Deck 7: Cash and Accounts

Question 1

Periodic inventory systems provide more relevant and timely information to managers for decision making purposes than perpetual inventory systems do.

Answer 1

False

Question 2

FOB shipping means the seller owns the inventory until it reaches the buyers premise.

Answer 2

True

Question 3

Once the manufacturing process is complete, the product is transferred from the Work-in-Process account to Raw Materials account.

Answer 3

True

Question 4

Which of the following is NOT an inventory account in a manufacturing company?

A) Raw Material
B) Work-in-Process
C) Goods Available For Sale
D) Finished Goods

Question 5

Gross margin is the difference between sales revenue and costs of goods available for sale.

Question 6

COGS is equal to the inventory purchased for a given time period.

Question 7

If prices were rising and a Canadian company wanted to report a smaller amount of profit for tax purposes, they should use the weighted-average cost formula.

Question 8

Which of the following is the correct flow of costs in a manufacturing operation?

A) Raw materials to finished goods
B) Raw materials to finished goods to work-in-process
C) Raw materials to work-in-process to finished goods
D) Direct materials to work-in-process to finished goods.

Question 9

All of the following are manufacturing accounts EXCEPT for

A) Cost of goods Available for sale.
B) Raw Materials.
C) Finished Goods.
D) Work-in-Process.

Question 10

FOB means "For only Buyers".

Question 11

The longer the inventory remains unsold, the higher the risk of

A) spoilage.
B) damage.
C) obsolescence.
D) all of the above.

Question 12

Perpetual inventory systems provide more timely information than periodic systems.

Question 13

In a manufacturing process overhead costs are added to which inventory account?

A) Raw Materials
B) Finished Goods
C) Work-in-Process
D) Cost of Goods Sold

Question 14

Raw materials are all items required to make a product.

Question 15

The Finished Goods account collects all the costs incurred as a product is being made.

Question 16

Under the FIFO inventory formula, the cost of ending inventory and cost of goods sold will be the same under both the perpetual and periodic inventory systems.

Question 17

Perpetual inventory systems are incapable of identifying inventory shrinkage.

Question 18

Companies that make products are known as retailers.

Question 19

The LCM rule is usually applied to groups of similar items.

Question 20

The cost formula used by a firm must match the physical flow of units through the firm.

Question 21

When a perpetual inventory system is used,

A) a physical inventory count must be taken to determine cost of goods sold.
B) inventory shrinkage is difficult to determine.
C) it eliminates the need for frequent inventory counts.
D) the timeliness of data is sacrificed for lower costs of operation.

Question 22

When a periodic inventory system is used

A) inventory shrinkage is impossible to calculate.
B) timely data is of utmost importance.
C) cost of goods sold is always known.
D) every inventory transaction is reflected in the inventory account.

Question 23

Use the following information for questions 46-48.
Birken Bark Industries had the following activity with one of its inventory items during the current period:
Using a perpetual inventory system and the FIFO cost formula, the ending inventory was valued at

A) $500.
B) $625.
C) $720.
D) $825.

Question 24

Which of the following statements about the FIFO cost formula is true?

A) The same costs per unit are assigned to the ending inventory and the cost of goods sold.
B) Companies prefer to use FIFO because it lowers their tax liability.
C) In times of rising prices FIFO will produce a higher net income than weighted-average.
D) In time of rising prices FIFO produces an inventory cost per unit that is lower than the cost per unit of cost of goods sold.

Question 25

The buyer is responsible for paying shipping and other costs incurred while goods are in transit from the sellers premise to buyers premises.

A) FOB shipping
B) FOB destination
C) FOB purchasing
D) FOB receiving

Question 26

Which of the following cost formulas would be most appropriate for costing an inventory of liquids stored in tanks?

A) weighted-average
B) FIFO
C) periodic
D) perpetual

Question 27

Which of the following is true under a periodic system?

A) A COGS expense is recognized each time a sale is made.
B) The inventory account is not updated with each purchase.
C) Inventory shrinkage is easily identified.
D) This system can be costly to implement.

Question 28

Which of the following would most likely use a perpetual inventory system?

A) hardware store
B) shoe store
C) car dealership
D) bookstore

Question 29

Which of the following would be most likely to use the specific identification method?

