Chapter 6 & 7 Questions Flashcard Example #74563

The primary difference between a periodic and perpetual inventory system is that a
1.) periodic system records the cost of the sale on the date the sale is made

2)
periodic system provides an easy means to determine inventory shrinkage

3)
periodic system determines the inventory on hand only at the end of the accounting period

4)
periodic system keeps a record showing the inventory on hand at all times

Under the perpetual inventory system, all purchases of merchandise are debited to the account
1)
Cost of Merchandise Available for Sale

2)
Cost of Merchandise Sold

3)
Purchases

4)
Merchandise Inventory

Who is responsible for the freight cost when the terms are FOB destination?
Question options:

1)
the buyer

2)
the seller

3)
either the buyer or the seller

4)
the customer

Which account is not classified as a selling expense?
Question options:

1)
Delivery Expense

2)
Sales Salaries

3)
Advertising Expense

4)
Cost of Goods Sold?

If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shrinkage?
Question options:

1)
debit Merchandise Inventory, $5,000; credit Cost of Merchandise Sold, $5,000

2)
debit Cost of Merchandise Sold, $5,000; credit Merchandise Inventory, $5,000

3)
debit Merchandise Inventory, $158,000; credit Cost of Merchandise Sold, $158,000

4)
debit Cost of Merchandise Sold, $163,000; credit Merchandise Inventory, $158,000

The Corbit Corp. sold merchandise for $10,000 cash. The cost of the merchandise sold was $7,590. The journal entries to record this transaction under the perpetual inventory system would be

1)
Cash 10,000
Merchandise Inventory 10,000

?

Cost of Merchandise Sold 7,590

Sales 7,590

2)
Cash 10,000
Sales 10,000

?

Cost of Merchandise Sold 10,000

Merchandise Inventory 10,000

3)
Cash 10,000
Sales 10,000

?

Cost of Merchandise Sold 7,590

Merchandise Inventory 7,590

4)
Cash 7,590
Sales 7,590

?

Cost of Merchandise Sold 7,590

Merchandise Inventory 7,590

Merchandise inventory is classified on the balance sheet as a
1)
current liability

2)
long-term asset

3)
current asset

4)
long-term liability

When comparing a retail business to a service business, the financial statement that changes the least is the
Question options:

1)
statement of cash flows

2)
statement of owner’s equity

3)
income statement

4)
balance sheet

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is
Question options:

1)
debit Cost of Merchandise Sold; credit Merchandise Inventory

2)
debit Merchandise Inventory; credit Cost of Merchandise Sold

3)
debit Accounts Receivable; credit Merchandise Inventory

4)
debit Cost of Merchandise Sold; credit Sales

If merchandise sells for $3,500, with terms of 3/15, n/45 and the cost of the inventory sold is $2,100, the amount charged to sales is
Question options:

1)
$3,500

2)
$3,395

3)
$2,037

4)
$2,100

Merchandise with an invoice price of $6,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?
1)
$6,090

2)
$5,940

3)
$5,880

4)
$6,120

Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the entry is made in the buyer’s accounts on November 20. The credit period begins with what date?
Question options:

1)
November 18

2)
November 10

3)
November 13

4)
November 20

When the perpetual inventory system is used, the inventory sold is debited to
Question options:

1)
Supplies Expense

2)
Cost of Merchandise Sold

3)
Merchandise Inventory

4)
Sales

Which of the following is not a difference between a retail business and a service business?
Question options:

1)
in what is sold

2)
the inclusion of gross profit on the income statement

3)
accounting equation

4)
merchandise inventory included on the balance sheet

Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
Question options:

1)
credit to Accounts Receivable

2)
credit to Merchandise Inventory

3)
debit to Merchandise Inventory

4)
debit to Sales

Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a
Question options:

1)
debit to Sales Discounts for $100

2)
debit to Accounts Receivable for $4,880

3)
debit to Cash for $5,000

4)
credit to Sales for $4,900

To encourage a buyer to pay before the end of the credit period, the seller may offer a
Question options:

1)
purchases discount

2)
sales discount

3)
payment discount

4)
trade discount

Which of the following accounts will only be found in the chart of accounts of a merchandising company?
Question options:

1)
Accounts Receivable

2)
Accounts Payable

3)
Sales

4)
Merchandise Inventory

Jacob Co. sells merchandise on credit to Isaiah Co. in the amount of $9,700. The invoice is dated on May 1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?
Question options:

1)
$194, May 15

2)
$194, May 16

3)
$97, May 15

4)
$97, May 16

Which of the following accounts has a normal credit balance?
Question options:

1)
Merchandise Inventory

2)
Sales

3)
Accounts Receivable

4)
Delivery Expense

When the perpetual inventory system is used, the inventory sold is shown on the income statement as
Question options:

1)
cost of merchandise sold

2)
purchases returns and allowances

3)
net purchases

4)
purchases

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a
Question options:

1)
sales invoice

2)
debit memo

3)
credit memo

4)
purchase invoice

Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?
Question options:

1)
$30,772

2)
$10,500

3)
$31,400

4)
$7,972

In credit terms of 3/15, n/45, the “3” represents the
Question options:

1)
number of days in the discount period

2)
full amount of the invoice

3)
percent of the cash discount

4)
number of days when the entire amount is due

When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit
Question options:

1)
Accounts Payable

2)
Merchandise Inventory

3)
Accounts Receivable

4)
Purchases Returns and Allowances

The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include
Question options:

1)
only the sales tax

2)
only the list price

3)
the list price less the sales tax

4)
the list price plus the sales tax

Which of the following accounts has a normal debit balance?
Question options:

1)
Accounts Payable

2)
Sales

3)
Merchandise Inventory

4)
Interest Revenue

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
Question options:

1)
debit to Sales, debit to Credit Card Expense, and a credit to Cash

2)
debit to Cash and a credit to Sales

3)
debit to Cash, credit to Credit Card Expense, and a credit to Sales

4)
debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales

The arrangements between buyer and seller as to when payments for merchandise are to be made are called
Question options:

1)
cash on demand

2)
credit terms

3)
net cash

4)
gross cash

Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?
Question options:

1)
Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000, and
Delivery Expense, debit $500; Cash, credit $500

2)
Accounts Receivable—Stanton, debit $20,100; Sales, credit $20,100

3)
Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000

4)
Accounts Receivable—Stanton, debit $19,600; Sales, credit $19,600, and
Accounts Receivable—Stanton, debit $500; Cash, credit $500

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
Question options:

1)
gross profit

2)
net income

3)
gross sales

4)
income from operations

Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory will include a debit to
Question options:

1)
Accounts Payable

2)
Cost of Merchandise Purchased

3)
Merchandise Inventory

4)
Purchases

Net income plus operating expenses is equal to
Question options:

1)
sales

2)
gross profit

3)
cost of merchandise available for sale

4)
cost of merchandise sold

When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry?
Question options:

1)
debit Accounts Payable; credit Merchandise Inventory

2)
debit Merchandise Inventory; credit Purchases

3)
debit Merchandise Inventory; credit Cash Discounts

4)
debit Merchandise Inventory; credit Accounts Payable

Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of the sales discount allowable?
Question options:

1)
$260

2)
$460

3)
$500

4)
$150

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?
Question options:

1)
debit Cash, $1,250; credit Sales, $1,250

2)
debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250

3)
debit Accounts Receivable, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250

4)
debit Cash, $2,000; credit Merchandise Inventory, $1,250

Generally, the revenue account for a merchandising business is entitled
Question options:

1)
Gross Profit

2)
Sales

3)
Fees Earned

4)
Gross Sales

Calculate the gross profit for Jefferson Company based on the following:

Sales
$764,000

Selling Expenses
42,500

Cost of Merchandise Sold
538,000

1)
$226,000

2)
$183,500

3)
$721,500

4)
$495,500

Which of the following items would not?? affect the cost of merchandise inventory acquired during the period?
Question options:

1)
quantity discounts

2)
sales discounts

3)
freight-in

4)
sales commissions

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to
Question options:

1)
cash for $6,000

2)
sales for $6,240

3)
sales tax payable for $420

4)
sales for $5,580

When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the
Question options:

1)
comparative form

2)
account form

3)
horizontal form

4)
report form

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
Question options:

1)
FOB shipping point

2)
FOB n/30

3)
FOB seller

4)
FOB destination

Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year. The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000. Calculate the ratio of sales to total assets.
Question options:

1)
0.29

2)
3.80

3)
3.00

4)
0.26

Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
Question options:

1)
20%

2)
24%

3)
36%

4)
2%

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a
Question options:

1)
credit to Sales

2)
credit to Accounts Payable

3)
debit to Cost of Merchandise Sold

4)
credit to Merchandise Inventory

What type of company would normally offer trade discounts to its customers?
Question options:

