Question 1

The difference between a company's inventory valued at LIFO and what it would be under FIFO is known as a FIFO reserve.

Accepted Answer

A) True 
 B)False

Question 2

Fill in the appropriate blank figures in the income statement below.
 Gross sales$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \$ 7,500 $
Sales returns and allowances$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $A
Less: Cash discounts on sales$ \quad $$ \quad $$ \quad $$ \quad $ $ 250$
B -----------------------------$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \$ 7,100 $ Cost of goods sold
 $\begin{array}{lll}
 \text { \text { Inventory, Tanuary } 1,2 x10} && 200 \
 \text { Purchases (gross)} & \$ 3,210 \
C----------- & 275 \
 \text { Less: Cash discounts on purchases } & 280 \
\text { Net Purchases } & \mathrm{D} & \
\text { Add: Freight In } & \underline{50} & \
\text { Total cost of merchandise acquired } & & \underline{2,705} \
\text { Cost of goods available for sale } & & 2,905 \
\text { Inventory, December } 31,2 \times 10 && \underline{280} \
\text { Cost of goods sold}  10 &&E \
\text {Gross Profit }  &&\$F \
\end{array}$

Accepted Answer

A $150  @#LAT-DLM& B Net Sales C Less: Purchase re

Question 3

Inventory Shrinkage Expense decreases cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 4

Queen Mattresses,Inc.had the following transactions occur during May 20X3.Assume there is no beginning inventory. $\begin{array}{ll}
\text { May } 2 & \text { Inventory was purchased on account for } \$ 5,000 \text {, terms } 2 / 10, n / 30 . \
\text { May } 3 & \text { Inventory costing } \$ 1,000 \text { was returned. } \
\text { May } 9 & \text { Paid for the inventory. } \
\text { May 15 } & \text { Inventory costing } \$ 2,200 \text { was sold on account for } \$ 3,800 \text {, terms } 3 / 10, n / 45 \text {, } \
\text { May } 31 & \text { Closing entries are prepared for the month-end financial statements. }
\end{array}$ If Queen Mattresses,Inc.were using the perpetual inventory system,what is the journal entry for May 3?

Accepted Answer

A) $\begin{array}{lll}
\text {  Accounts Payable } & 1,000 & \
\quad \text { Inventory } &  & 1,000 \
\end{array}$ 
B) $\begin{array}{lccc}
\text {  Accounts Payable } & 1,000 \
\quad \text { Purchases } & &1,000  \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Accounts Payable } & 1,000 \
\quad \text { Purchase Returns and Allowances } &  &1,000 \
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Accounts Payable } &1,000 &  \
\quad \text { Cash Discounts on Purchases } & & 20 \
\quad \text { Inventory } & & 980\
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Accounts Payable } &  1,000\
\quad \text { Cash Discounts on Purchases } & & 20  \
\text { Purchases } & & 980\
\end{array}$ 
A) $\begin{array}{lll}
\text {  Accounts Payable } & 1,000 & \
\quad \text { Inventory } &  & 1,000 \
\end{array}$ 
B) $\begin{array}{lccc}
\text {  Accounts Payable } & 1,000 \
\quad \text { Purchases } & &1,000  \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Accounts Payable } & 1,000 \
\quad \text { Purchase Returns and Allowances } &  &1,000 \
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Accounts Payable } &1,000 &  \
\quad \text { Cash Discounts on Purchases } & & 20 \
\quad \text { Inventory } & & 980\
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Accounts Payable } &  1,000\
\quad \text { Cash Discounts on Purchases } & & 20  \
\text { Purchases } & & 980\
\end{array}$

Question 5

IFRS prohibits the use of the ________ method of inventory valuation.

Accepted Answer

A) FIFO 
B) weighted-average 
C) moving average 
D) specific identification 
E) LIFO 
A) FIFO 
B) weighted-average 
C) moving average 
D) specific identification 
E) LIFO

Question 6

Which of the following statements is incorrect?

Accepted Answer

A) Both freight-in and freight-out affect gross profit. 
B) Freight-in appears as part of cost of goods sold under the periodic inventory system. 
C) Freight-out is a shipping expense. 
D) Freight-in for the purchaser occurs when the terms of the invoice are FOB shipping point. 
E) When the seller bears the shipping cost,the invoice is stated as FOB destination. 
A) Both freight-in and freight-out affect gross profit. 
B) Freight-in appears as part of cost of goods sold under the periodic inventory system. 
C) Freight-out is a shipping expense. 
D) Freight-in for the purchaser occurs when the terms of the invoice are FOB shipping point. 
E) When the seller bears the shipping cost,the invoice is stated as FOB destination.

