Question 1

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

Accepted Answer

A) True 
 B)False

Question 2

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Accepted Answer

A)  Prepare interim financial statements without taking a complete physical inventory. 
B)  Increase gross profit. 
C)  Value inventory at its sales price instead of its cost. 
D)  Reduce taxable income during a period of rising prices. 
A)  Prepare interim financial statements without taking a complete physical inventory. 
B)  Increase gross profit. 
C)  Value inventory at its sales price instead of its cost. 
D)  Reduce taxable income during a period of rising prices.

Question 3

Beech Soda, Inc. uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows:
On January 14, Beech Soda, Inc. sold 25 units of this product. The other 28 units remained in inventory at January 31.
 $\begin{array}{|l|c|c|c|}
\hline & \text { Quantity } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Beginning inventory (Jan. 1) } & 16 & \$ 10 & \$ 160 \
\hline \text { Purchase (Jan. 11) } & 14 & \$ 12 & 168 \
\hline \text { Purchase (Jan. 20) } & \underline{ 23} & \$ 15 & \underline{345} \
\hline \text { Total } & 53 & & \$ 673 \
\hline
\end{array}$

-Assuming that Beech Soda uses the LIFO flow assumption, the 28 units of this product in inventory at January 31 have a total cost of:

Accepted Answer

A)  $400. 
B)  $395. 
C)  $405. 
D)  $410. 
A)  $400. 
B)  $395. 
C)  $405. 
D)  $410.

Question 4

Which of the following results in the cost of goods sold being stated at the most current acquisition costs?

Accepted Answer

A)  Average cost. 
B)  Specific identification. 
C)  FIFO. 
D)  LIFO. 
A)  Average cost. 
B)  Specific identification. 
C)  FIFO. 
D)  LIFO.

Question 5

When the LIFO costing method is in use, the seller:

Accepted Answer

A)  Must sell the most recently acquired units first. 
B)  Must sell the oldest unit in inventory first. 
C)  Assumes that the most recently acquired units are sold first. 
D)  Assumes that the oldest units in inventory are sold first. 
A)  Must sell the most recently acquired units first. 
B)  Must sell the oldest unit in inventory first. 
C)  Assumes that the most recently acquired units are sold first. 
D)  Assumes that the oldest units in inventory are sold first.

Question 6

From an accounting point of view, one implication of an effective just-in-time inventory system is that:

Accepted Answer

A)  Sales transactions must be recorded using on-line point-of-sale terminals. 
B)  Inventories are less material in dollar amount and alternative inventory flow assumptions will produce more similar results. 
C)  The cost of goods sold is significantly reduced. 
D)  Purchases of merchandise are recorded as cash payments are made, and sales transactions are recorded as cash is received. 
A)  Sales transactions must be recorded using on-line point-of-sale terminals. 
B)  Inventories are less material in dollar amount and alternative inventory flow assumptions will produce more similar results. 
C)  The cost of goods sold is significantly reduced. 
D)  Purchases of merchandise are recorded as cash payments are made, and sales transactions are recorded as cash is received.

Question 7

Midwest Office Products uses the retail method to estimate ending inventory in its monthly financial statements. The following information is available for the month ended May 31:
 $\begin{array}{|l|l|l|}
\hline & \text { Cost } & \text { Retail } \
\hline \text { Sales }& & \$ 300,000  \
\hline \text { Inventory, May 1 } & \$ 137,400 & \$ 198,000\
\hline \text { Net purchases } & \$ 184,800 & \$ 273,000 \
\hline \text { Goods available for sale } &\$322,200&\$471,000 \
\hline
\end{array}$ 
-Estimate the cost of the May 31 inventory using the retail method.

Accepted Answer

A)  $116,964. 
B)  $137,400. 
C)  $150,425. 
D)  $204,000. 
A)  $116,964. 
B)  $137,400. 
C)  $150,425. 
D)  $204,000.

Question 8

Inventory turnover
In the spaces provided, indicate the likely effect of each of the following events or strategies upon the inventory turnover rate. Use the following code letters: I for Increase, D for Decrease, and NE for No Effect.
____ (a) Switched from the LIFO flow assumption to FIFO during a period of rising prices.
____ (b) Dramatically increased advertising expense.
____ (c) Increased the sales price of merchandise that is so popular it is difficult to keep in stock.
____ (d) Implemented internal control procedures to reduce a serious inventory shrinkage problem.
____ (e) Switched from a restrictive credit policy to offering liberal terms to credit customers.

Accepted Answer

The answer of Inventory turnover
In the spaces provided, indicate the...

Question 9

An advantage of the average cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

Accepted Answer

A) True 
 B)False

Question 10

The Multi-Tech Company uses the gross profit method to estimate inventories. Fill in the missing amounts.
 $$\begin{array} { | l | c | r | } 
\hline \text { Gross Sales } & \text { a } & \
\hline \text { Returns and Allowances } & & 1,500 \
\hline \text { Sales Discounts } & & 3,250 \
\hline \text { Net Sales } & & \$ 300,000 \
\hline & & \
\hline \text { Cost of Goods Sold } & & \
\hline \text { Beginning Inventory } & 60,000 & \
\hline \text { Purchases } & 175,000 & \
\hline \text { Goods Available } & \mathrm { b } & \
\hline \text { Ending Inventory } & \mathrm { c } & \
\hline \text { Cost of Goods Sold } & & \mathrm { d } \
\hline \text { Gross Profit (43\%) } & & \mathrm { e } \
\hline & & \
\hline
\end{array}$$

Accepted Answer

(a) $304,750
(b) $23

Question 11

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Accepted Answer

A)  Specific identification. 
B)  Average cost. 
C)  First-in, first-out. 
D)  Last-in, last-out. 
A)  Specific identification. 
B)  Average cost. 
C)  First-in, first-out. 
D)  Last-in, last-out.

