Question 1

If ending inventory is understated by $7,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on gross profit in 20X3?

Accepted Answer

A) 20X3 gross profit will be understated by $2,100. 
B) 20X3 gross profit will be understated by $4,900. 
C) 20X3 gross profit will be overstated by $4,900. 
D) 20X3 gross profit will be understated by $7,000. 
E) 20X3 gross profit will be overstated by $7,000. 
A) 20X3 gross profit will be understated by $2,100. 
B) 20X3 gross profit will be understated by $4,900. 
C) 20X3 gross profit will be overstated by $4,900. 
D) 20X3 gross profit will be understated by $7,000. 
E) 20X3 gross profit will be overstated by $7,000.

Question 2

The lower-of-cost-or-market method affects how much income is reported in each year but not the total income over the company's life.

Accepted Answer

A) True 
 B)False

Question 3

Under a periodic inventory system,cost of goods available for sale is ending inventory plus purchases.

Accepted Answer

A) True 
 B)False

Question 4

The purchaser bears the transportation cost when the terms are FOB destination.

Accepted Answer

A) True 
 B)False

Question 5

Assuming inflation,if a company wanted to maximize net income,it would select which of the following inventory valuation methods?

Accepted Answer

A) FIFO 
B) LIFO 
C) Weighted-average 
D) The selection of an inventory valuation method does not affect the net income. 
E) Specific identification 
A) FIFO 
B) LIFO 
C) Weighted-average 
D) The selection of an inventory valuation method does not affect the net income. 
E) Specific identification

Question 6

Given the following information,determine the gross profit. $$\begin{array} { l l } 
\text { Accounts Receivable } & \$ 14,000 \
\text { Administrative Expenses } & 31,000 \
\text { Cost of Goods Sold } & 142,000 \
\text { Depreciation Expense } & 8,000 \
\text { Income Tax Expense } & 4,000 \
\text { Inventory } & 26,000 \
\text { Sales } & 312,000 \
\text { Selling Expenses } & 36,000 \
\text { Wage Expense } & 75,000
\end{array}$$

Accepted Answer

A) $20,000 
B) $ 16,000 
C) $ 184,000 
D) $156,000 
E) $170,000 
A) $20,000 
B) $ 16,000 
C) $ 184,000 
D) $156,000 
E) $170,000

Question 7

Catskill Company uses a periodic inventory system.On January 1,20X3,the company had beginning inventory of $979,000.From January 1 to April 27,the company purchased $285,000 of inventory and had sales revenue of $840,000.On the morning of April 28,an earthquake occurred which resulted in the total loss of all inventory.The company's gross profit percentage has averaged 40%.What is the estimated inventory loss due to the earthquake?

Accepted Answer

None

Question 8

Assuming inflation,the weighted-average method will result in a net income that is higher than LIFO.

Accepted Answer

A) True 
 B)False

Question 9

If beginning inventory is overstated by $2,000 in 20X3,net income in 20X4 will be overstated.

Accepted Answer

A) True 
 B)False

Question 10

The two main types of inventory systems are the periodic system and the gross margin method.

Accepted Answer

A) True 
 B)False

Question 11

Two separate errors affected Source Documenting in 20X3.The beginning inventory was overstated by $17,000 and the ending inventory was overstated by $23,000.Ignoring taxes,net income in 20X3 will be:

Accepted Answer

A) overstated by $40,000. 
B) understated by $23,000. 
C) overstated by $23,000. 
D) overstated by $6,000. 
E) understated by $40,000. 
A) overstated by $40,000. 
B) understated by $23,000. 
C) overstated by $23,000. 
D) overstated by $6,000. 
E) understated by $40,000.

Question 12

Under the FIFO method,ending inventory is valued based on the oldest unit costs.

Accepted Answer

A) True 
 B)False

Question 13

Fortune Company had sales during July 20X3 of $29,000.During the month,the company had purchases of $17,000.At July 1,20X3,the company had inventory of $4,500.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Fortune Company at July 31,20X3?

Accepted Answer

A) $ 4,100 
B) $ 4,900 
C) $ 7,300 
D) $ 7,500 
E) $ 9,900 
A) $ 4,100 
B) $ 4,900 
C) $ 7,300 
D) $ 7,500 
E) $ 9,900

Question 14

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 periodic 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 15

There is no difference in the value of ending inventory if a company uses perpetual FIFO as opposed to periodic FIFO.

Accepted Answer

A) True 
 B)False

Question 16

Financial analysts and managers use the gross profit percentage as a measure of profitability and inventory turnover as a measure of efficient asset use.

Accepted Answer

A) True 
 B)False

Question 17

At the year-end,the perpetual inventory system of Horran Company indicated an ending inventory level of 190 units at a cost of $5 each.A physical count performed at year-end resulted in 184 units being on hand at a cost of $5 each.What journal entry,if any,is necessary at year-end?

Accepted Answer

A) No journal entry is necessary. 
B) $\begin{array}{lcc}
\text {  Inventory Shrinkage Expense} & 30 &  \
\quad \text { Inventory} & &30 & \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Cost of Goods Sold } & 30 \
\quad \text { Inventory Shrinkage Expense } & &30 & \
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Inventory Shrinkage Expense } &  30 \
\quad \text { Cost of Goods Sold } && 30 & \
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Inventory } &  30\
\quad\text {  Cost of Goods Sold } &&  30 \
\end{array}$ 
A) No journal entry is necessary. 
B) $\begin{array}{lcc}
\text {  Inventory Shrinkage Expense} & 30 &  \
\quad \text { Inventory} & &30 & \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Cost of Goods Sold } & 30 \
\quad \text { Inventory Shrinkage Expense } & &30 & \
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Inventory Shrinkage Expense } &  30 \
\quad \text { Cost of Goods Sold } && 30 & \
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Inventory } &  30\
\quad\text {  Cost of Goods Sold } &&  30 \
\end{array}$

Question 18

If a company using a periodic inventory system has beginning inventory of 15 units,purchases an additional 40 units,has ending inventory of 10 units,and sells 45 units,what is the company's number of units available for sale?