Question 7

Biscuit Bakery had the following activity in its inventory account during August 20X3. $\begin{array}{lllcc}
\text { Date } & \text { Activity } & \text { Units } & \begin{array}{c}
\text { Cost per } \
\text { Unit Cost }
\end{array} & \text { Total } \
\hline \text { August 1 } & \text { Beginning inventory } & 100 & \$ 3.00 & \$ 300 \
\text { August 3 } & \text { Purchase } & 40 & 3.10 & 124 \
\text { August 7 } & \text { Sale } & 50 & & \
\text { August 12 } & \text { Purchase } & 50 & 3.20 & 160 \
\text { August 16 } & \text { Sale } & 70 & & \
\text { August 23 } & \text { Sale } & 40 & & \
\text { August 30 } & \text { Purchase } & 60 & 3.30 & 198
\end{array}$ What is the cost of goods sold for the month ended August 31,20X3,for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method?

Accepted Answer

A) $344 
B) $482 
C) $494 
D) $502 
E) $542 
A) $344 
B) $482 
C) $494 
D) $502 
E) $542

Question 8

When inventory prices are rising,the ending inventory balance reported on a LIFO basis is generally

Accepted Answer

A) lower than on a FIFO basis. 
B) equal to a FIFO basis. 
C) greater than on a FIFO basis. 
D) equal to a weighted-average basis. 
E) greater than a weighted-average basis. 
A) lower than on a FIFO basis. 
B) equal to a FIFO basis. 
C) greater than on a FIFO basis. 
D) equal to a weighted-average basis. 
E) greater than a weighted-average basis.

Question 9

Silver Line Transportation purchased inventory on account for $20,000 on April 2,20X3.They use a periodic inventory system.The terms of the purchase were 3/10,n/45.Shipping was $800,FOB destination.On April 4,the inventory was inspected,and it was discovered that some was damaged.The seller granted Silver Line Transportation a $600 allowance.On April 11,Silver Line Transportation paid the appropriate amount.Prepare the journal entries for each of the events noted above.

Accepted Answer

None

Question 10

Video Company had sales during July 20X3 of $30,000.During the month,the company had purchases of $10,000.At July 1,20X3,the company had inventory of $10,000.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Video Company at July 31,20X3?

Accepted Answer

A) $ 2,000 
B) $ 16,000 
C) $ 18,000 
D) $ 20,000 
E) none of the above 
A) $ 2,000 
B) $ 16,000 
C) $ 18,000 
D) $ 20,000 
E) none of the above

Question 11

Morrill Manufacturing had inventory of $350 on March 1.The company had the following transactions during March.
 March 2 Purchased inventory on arcount for $\$ 1 , 8 00$, terms $2 / 10 , n / 30 .$
March 3 Returned $\$ 150$ worth of inventory from the Mar. 2 purchase.
March9 Iaid the appropriate amount for the inventory purchased on Mar. 2 .
March 17 Sold inventory costing $\$ 1,000$ for $\$ 1,920$ in cash.
March 28 IPrepared closing entries for the month (prepare entries only for sales and cost of goods sold) Prepare the appropriate journal entry for each of the above transactions assuming Morrill Manufacturing uses the perpetual inventory method.

Accepted Answer

None

Question 12

When prices are rising,LIFO generally results in the lowest taxable income,and therefore helps reduce taxes paid.

Accepted Answer

A) True 
 B)False

Question 13

The consistency convention requires a company to use LIFO from year to year.

Accepted Answer

A) True 
 B)False

Question 14

Presented below are the income statements for Saldron Manufacturing for the years ended December 31, 20X3, 20X2, and 20X1
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { Saldron Manufacturing }$
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { Comparative Income Statements }$
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { For years ending December } 31$

\(\begin{array}{l}
\begin{array}{lll}
\
 \text { Sales}\
 \text { Less: Cost of Goods Sold:}\
 \text { Beginning Inventory}\
 \text { Purchases}\
 \text { Cost of Goods Available for Sale}\
 \text { Less: Ending Inventory}\
 \text { Cost of Goods Sold}\
 \text { Gross Profit}\
 \text { Less: Operating Expenses}\
 \text { Income Before Taxes}\
 \text { Income Tax Expense (40 \%) }\
 \text { Net Income}\
\end{array}
\begin{array}{lll}
\underline{20 \times 3}\
{\$ 910} \
\
90 \
\underline{550} \
640 \
\underline{80} \
\underline{560} \
350 \
\underline{70} \
280\
\underline{112} \
\underline{\$ 168}
\end{array}
\begin{array}{lll}
\underline{20 \times 2}\
{\$ 790} \
\
70 \
\underline{510}\
{580} \
\underline{90} \
\underline{490} \
300 \
\underline{60} \
240 \
\underline{96} \
\underline{\$ 144}
\end{array}
\begin{array}{lll}
\underline{20 \times 1}\
{\$ 620} \
\
60 \
\underline{420} \
480 \
\underline{70} \
\underline{410} \
\underline{210} \
50\
160 \
\underline{64} \
\underline{\underline{\$96}}
\end{array}
\end{array}\)

In 20X4 it was discovered that the 20X1 ending inventory was understated by $20, and the 20X3 ending inventory was overstated by $10. The 20X1 beginning inventory and the 20X2 ending inventory were correctly stated.
Identify the accounts which are incorrect on the 20X1, 20X2, and 20X3 income statements. State the dollar error (by how much they are incorrect) and whether the amounts overstate or understate balances.

Accepted Answer

None

Question 15

When inventory prices are rising,the FIFO method will generally yield a gross profit that is

Accepted Answer

A) less than the LIFO method. 
B) equal to the gross profit of the LIFO method. 
C) FIFO does not generally cause a gross profit that is different from that of any other costing method. 
D) higher than the LIFO method. 
E) All of the above are correct. 
A) less than the LIFO method. 
B) equal to the gross profit of the LIFO method. 
C) FIFO does not generally cause a gross profit that is different from that of any other costing method. 
D) higher than the LIFO method. 
E) All of the above are correct.

Question 16

Biscuit Bakery had the following activity in its inventory account during August 20X3. $\begin{array}{lllcc}
\text { Date } & \text { Activity } & \text { Units } & \begin{array}{c}
\text { Cost per } \
\text { Unit Cost }
\end{array} & \text { Total } \
\hline \text { August 1 } & \text { Beginning inventory } & 100 & \$ 3.00 & \$ 300 \
\text { August 3 } & \text { Purchase } & 40 & 3.10 & 124 \
\text { August 7 } & \text { Sale } & 50 & & \
\text { August 12 } & \text { Purchase } & 50 & 3.20 & 160 \
\text { August 16 } & \text { Sale } & 70 & & \
\text { August 23 } & \text { Sale } & 40 & & \
\text { August 30 } & \text { Purchase } & 60 & 3.30 & 198
\end{array}$ What is the ending inventory balance at August 31,20X3,for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method?

Accepted Answer

A) $240 
B) $270 
C) $288 
D) $300 
E) $438 
A) $240 
B) $270 
C) $288 
D) $300 
E) $438

Question 17

Dexter Warehouse had inventory of $200 on June 1.The company had the following transactions during June.
 June 2 Turchmeded inventory on account for $\$ 2,000$, terms $2 / 10 , n/ 30 .$
June 3 Returned $\$ 350$ worth of inventcay from the june 2 purchese.
June 9 Paid the appropriate amount for the inventory purchased on June 2 Prepare the appropriate journal entry for each of the above transactions assuming Dexter Warehouse uses a perpetual inventory system.

Accepted Answer

None

Question 18

What order does inventory typically travel in an organization?

Accepted Answer

A) Raw materials,customer,finished goods,work in process 
B) Raw materials,work in process,customer,finished goods 
C) Raw materials,work in process,finished goods,customer 
D) Work in process,raw materials,finished goods,customer 
E) Work in process,finished goods,raw materials,customer 
A) Raw materials,customer,finished goods,work in process 
B) Raw materials,work in process,customer,finished goods 
C) Raw materials,work in process,finished goods,customer 
D) Work in process,raw materials,finished goods,customer 
E) Work in process,finished goods,raw materials,customer

Question 19

On March 1,20X3,Environmental Impacts acquired inventory on account.The cost of the inventory was $85,000.The terms of the purchase were 2/10,n/30.Upon inspection of the inventory on March 2,$4,800 worth of inventory was returned.Environmental Impacts paid for the inventory on March 8.The company uses a periodic inventory system.What journal entry will Environmental Impacts make on March 1,20X3?