1)
service companies

2)
online retailers

3)
retailers

4)
wholesalers

Gross profit is equal to
Question options:

1)
sales plus selling expenses

2)
sales plus cost of merchandise sold

3)
sales less cost of merchandise sold

4)
sales less selling expenses

Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. The Pound Co. paid the invoice within the discount period. What is amount of sales from the above transactions?
Question options:

1)
$24,990

2)
$16,000

3)
$26,010

4)
$25,500

Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Merchandise Inventory account?
Question options:

1)
$30,000

2)
$20,580

3)
$21,000

4)
$29,400

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
Question options:

1)
FOB buyer

2)
FOB shipping point

3)
FOB n/30

4)
FOB destination

When comparing a retail business to a service business, the financial statement that changes the most is the
Question options:

1)
statement of cash flows

2)
income statement

3)
balance sheet

4)
statement of owner’s equity

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
Question options:

1)
consigned

2)
FOB shipping point

3)
FOB destination

4)
n/30

Emma Co. sold to Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the discount period?
1)
Accounts Payable—Emma Co., debit $15,750; Merchandise Inventory, debit $300; Cash, credit $16,050

2)
Accounts Payable—Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750

3)
Accounts Payable—Emma Co., debit $15,000; Cash, credit $15,000

4)
Accounts Payable—Emma Co., debit $15,450; Cash, credit $15,450

What is the major difference between a periodic and perpetual inventory system?
Question options:

1)
Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account.

2)
Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory.

3)
Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month.

4)
All of the answers are correct.

Inventory shrinkage is recorded when
Question options:

1)
there is a difference between a physical count of inventory and inventory records

2)
merchandise is returned by a buyer

3)
merchandise purchased from a seller is incomplete or short

4)
merchandise is returned to a seller

Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a
1)
debit to Merchandise Inventory

2)
debit to Accounts Payable

3)
credit to Merchandise Inventory

4)
credit to Sales

A chart of accounts for a merchandising business
Question options:

1)
usually requires more accounts than does the chart of accounts for a service business

2)
usually is standardized by the FASB for all merchandising businesses

3)
usually is the same as the chart of accounts for a service business

4)
always uses a three-digit numbering system

Which of the following accounts usually has a debit balance?
Question options:

1)
Sales Tax Payable

2)
Accounts Payable

3)
Sales

4)
Merchandise Inventory

The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be
Question options:

1)
Jan. 1 Purchases 1,500
Accounts Payable 1,500

2)
Jan. 1 Office Supplies 1,500
Cash 1,500

3)
Jan. 1 Merchandise Inventory 1,500
Cash 1,500

4)
Jan. 1 Cash 1,500
Accounts Receivable 1,500

Who is responsible for the freight costs when the terms are FOB shipping point?
Question options:

1)
the ultimate customer

2)
either the seller or the buyer

3)
the seller

4)
the buyer

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
Question options:

1)
FOB destination

2)
consigned

3)
n/30

4)
FOB shipping point

A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?
Question options:

1)
$24,900

2)
$29,400

3)
$30,000

4)
$24,990

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a
Question options:

1)
debit to Cash

2)
credit to Customer Refunds Payable

3)
debit to Merchandise Inventory

4)
credit to Merchandise Inventory

Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
Question options:

1)
Merchandise Inventory

2)
Drawing

3)
Accumulated Depreciation

4)
Cost of Merchandise Sold

Under a perpetual inventory system
Question options:

1)
accounting records continuously disclose the amount of inventory

2)
there is no need for a year-end physical count

3)
the purchase returns and allowances account is credited when goods are returned to vendors

4)
increases in inventory resulting from purchases are debited to Purchases

Which of the following items should not be included in the cost of ending merchandise inventory?
Question options:

1)
purchased units in transit, shipped FOB shipping point

2)
purchased units in transit, shipped FOB destination

3)
units on hand in the warehouse

4)
sold units in transit, not invoiced, and shipped FOB destination

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?
Question options:

1)
$12,285

2)
$11,500

3)
$11,385

4)
$10,480

If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
Question options:

1)
FOB shipping point

2)
consigned

3)
FOB destination

4)
n/30

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
Question options:

1)
administrative expenses

2)
other expenses

3)
general expenses

4)
selling expenses

President’s salaries, depreciation of office furniture, and office supplies are
Question options:

1)
administrative expenses

2)
miscellaneous expenses

3)
inventory expenses

4)
selling expenses

The inventory system employing accounting records that continuously disclose the amount of inventory is called
Question options:

1)
retail

2)
physical

3)
periodic

4)
perpetual

Calculate income from operations for Jonas Company based on the following data:
Sales
$764,000

Operating expenses
52,500

Cost of merchandise sold
538,000

Question options:

1)
$711,500

2)
$485,500

3)
$173,500

4)
$226,000

The statement of owner’s equity shows
Question options:

1)
only net income, beginning capital, and withdrawals

2)
only net income, beginning and ending capital

3)
only total assets, beginning and ending capital

4)
beginning and ending capital and all the changes in the owner’s capital as a result of net income (loss), and withdrawals

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a
Question options:

1)
revenue statement

2)
multiple-step statement

3)
single-step statement

4)
report-form statement

When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a
Question options:

1)
debit to Merchandise Inventory; a credit to Cash

2)
debit to Sales; a credit to Accounts Payable

3)
debit to Cash; a credit to Merchandise Inventory

4)
debit to Cash; a credit to Sales

Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
Question options:

1)
sales returns

2)
sales when the credit card company remits the cash

3)
cash sales

4)
sales on account

Which account will be included in both service and merchandising companies, closing entries?
Question options:

1)
Sales Returns and Allowances

2)
Purchase Discounts

3)
Cost of Merchandise Sold

4)
Sales

The entry to record the return of merchandise from a customer would include a
Question options:

1)
debit to Sales

2)
debit to Customer Refunds Payable

3)
debit to Estimated Returns Inventory

4)
credit to Sales

Bradford Company had $700,000 in sales for the year. The total assets at the beginning of the year were $240,000 and total assets at the end of the year were $280,000. The ratio of sales to total assets is (round answer to 2 decimal places)
Question options:

1)
0.34

2)
2.92

3)
0.40

4)
2.69

Kaden Co. sells merchandise on credit to Jase Co. in the amount of $9,600. The invoice is dated on July 15 with terms of 1/15, net 45. If Jase Co. chooses not to take the discount, by when should the payment be made?
Question options:

1)
July 30

2)
August 15

3)
August 29

4)
July 25

Multiple-step income statements show
Question options:

1)
neither gross profit nor income from operations

2)
gross profit but not income from operations

3)
both gross profit and income from operations

4)
income from operations but not gross profit

When goods are shipped FOB destination and the seller pays the freight charges, the buyer
Question options:

1)
does not take a discount

2)
journalizes a reimbursement to the seller

3)
makes no journal entry for the freight

4)
journalizes a reduction for the cost of the merchandise

The inventory costing method that reports the earliest costs in ending inventory is
Question options:

1)
LIFO

2)
specific identification

3)
weighted average

4)
FIFO

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?
Question options:

1)
$1,805

2)
$1,575

3)
$3,815

4)
$1,685

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the
Question options:

1)
retailer

2)
consignee

3)
shipper

4)
manufacturer

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?
Question options:

1)
specific identification

2)
LIFO

3)
FIFO

4)
average

Beginning inventory 10 units at $55
First purchase 25 units at $60
Second purchase 30 units at $65
Third purchase 15 units at $70

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.

?The value of ending inventory using LIFO is
?

Question options:

1)
$1,250

2)
$1,375

3)
$1,150

4)
$1,350

Ending inventory is made up of the oldest purchases when a company uses
Question options:

1)
average cost

2)
last-in, first-out

3)
retail method

4)
first-in, first-out

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?
Question options:

1)
net income is understated

2)
cost of merchandise sold is understated

3)
merchandise inventory reported on the balance sheet is overstated

4)
net income is overstated

Which document authorizes the purchase of the inventory from an approved vendor??
Question options:

1)
?the purchase order

2)
?the petty cash voucher

3)
the receiving report

4)
the vendor’s invoice

If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?
Question options:

1)
weighted average

2)
LIFO

3)
FIFO

4)
average cost

Under the _____ inventory method, accounting records maintain a continuously updated inventory value.
Question options:

1)
retail

2)
perpetual

3)
physical

4)
periodic

During times of rising prices, which of the following is not an accurate statement?
Question options:

1)
LIFO will result in a higher cost of merchandise sold than FIFO.

2)
Average costing will yield results that are between those of FIFO and LIFO.

3)
LIFO will result in higher income taxes than FIFO.

4)
FIFO will result in a higher net income than LIFO.

