# Shared Flashcard Set

## Details

Chapter 06.2 Test
Accounting 01
26
Accounting
12/03/2015

## Additional Accounting Flashcards

Term
 The two most widely used methods for determining the cost of inventory are A. gross profit and average B. FIFO and LIFO C. LIFO and average D. FIFO and average
Definition
 B. FIFO and LIFO
Term
 Which of the following companies would be more likely to use the specific identification inventory costing method? A. Wal-Mart B. Best Buy C. Gordon’s Jewelers D. Lowe’s
Definition
 C. Gordon’s Jewelers
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 good sold for the year according to the average cost method?   A. \$1,375 B. \$1,510 C. \$1,380 D. \$1,250
Definition
 C. \$1,380 [(5 x \$61) + (15 x \$63) + (10 x \$74) + (10 x \$77)] / (5 + 15 + 10 + 10) = \$69 x 20 = \$1,380
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 LIFO method? A. \$1,250 B. \$1,375 C. \$1,510 D. \$1,380
Definition
 C. \$1,510 (10 X 77) + (10 X 74) = 1,510 *Side Note: LIFO - Amount of Cost of Goods Sold - Downward Second purchase             10 units at \$74 Third purchase                 10 units at \$77
Term
 The method of computing inventory that uses records of the selling prices of the merchandise is called A. first-in, first-out B. average cost C. last-in, first-out D. retail method
Definition
 D. retail method
Term
 Which of the following is used to analyze the efficiency and effectiveness of inventory management? A. inventory turnover only B. number of days’ sales in inventory only C. both inventory turnover and number of days’ sales in inventory D. neither inventory turnover or number of days’ sales in inventory
Definition
 C. both inventory turnover and number of days’ sales in inventory
Term
 During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory. A. average method B. LIFO method C. FIFO method D. can not tell without more information
Definition
 C. FIFO method
Term
 A physical inventory should be taken at the end of every month. True   False
Definition
 False
Term
 FIFO is the inventory costing method that follows the physical flow of the goods. True   False
Definition
 True
Term
 The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory. True   False
Definition
 True
Term
 Inventory controls start when the merchandise is shelved in the store area. True   False
Definition
 False
Term
 Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first. True   False
Definition
 True
Term
 One of the two internal control procedures over inventory is to properly report inventory on the financial statements. True   False
Definition
 True
Term
 The three inventory costing methods will normally each yield different amounts of net income. True   False
Definition
 True
Term
 If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?   A. Understated B. Overstated C. No change. D. Only inventory is affected.
Definition
 B. Overstated
Term
 On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?                                                        Cost               Retail May 1 Merchandise Inventory     \$125,000       \$166,667 May 1-31 Purchases (net)             235,000         313,333 May 1-31 Sales (net)                                           230,000 A. \$187,500 B. \$172,500 C. \$360,000 D. \$250,000
Definition
 A. \$187,500 (125,000 + 235,000) / (166,667 + 313,333) = 75% ((166,667 + 313,333) - 230,000) = 250,000 x 75% = 187,500 Total Cost / Total Retail  = Ratio of Cost to Retail Price (Total Retail - Total Sales) x Ratio of Cost to Retial Price
Term
 The inventory method that assigns the most recent costs to cost of goods sold is A. FIFO B. LIFO C. average D. specific identification
Definition
 B. LIFO
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 cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method. A. \$180 B. \$136 C. \$144  D. \$120
Definition
 B. \$136 ((5-3) x \$20) + ((10-6) x \$24)= \$136 Side Note: FIFO 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
 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 average cost method? A. \$690 B. \$659 C. \$620  D. \$655
Definition
 B. \$659 [(10 x \$30) + (25 x \$32) + (30 x \$34) + (10 x \$35)] / [(10 + 25 + 30 + 10)] = 32.93 32.93 x 20 = \$659 *Side Note: (Total Cost of Purchase / Total Units) x 20
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 LIFO, the cost of the ending merchandise inventory on September 30 is A. \$750 B. \$650 C. \$800 D. \$700
Definition
 A. \$750 ((20 - 10) x 20) + ((30 - 20) x 25) + ((20 - 10) x 30) = \$750  (10 x 30) + (10 x 25) + (10 x 20) = \$750 *Side Note: LIFO - Cost of the Ending Merchandise Inventory - Subtract and Multiply Upward 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
 Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? A. net income is understated B. owner's equity is overstated C. gross profit is understated D. cost of merchandise sold is overstated
Definition
 B. owner's equity is overstated
Term
 Cost flow is in the order in which costs were incurred when using A. first-in, first-out B. weighted average C. last-in, first-out  D. average cost
Definition
 A. first-in, first-out
Term
 If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method that can be used to check on theft when the actual inventory is taken by the company. True   False
Definition
 True
Term
 The average cost inventory method is rarely used with a perpetual inventory system. True   False
Definition
 True
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
 Number of Days’ Sales in Inventory (Definition)
Definition
 Measures the length of time it takes to acquire, sell, and replace inventory, computed by dividing the average inventory by the average daily cost of goods sold.
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