ACC 100 Chapter Notes - Chapter 6: Inventory Control

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4 Dec 2017

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Inventory costing and controls: list the three inventory costing methods, explain the basic characteristics of each of the inventory costing methods. The second transaction will be different; inventory (an asset account) goes down by the average cost of each item, cost of goods sold (an expense account) goes up the same amount. In the business can control what the customers can take (because they can control what goes out on the shelves), the fifo method is chosen because the method matches the physical flow of goods. This gives you information about the past and the present so you can make decisions about the future. If the supplier owns it (f. o. b. shipping destination), then me as a buyer can ignore the inventory count. Managers and business owners need to know how much inventory their business has throughout the year, i(cid:374) order for the(cid:373) to adjust so they do(cid:374)"t ru(cid:374) out of popular i(cid:374)(cid:448)e(cid:374)tory ite(cid:373)s.

Related Questions

PA7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO 7-3]

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions		Units			Unit Cost
Beginning inventory, January 1			1,600		$	45
Transactions during the year:
a.	Purchase, January 30		2,300			49
b.	Sale, March 14 ($100 each)		(1,250	)
c.	Purchase, May 1		1,000			75
d.	Sale, August 31 ($100 each)		(1,500	)

Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Required:
1.	Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

2-a.

Of the four methods, which will result in the highest gross profit?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

2-b.

Of the four methods, which will result in the lowest income taxes?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

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23) The gross profit percentage is an indication of how:

well management is controlling expenses.

measures the percentage of profit earned on each dollar ofsales.

much cash is generated per dollar of sales.

efficient management is in utilizing assets.

26) Which of the following statements about inventoryclassifications is not correct?

Inventory may include materials used in producing goods forsale.

Manufacturers hold three types of inventory that are referred toas raw materials inventory, work in process inventory, and finishedgoods inventory.

Inventory is classified as a long-term asset on the balancesheet.

Merchandisers buy inventory in finished form ready forresale.

27) In a period of rising prices, the inventory costing methodthat will cause the company to have the lowest cost of goods soldis:

LIFO.

FIFO.

Weighted average.

Specific identification.

28) In a period of falling prices, the inventory costing methodthat will cause the company to have the lowest cost of goods soldis:

LIFO.

FIFO.

Weighted average.

Specific identification.

turquoisecricket844

MATCHING

____ 1. Accelerated Depreciation

____ 2. Double Declining-Balance Method

____ 3. FIFO Method

____ 4. Internal Control System

____ 5. LIFO Method

____ 6. Periodic System

____ 7. Perpetual System

____ 8. Sarbanes-Oxley Act

____ 9. Straight-Line Method

____ 10. Time Value of Money

A. Policies and procedures necessary to ensure the safeguardingof an entityâs assets, the reliability of its accounting
records, and theaccomplishment of overall company objectives..

B. An inventory costing method that assigns the most recentcosts to ending inventory.

C. An inventory costing method that assigns the most recentcosts to cost of goods sold.

D. The system in which the Inventory account is updated at theend of the period.

E. The system in which the Inventory account is increased at thetime of each purchase of merchandise and
decreased at the time of eachsale.

F. A method by which the same dollar amount of depreciation isrecorded in each year of asset use.

G. The concept that indicates that people should prefer toreceive an immediate amount at the present time over an
equal amount in the future.
H. An act of Congress in 2002 intended to bring reform to corporateaccountability and stewardship in the wake of a

number of major corporatescandals.

I. A term that refers to several methods by which a higheramount of depreciation is recorded in the early years of

an assetâs life and a lower amount isrecorded in the later years.

J. A method by which depreciation is recorded at twice thestraight-line rate, but the depreciable balance is reduced
in each period.

SHORTANSWER

Please give a brief answer to each ofthe following questions.

1. 1.Why are shipping terms such asFOB shipping point or FOB destination point, important in decidingownership of inventory
at the end of the year?

2. 2. An effective system of internalcontrol is critical to protecting a companyâs investment in threeof its major assets: cash,
accounts receivable, andinventory. For each of the three assets, describe briefly how acompany might protect that asset.

W 3. What is a cash equivalent? Whyis it included with cash on the balance sheet?

4. 4 Define the termgoodwill. Give an example of a transaction that wouldresult in the recording of goodwill on the balance

sheet.

5. 5 What is a contingent liability?Give an example of a contingent liability.

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ACC 100 Chapter Notes - Chapter 6: Inventory Control

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