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?
Question options:

1)
cost of merchandise sold is overstated

2)
gross profit is understated

3)
owner’s equity is overstated

4)
net income is understated

FIFO reports higher gross profit and net income than the LIFO method when ?
Question options:

1)
?prices remain stable

2)
?prices are reduced by 50%

3)
?prices are decreasing

4)
?prices are increasing

If Beginning Inventory (BI) + Purchases (P) – Ending Inventory (EI) = Cost of Merchandise Sold (COMS), an equivalent equation can be written as?
Question options:

1)
BI – P = COMS + EI

2)
BI + P = COMS + EI

3)
BI + P = COMS – EI

4)
EI + P = COMS – BI

Which of the following will be the same amount regardless of the cost flow assumption adopted?
Question options:

1)
?gross profit

2)
?ending merchandise inventory

3)
?number of items ordered

4)
?cost of goods sold

During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be
Question options:

1)
assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement

2)
assets and retained earnings overstated by $70,000; and net income understated by $70,000

3)
assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000

4)
assets, retained earnings, and net income all overstated by $70,000

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $30

?
Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.
Question options:

1)
$120

2)
$180

3)
$108

4)
$72

When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
Question options:

1)
debit Cost of Merchandise Sold; credit Sales

2)
debit Cost of Merchandise Sold; credit Merchandise Inventory

3)
debit Merchandise Inventory; credit Cost of Merchandise Sold

4)
No journal entry is made to record the cost of merchandise sold.

All of the following are documents used for inventory control except
Question options:

1)
a ?petty cash voucher

2)
?a receiving report

3)
a ?vendor’s invoice

4)
?a purchase order

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $30

Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO inventory cost method.
Question options:

1)
$120

2)
$180

3)
$136

4)
$144

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
Question options:

1)
$750

2)
$700

3)
$650

4)
$800

Which of the following companies would be more likely to use the specific identification inventory costing method?
Question options:

1)
Lowe’s

2)
Walmart

3)
Best Buy

4)
Gordon’s Jewelers

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?
Question options:

1)
net income will be overstated

2)
net income will be understated

3)
no change to net income

4)
only gross profit will be affected

Beginning inventory 10 units at $55
First purchase 25 units at $60
Second purchase 30 units at $65
Third purchase 15 units at $70

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.

The value of ending inventory rounded to nearest dollar using average cost is:
Question options:

1)
$1,353

2)
$1,263

3)
$1,375

4)
$1,150

The inventory method that assigns the most recent costs to cost of merchandise sold is
Question options:

1)
LIFO

2)
specific identification

3)
FIFO

4)
weighted average

Nov. 1 Inventory 20 units at $19
4 Sold 10 units
10 Purchased 30 units at $20
17 Sold 20 units
30 Purchased 10 units at $21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?

Question options:

1)
$580

2)
$610

3)
$600

4)
$590

?Excess inventory results in all of the following except
Question options:

1)
?increased risk of loss due to damage

2)
?increased storage expense

3)
?lost sales

4)
?tied-up funds that could be used to improve operations

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?
Question options:

1)
net income is understated, assets are understated, and owner’s equity is overstated

2)
net income is understated, assets are understated, and owner’s equity is understated

3)
net income is overstated, assets are overstated, and owner’s equity is overstated

4)
net income is overstated, assets are overstated, and owner’s equity is understated

Beginning inventory 10 units at $55
First purchase 25 units at $60
Second purchase 30 units at $65
Third purchase 15 units at $70

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.

The value of ending inventory using FIFO is
?

Question options:

1)
$1,150

2)
$1,375

3)
$1,250

4)
$1,350

Cost flow is in the reverse order in which costs were incurred when using
Question options:

1)
average cost

2)
weighted average

3)
last-in, first-out

4)
first-in, first-out

The two most widely used methods for determining the cost of inventory are
Question options:

1)
LIFO and average cost

2)
FIFO and average cost

3)
FIFO and LIFO

4)
gross profit and average cost

Nov. 1 Inventory 20 units at $19
4 Sold 10 units
10 Purchased 30 units at $20
17 Sold 20 units
30 Purchased 10 units at $21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

Question options:

1)
$600

2)
$580

3)
$610

4)
$590

Which document establishes an initial record of the receipt of the inventory??
Question options:

1)
?petty cash voucher

2)
?vendor’s invoice

3)
?purchase order

4)
?receiving report

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 rounded to nearest dollar according to the average cost method?
Question options:

1)
$690

2)
$659

3)
$655

4)
$620

Cost flow is in the order in which costs were incurred when using
Question options:

1)
average cost

2)
weighted average

3)
first-in, first-out

4)
last-in, first-out

Too much inventory on hand
Question options:

1)
ties up funds that could be used to improve operations

2)
increases the cost to safeguard the assets

3)
increases the losses due to price declines

4)
all of these

If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is
Question options:

1)
$135

2)
$75

3)
$60

4)
$15

?The primary objectives of control over inventory are
Question options:

1)
?safeguarding inventory from damage and reporting inventory in the financial statements

2)
?safeguarding the inventory from damage and maintaining constant observation of the inventory

3)
?reporting inventory in the financial statements

4)
?maintaining constant observation of the inventory and reporting inventory in the financial statements

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 FIFO method?
Question options:

1)
$659

2)
$690

3)
$655

4)
$620

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $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.
Question options:

1)
$364

2)
$324

3)
$372

4)
$320

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $30

Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of May using the LIFO cost method.
Question options:

1)
$452

2)
$444

3)
$348

4)
$356

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?
Question options:

1)
$1,375

2)
$1,510

3)
$1,380

4)
$1,250

Under a periodic inventory system
Question options:

1)
a separate account for each type of merchandise is maintained in a subsidiary ledger

2)
a physical inventory is taken at the end of the period

3)
accounting records continuously disclose the amount of inventory

4)
merchandise inventory is debited when goods are returned to vendors

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
Question options:

1)
$700

2)
$800

3)
$750

4)
$650

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $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.
Question options:

1)
$180

2)
$144

3)
$120

4)
$136

The inventory costing method that reports the most current prices in ending inventory is
Question options:

1)
average cost

2)
FIFO

3)
LIFO

4)
specific identification

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 merchandise sold for the year according to the LIFO method?
Question options:

1)
$1,375

2)
$1,510

3)
$1,380

4)
$1,250

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?
Question options:

1)
$620

2)
$659

3)
$690

4)
$655

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
Question options:

1)
periodic

2)
average cost

3)
LIFO

4)
FIFO

Damaged merchandise that can be sold only at prices below cost should be valued at
Question options:

1)
LIFO

2)
FIFO

3)
average cost

4)
net realizable value

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is
Question options:

1)
average cost

2)
FIFO

3)
weighted average

4)
LIFO

Kristin’s Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of the following would not be included in the year-end inventory?
Question options:

1)
Kristin has sent merchandise to various retailers on a consignment basis.

2)
Kristin has merchandise on hand which has been returned by customers because of wrong size.

3)
Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin’s Boutique as of December 31.

4)
Kristin has in its warehouse merchandise on consignment from Abby Co.

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?
Question options:

1)
understated

2)
overstated

3)
no change

4)
only inventory will be affected

When merchandise sold is assumed to be in the order in which the purchases were made, the company is using
Question options:

1)
average cost

2)
first-in, last-out

3)
last-in, first-out

4)
first-in, first-out

Which of the following is not an example for safeguarding inventory?
Question options:

1)
Storing inventory in restricted areas.

2)
Returning inventory that is defective or broken.

3)
Physical devices such as two-way mirrors, cameras, and alarms.

4)
Matching receiving documents, purchase orders, and vendor’s invoice.

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.

May 3 – Purchase 5 at $20

10 -Sale 3

17 – Purchase 10 at $24

20 – Sale 6

23 – Sale 3

30 – Purchase 10 at $30

?Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.
Question options:

1)
$324

2)
$372

3)
$320

4)
$364

If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on owner’s equity?
Question options:

1)
understated

2)
overstated

3)
correctly stated

4)
none of these

Taking a physical count of inventory
Question options:

1)
is not necessary when a periodic inventory system is used

2)
should be done near year-end

3)
is not necessary when a perpetual inventory system is used

4)
has no internal control relevance

Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
Question options:

1)
inventory ledger

2)
customer’s ledger

3)
purchase ledger

4)
creditor’s ledger

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?
Question options:

1)
$1,685

2)
$1,805

3)
$3,585

4)
$1,575

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 rounded to nearest dollar using the average cost method?
Question options:

1)
$1,685

2)
$1,575

3)
$3,705

4)
$1,805

Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?
Question options:

1)
check the invoice to the purchase order

2)
check the invoice extensions and totals

3)
check the invoice with the person who specifically purchased the item

4)
check the invoice to the receiving report

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 merchandise sold for the year according to the FIFO method?
Question options:

1)
$1,375

2)
$1,380

3)
$1,510

4)
$1,250

Weighted average =