Accepted Answer

A)  $\begin{array}{lcc}
\text { Inventory } & 83,300 & \
\quad \text { Accounts Payable } &  & 83,300\
\
\end{array}$ 
B) $\begin{array}{lccc}
\text {  Inventory } & 85,000 \
\quad \text { Accounts Payable } & &85,000 & \
\
\end{array}$ 
C)  $\begin{array}{lccc}
\text { Inventory } & 85,000\
\quad \text { Cash Discounts on Purchases } && 1,700 \
\quad \text { Accounts Payable } &  & 83,300\
\
\end{array}$ 
D)  $\begin{array}{lccc}
\text { Purchases } & 85,000\
\quad \text { Accounts Payable } & & 85,000 \
\
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Purchases } &  85,000  \
\quad \text { Cash Discounts on Purchases } && 1,700\
\quad \text { Accounts Payable } & &83,300 \
\end{array}$ 
A)  $\begin{array}{lcc}
\text { Inventory } & 83,300 & \
\quad \text { Accounts Payable } &  & 83,300\
\
\end{array}$ 
B) $\begin{array}{lccc}
\text {  Inventory } & 85,000 \
\quad \text { Accounts Payable } & &85,000 & \
\
\end{array}$ 
C)  $\begin{array}{lccc}
\text { Inventory } & 85,000\
\quad \text { Cash Discounts on Purchases } && 1,700 \
\quad \text { Accounts Payable } &  & 83,300\
\
\end{array}$ 
D)  $\begin{array}{lccc}
\text { Purchases } & 85,000\
\quad \text { Accounts Payable } & & 85,000 \
\
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Purchases } &  85,000  \
\quad \text { Cash Discounts on Purchases } && 1,700\
\quad \text { Accounts Payable } & &83,300 \
\end{array}$

Question 20

When comparing two companies with regard to profitability,it is not important to distinguish differences arising from accounting practices from differences caused by real economic conditions.

Accepted Answer

A) True 
 B)False

The difference between a company's inventory valued at LIFO and what it would be under FIFO is known as a FIFO reserve.

Inventory Shrinkage Expense decreases cost of goods sold.

IFRS prohibits the use of the ________ method of inventory valuation.

Which of the following statements is incorrect?

When inventory prices are rising,the ending inventory balance reported on a LIFO basis is generally

Video Company had sales during July 20X3 of $30,000.During the month,the company had purchases of $10,000.At July 1,20X3,the company had inventory of $10,000.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Video Company at July 31,20X3?

When prices are rising,LIFO generally results in the lowest taxable income,and therefore helps reduce taxes paid.

The consistency convention requires a company to use LIFO from year to year.

When inventory prices are rising,the FIFO method will generally yield a gross profit that is

What order does inventory typically travel in an organization?

When comparing two companies with regard to profitability,it is not important to distinguish differences arising from accounting practices from differences caused by real economic conditions.

Accounting: the Language of Business

Measuring Income to Assess Performance

Recording Transactions

Accrual Accounting and Financial Statements

Statement of Cash Flows

Accounting for Sales

Long-Lived Assets

Liabilities and Interest

Stockholders Equity

Intercorporate Investments and Consolidations

Financial Statement Analysis

Filters

Exam 7: Inventories and Cost of Goods Sold

The difference between a company's inventory valued at LIFO and what it would be under FIFO is known as a FIFO reserve.

Inventory Shrinkage Expense decreases cost of goods sold.

IFRS prohibits the use of the ________ method of inventory valuation.

Which of the following statements is incorrect?

When inventory prices are rising,the ending inventory balance reported on a LIFO basis is generally

Video Company had sales during July 20X3 of $30,000.During the month,the company had purchases of $10,000.At July 1,20X3,the company had inventory of $10,000.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Video Company at July 31,20X3?

When prices are rising,LIFO generally results in the lowest taxable income,and therefore helps reduce taxes paid.

The consistency convention requires a company to use LIFO from year to year.

When inventory prices are rising,the FIFO method will generally yield a gross profit that is

What order does inventory typically travel in an organization?

When comparing two companies with regard to profitability,it is not important to distinguish differences arising from accounting practices from differences caused by real economic conditions.

Accounting: the Language of Business

Measuring Income to Assess Performance

Recording Transactions

Accrual Accounting and Financial Statements

Statement of Cash Flows

Accounting for Sales

Long-Lived Assets

Liabilities and Interest

Stockholders Equity

Intercorporate Investments and Consolidations

Financial Statement Analysis

Filters