Question 12

In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows:

Accepted Answer

A)  One entry recognizes the sales revenue and the other recognizes the cost of goods sold. 
B)  One entry records the purchase of merchandise and the other records the sale. 
C)  One entry records the cost of goods sold and the other reduces the balance in the Inventory account. 
D)  One entry updates the subsidiary ledger and the other updates the general ledger. 
A)  One entry recognizes the sales revenue and the other recognizes the cost of goods sold. 
B)  One entry records the purchase of merchandise and the other records the sale. 
C)  One entry records the cost of goods sold and the other reduces the balance in the Inventory account. 
D)  One entry updates the subsidiary ledger and the other updates the general ledger.

Question 13

Kent Company has used the same inventory method for many years. This is an example of which principle?

Accepted Answer

A)  Matching. 
B)  Realization. 
C)  Cost. 
D)  Consistency. 
A)  Matching. 
B)  Realization. 
C)  Cost. 
D)  Consistency.

Question 14

Which of the following results in the inventory being stated at the most current acquisition costs?

Accepted Answer

A)  Specific identification. 
B)  LIFO. 
C)  FIFO. 
D)  Average cost. 
A)  Specific identification. 
B)  LIFO. 
C)  FIFO. 
D)  Average cost.

Question 15

The gross profit method of valuing inventory:

Accepted Answer

A)  Is the most accurate of the commonly used methods. 
B)  Is a satisfactory substitute for taking a physical inventory for annual financial statements. 
C)  Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so. 
D)  Is not an acceptable method under GAAP. 
A)  Is the most accurate of the commonly used methods. 
B)  Is a satisfactory substitute for taking a physical inventory for annual financial statements. 
C)  Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so. 
D)  Is not an acceptable method under GAAP.

Question 16

Which of the four inventory cost flow assumptions transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification. 
A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification.

Question 17

During periods of inflation which method will yield the smallest ending inventory and the largest cost of goods sold?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification. 
A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification.

Question 18

Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this product during the month were:
 $\begin{array}{|l|l|}
\hline \text { Dec } 20 & \text { Purchased } 100 \text { units at } \$ 80 \text { per unit. } \
\hline \text { Dec } 26 & \text { Sold } 80 \text { units. } \
\hline \text { Dec } 28 & \text { Purchased } 100 \text { units at } \$ 90 \text { per unit. } \
\hline
\end{array}$
-Garden World uses the retail method to estimate its monthly cost of goods sold and month-end inventory. At May 31, the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases) totaled $540,000. These goods had been priced for resale at $900,000. Sales in May totaled $480,000. The estimated inventory at May 31 is:

Accepted Answer

A)  $540,000. 
B)  $252,000. 
C)  $420,000. 
D)  $288,000. 
A)  $540,000. 
B)  $252,000. 
C)  $420,000. 
D)  $288,000.

Question 19

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?

Accepted Answer

A)  Only Sales. 
B)  Sales and Inventory. 
C)  Sales and Cost of Goods Sold. 
D)  Sales, Inventory, and Cost of Goods Sold. 
A)  Only Sales. 
B)  Sales and Inventory. 
C)  Sales and Cost of Goods Sold. 
D)  Sales, Inventory, and Cost of Goods Sold.

Question 20

During the current year, Carl Equipment Stores had net sales of $500 million, a cost of goods sold of $400 million, average accounts receivable of $60 million, and average inventory of $50 million.
-Carl Equipment's inventory turnover rate is:

Accepted Answer

A)  6.7 times. 
B)  8 times. 
C)  10 times. 
D)  1.25 times. 
A)  6.7 times. 
B)  8 times. 
C)  10 times. 
D)  1.25 times.

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Which of the following results in the cost of goods sold being stated at the most current acquisition costs?

When the LIFO costing method is in use, the seller:

From an accounting point of view, one implication of an effective just-in-time inventory system is that:

An advantage of the average cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows:

Kent Company has used the same inventory method for many years. This is an example of which principle?

Which of the following results in the inventory being stated at the most current acquisition costs?

The gross profit method of valuing inventory:

Which of the four inventory cost flow assumptions transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?

During periods of inflation which method will yield the smallest ending inventory and the largest cost of goods sold?

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?

During the current year, Carl Equipment Stores had net sales of $500 million, a cost of goods sold of $400 million, average accounts receivable of $60 million, and average inventory of $50 million. -Carl Equipment's inventory turnover rate is:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters

Exam 8: Inventories and the Cost of Goods Sold

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Which of the following results in the cost of goods sold being stated at the most current acquisition costs?

When the LIFO costing method is in use, the seller:

From an accounting point of view, one implication of an effective just-in-time inventory system is that:

An advantage of the average cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows:

Kent Company has used the same inventory method for many years. This is an example of which principle?

Which of the following results in the inventory being stated at the most current acquisition costs?

The gross profit method of valuing inventory:

Which of the four inventory cost flow assumptions transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?

During periods of inflation which method will yield the smallest ending inventory and the largest cost of goods sold?

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?

During the current year, Carl Equipment Stores had net sales of $500 million, a cost of goods sold of $400 million, average accounts receivable of $60 million, and average inventory of $50 million. -Carl Equipment's inventory turnover rate is:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters