirrors, cameras, and alarms.
Definition
 A. Returning inventory that is defective or broken.
Term
 The following lots of a particular commodity were available for sale during the year: Beginning inventory          10 units at \$60 First purchase                   25 units at \$65 Second purchase              30 units at \$68 Third purchase                  15 units at \$75       The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the FIFO method? A. \$1,805 B. \$1,575 C. \$3,585 D. \$1,685
Definition
 A. \$1,805 (15 x 75) + (10 x 68) = 1,805 *Side Note: FIFO - Amount of Inventory At the End- Downward Second purchase              30 units at \$68 Third purchase                  15 units at \$75
Term
 The following lots of a particular commodity were available for sale during the year: Beginning inventory        5 units at \$61 First purchase                15 units at \$63 Second purchase           10 units at \$74 Third purchase               10 units at \$77 The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of cost of goods sold for the year according to the FIFO method? A. \$1,250 B. \$1,375 C. \$1,380 D. \$1,510
Definition
 A. \$1,250 (5 x 61) + (15 x 63) = 1,250 *Side Note: FIFO  - Amount of Cost of Goods Sold - Upward   Beginning inventory        5 units at \$61 First purchase                15 units at \$63
Term
 The following lots of a particular commodity were available for sale during the year: Beginning inventory      10 units at \$60 First purchase               25 units at \$65 Second purchase          30 units at \$68 Third purchase              15 units at \$75 The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the LIFO method? A. \$1,575 B. \$1,685 C. \$1,805 D. \$3,815
Definition
 A. \$1,575 (10 x \$60) + (15 x 65) = \$1,575   *Side Note: LIFO - Amount of Inventory At the End- Upward Beginning inventory      10 units at \$60 First purchase               25 units at \$65
Term
 Under a periodic inventory system A. accounting records continuously disclose the amount of inventory B. merchandise inventory is debited when goods are returned to vendors C. a separate account for each type of merchandise is maintained in a subsidiary ledger D. a physical inventory is taken at the end of the period
Definition
 D. a physical inventory is taken at the end of the period
Term
 If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is A. FIFO B. periodic C. average D. LIFO
Definition
 A. FIFO
Term
 Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold. True   False
Definition
 True
Term
 A purchase order establishes an initial record of the receipt of the inventory. True   False
Definition
 False
Term
 FIFO is the inventory costing method that follows the physical flow of the goods. True   False
Definition
 True
Term
 In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold. True   False
Definition
 False
Term
 The selection of an inventory costing method has no significant impact on the financial statements. True   False
Definition
 False
Term
 A perpetual inventory system is an effective means of control over inventory. True   False
Definition
 True
Term
 The average cost method will always yield results between FIFO and LIFO. True   False
Definition
 True
Term
 Cost flow is in the reverse order in which costs were incurred when using A. last-in, first-out B. weighted average C. average cost D. first-in, first-out
Definition
 A. last-in, first-out
Term
 The Boxwood Company sells blankets for \$60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Date                  Product Z                 Units         Cost May 3                Purchase                 5               \$20 May 10              Sale                         3 May 17              Purchase                10              \$24 May 20              Sale                         6 May 23              Sale                         3 May 30              Purchase                10              \$30 Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method. A. \$324 B. \$372 C. \$320  D. \$364
Definition
 D. \$364 ((5-3) x \$20) + ((10-6-3) x \$24) + (10 x \$30) = 364 (2 x \$20) + (1 x \$24) + (10 x \$30) = 364 *Side Note: LIFO - Ending Inventory - Subtract and Multiply Upward Date                  Product Z                 Units         Cost May 3                Purchase                 5               \$20 May 10              Sale                         3 May 17              Purchase                10              \$24 May 20              Sale                         6 May 23              Sale                         3 May 30              Purchase                10              \$30
Term
 Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: Sep. 1         Inventory        20 units at \$20          4        Sold                10 units         10       Purchased      30 units at \$25         17       Sold                20 units         30       Purchased      10 units at \$30 If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is A. \$650 B. \$700 C. \$750 D. \$800
Definition