Accepted Answer

A) 55 units 
B) 45 units 
C) 65 units 
D) 60 units 
E) 15 units 
A) 55 units 
B) 45 units 
C) 65 units 
D) 60 units 
E) 15 units

Question 19

A perpetual inventory system offers all of the following characteristics except:

Accepted Answer

A) it is less expensive than a periodic system. 
B) inventory balances are always current. 
C) it helps salespeople determine whether there is a sufficient supply on hand to fill the customer orders. 
D) it enhances internal control. 
E) All of the above are characteristics of a perpetual inventory system. 
A) it is less expensive than a periodic system. 
B) inventory balances are always current. 
C) it helps salespeople determine whether there is a sufficient supply on hand to fill the customer orders. 
D) it enhances internal control. 
E) All of the above are characteristics of a perpetual inventory system.

Question 20

An increase in the replacement cost of the inventory held during the current period is referred to as a holding gain.

Accepted Answer

A) True 
 B)False

If ending inventory is understated by $7,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on gross profit in 20X3?

The lower-of-cost-or-market method affects how much income is reported in each year but not the total income over the company's life.

Under a periodic inventory system,cost of goods available for sale is ending inventory plus purchases.

The purchaser bears the transportation cost when the terms are FOB destination.

Assuming inflation,if a company wanted to maximize net income,it would select which of the following inventory valuation methods?

Given the following information,determine the gross profit. Accounts Receivable \ 14,000 Administrative Expenses 31,000 Cost of Goods Sold 142,000 Depreciation Expense 8,000 Income Tax Expense 4,000 Inventory 26,000 Sales 312,000 Selling Expenses 36,000 Wage Expense 75,000

Assuming inflation,the weighted-average method will result in a net income that is higher than LIFO.

If beginning inventory is overstated by $2,000 in 20X3,net income in 20X4 will be overstated.

The two main types of inventory systems are the periodic system and the gross margin method.

Two separate errors affected Source Documenting in 20X3.The beginning inventory was overstated by $17,000 and the ending inventory was overstated by $23,000.Ignoring taxes,net income in 20X3 will be:

Under the FIFO method,ending inventory is valued based on the oldest unit costs.

Fortune Company had sales during July 20X3 of $29,000.During the month,the company had purchases of $17,000.At July 1,20X3,the company had inventory of $4,500.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Fortune Company at July 31,20X3?

There is no difference in the value of ending inventory if a company uses perpetual FIFO as opposed to periodic FIFO.

Financial analysts and managers use the gross profit percentage as a measure of profitability and inventory turnover as a measure of efficient asset use.

At the year-end,the perpetual inventory system of Horran Company indicated an ending inventory level of 190 units at a cost of $5 each.A physical count performed at year-end resulted in 184 units being on hand at a cost of $5 each.What journal entry,if any,is necessary at year-end?

If a company using a periodic inventory system has beginning inventory of 15 units,purchases an additional 40 units,has ending inventory of 10 units,and sells 45 units,what is the company's number of units available for sale?

A perpetual inventory system offers all of the following characteristics except:

An increase in the replacement cost of the inventory held during the current period is referred to as a holding gain.

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

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Exam 7: Inventories and Cost of Goods Sold

If ending inventory is understated by $7,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on gross profit in 20X3?

The lower-of-cost-or-market method affects how much income is reported in each year but not the total income over the company's life.

Under a periodic inventory system,cost of goods available for sale is ending inventory plus purchases.

The purchaser bears the transportation cost when the terms are FOB destination.

Assuming inflation,if a company wanted to maximize net income,it would select which of the following inventory valuation methods?

Given the following information,determine the gross profit. Accounts Receivable \ 14,000 Administrative Expenses 31,000 Cost of Goods Sold 142,000 Depreciation Expense 8,000 Income Tax Expense 4,000 Inventory 26,000 Sales 312,000 Selling Expenses 36,000 Wage Expense 75,000

Assuming inflation,the weighted-average method will result in a net income that is higher than LIFO.

If beginning inventory is overstated by $2,000 in 20X3,net income in 20X4 will be overstated.

The two main types of inventory systems are the periodic system and the gross margin method.

Two separate errors affected Source Documenting in 20X3.The beginning inventory was overstated by $17,000 and the ending inventory was overstated by $23,000.Ignoring taxes,net income in 20X3 will be:

Under the FIFO method,ending inventory is valued based on the oldest unit costs.

Fortune Company had sales during July 20X3 of $29,000.During the month,the company had purchases of $17,000.At July 1,20X3,the company had inventory of $4,500.Assuming the company has a gross profit percentage of 40%,what is the estimated ending inventory for Fortune Company at July 31,20X3?

There is no difference in the value of ending inventory if a company uses perpetual FIFO as opposed to periodic FIFO.

Financial analysts and managers use the gross profit percentage as a measure of profitability and inventory turnover as a measure of efficient asset use.

At the year-end,the perpetual inventory system of Horran Company indicated an ending inventory level of 190 units at a cost of $5 each.A physical count performed at year-end resulted in 184 units being on hand at a cost of $5 each.What journal entry,if any,is necessary at year-end?

If a company using a periodic inventory system has beginning inventory of 15 units,purchases an additional 40 units,has ending inventory of 10 units,and sells 45 units,what is the company's number of units available for sale?

A perpetual inventory system offers all of the following characteristics except:

An increase in the replacement cost of the inventory held during the current period is referred to as a holding gain.

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