 D. \$800 ((20 - 10) x \$30) + ((30 - 10) x \$25) = 800 *Side Note: FIFO - Cost of Ending Merchandise Inventory - Subtract and Multiply Donward Sep. 1         Inventory        20 units at \$20          4        Sold                10 units         10       Purchased      30 units at \$25         17       Sold                20 units         30       Purchased      10 units at \$30
Term
 The Boxwood Company sells blankets for \$60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Date          Product Z       Units      Cost May 3        Purchase        5            \$20 May 10      Sale                3 May 17      Purchase       10           \$24 May 20      Sale               6 May 23      Sale               3 May 30      Purchase      10            \$30 Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of May using the LIFO cost method. A. \$348 B. \$444 C. \$356 D. \$452
Definition
 B. \$444 [(3 x 60) + (6 x 60) + (3 x 60)] - [(3 x 20) +(6 x 24) + (3 x 24)] = 444 *Side Note: LIFO - Gross Profit - Upward
Term
 Ending inventory is made up of the oldest purchases when a company uses A. last-in, first-out B. retail method C. first-in, first-out D. average cost
Definition
 A. last-in, first-out
Term
 The following lots of a particular commodity were available for sale during the year: Beginning inventory     10 units at \$30 First purchase              25 units at \$32 Second purchase         30 units at \$34 Third purchase             10 units at \$35 The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the LIFO method? A. \$620 B. \$655 C. \$690 D. \$659
Definition
 A. \$620 (10 x \$30) + (10 x \$32) = \$620 *Sde Note: LIFO - Amount of Inventory At the End- Upward   Beginning inventory     10 units at \$30 First purchase              25 units at \$32
Term
 Garrison Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of \$45,000. During the year they purchased an inventory with a retail cost of \$300,000. After performing a physical inventory, they calculated their inventory cost at retail to be \$80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost. A. \$160,000 B. \$45,000 C. \$40,000 D. \$80,000
Definition
 C. \$40,000                                                         Cost              Retail Merchandise Inventory, June 1                            45,000 Purchases in June (net)                                       300,000 Merchandise Available for Sale (300,000-(45,000+80,000)) 345,000 Ratio of Cost to Retail Price (300,000-(45,000+80,000)) / 345,000     50% Merchandise Inventory, June 30 @ Retail Price      80,000 Merchandise Inventory, June 30 @ Est. Cost (80,000 x .5) 40,000
Term
 Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and owner's equity? A. net income is overstated, assets are overstated, owner's equity is overstated B. net income is understated, assets are understated, owner's equity is overstated C. net income is understated, assets are understated, owner's equity is understated D. net income is overstated, assets are overstated, owner's equity is understated
Definition
 A. net income is overstated, assets are overstated, owner's equity is overstated
Term
 During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method. True   False
Definition
 True
Term
 During periods of decreasing costs the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method. True   False
Definition
 False
Term
 The average cost inventory method is rarely used with a perpetual inventory system. True   False
Definition
 True
Term
 Retail Inventory Method (Definition)
Definition
 A method of estimating inventory cost that is based on the relationship of cost to retail price.
Term
 Weighted Average Cost (Equation)
Definition
 Total of net purchases + Beginning Inventory / Total Purchased Units + Begining Inventory Units     Ex: \$95/ 23 units
Term
 Inventory Turnover (Equation)
Definition
 The relationship between the cost of goods sold and the amount of inventory carried during the period, computed by dividing the cost of goods sold by the average inventory. Inventory Turnover = Cost of Merchandise Sold / Average Inventory In other words: COMS / ((Beginning of year Inventory + End of year Inventory) / 2)
Term
 FIFO and LIFO Calculations   1. FIFO amount of inventory at the end of the year 2. FIFO amount of cost of goods sold for the year 3. FIFO cost of merchandise sold 4. FIFO cost of ending merchandise inventory   1. LIFO amount of inventory at the end of the year 2. LIFO amount of cost of goods sold 3. LIFO ending inventory 4. LIFO cost of ending merchandise inventory 4. LIFO gross profit
Definition
 1. FIFO - Amount of Inventory At the End- Downward 2. FIFO  - Amount of Cost of Goods Sold - Upward 3. FIFO - Cost of Merchandise Sold - Subtract and Multiply Upward 4. FIFO - Cost of Ending Merchandise Inventory - Subtract and Multiply Donward   1. LIFO - Amount of Inventory At the End- Upward 2. LIFO - Amount of Cost of Goods Sold - Downward 3. LIFO - Ending Inventory - Subtract and Multiply Upward 4. LIFO - Cost of Ending Merchandise Inventory - Subtract and Multiply Upward 5. LIFO - Gross Profit - Upward (Review problem)
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