A) shoe store
B) car dealership
C) grocery store
D) bookstore

Question 30

An inventory of grocery items where the shelves are stocked from the back would be similar to which cost formula?

A) FIFO
B) specific identification
C) weighted-average
D) none of the above

Question 31

The following amounts are always known under which inventory costing system? Current inventory Cost of goods sold Inventory shrinkage

A) Periodic Periodic Perpetual
B) Perpetual Perpetual Periodic
C) Perpetual Perpetual Perpetual
D) Periodic Periodic Periodic

Question 32

Which of the following would most likely use a periodic inventory system?

A) car dealership
B) heavy metal distributor
C) computer dealership
D) local handcrafted furniture store

Question 33

Use the following information for questions 46-48.
Birken Bark Industries had the following activity with one of its inventory items during the current period:
Using a perpetual inventory system and the weighted-average cost formula, the cost of goods sold for the October 11 sale was closest to

A) $540.
B) $420.
C) $393.
D) $370.

Question 34

Which cost formula will produce the same results under both the periodic and perpetual inventory systems?

A) FIFO
B) weighted-average
C) They both produce the same results.
D) They both produce different results.

Question 35

Use the following information for questions 46-48.
Birken Bark Industries had the following activity with one of its inventory items during the current period:
Using a perpetual inventory system and the FIFO cost formula, the cost of goods sold was

A) $975.
B) $1,080.
C) $1,175.
D) $1,300.

Question 36

Use of the FIFO cost formula means that

A) the perpetual costing system is used.
B) the ending inventory contains the oldest costs.
C) the periodic costing system is used.
D) the ending inventory contains the most recent costs.

Question 37

When a company is evaluating whether or not to use a perpetual vs. a periodic inventory system the following statement is most accurate.

A) A perpetual inventory system provides far superior information and should be used at any cost.
B) A periodic system is inferior and should never be used if possible.
C) The cost of the system used should be measured against the benefits it provides.
D) Both systems are equally good.

Question 38

Which of the following should be included in the cost of inventory?

A) the cost of keeping the inventory records
B) depreciation on the inventory warehouse
C) the salesperson's commission.
D) receiving and inspection costs

Question 39

Which of the following cost formulas would be most appropriate when the inventory units are unique or costly?

A) FIFO
B) specific identification
C) just-in-time
D) weighted-average

Question 40

Which of the following statements about the weighted-average cost formula is true?

A) If prices are rising, companies prefer it because it lowers their tax liability.
B) It is the most popular method in Canada.
C) In times of rising prices, weighted-average will produce a higher net income than FIFO.
D) In time of rising prices, weighted-average produces an inventory cost per unit that is higher than the cost per unit of cost of goods sold.

Question 41

Effective inventory management would have one person place the order for new inventory, a second person check it against the purchase order when it arrives and a third person record the receipt of inventory in the accounting records. The purpose of this system is

A) to reduce spoilage.
B) to reduce storage costs.
C) to guard against stock-outs.
D) to guard against internal theft and collusion.

Question 42

Tamarack Co. prepares its estimate of LCM using the net realizable value. Inventory item 101 cost $45 and its current replacement cost is $50. The item is currently selling in the market for $55 and selling costs are estimated to be $6. Tamarack expects to earn a profit of $4 on the sale of this item. In its year-end financial statements, Tamarack Co. should value this item at

A) $50.
B) $45.
C) $49.
D) $55.

Question 43

Use the following information for questions 62-64.
A company had the following inventory activity during May:
If the company uses a perpetual system and the FIFO cost formula, what is the gross margin on the May 5 sale closest to?

A) $6,100
B) $8,100
C) $8,200
D) $8,550

Question 44

Use the following information for questions 49-52.
A company had the following inventory activity during January:
If the company is using a perpetual system and the FIFO cost formula, what is the ending inventory closest to?

A) $7,100
B) $7,350
C) $7,650
D) $7,920

Question 45

Use the following information for questions 49-52.
A company had the following inventory activity during January:
If the company is using a perpetual system and the weighted-average cost formula, what is the ending inventory closest to?

A) $8,470
B) $7,777
C) $7,560
D) $7,391

Question 46

Use the following information for questions 49-52.
A company had the following inventory activity during January:
If the company is using a perpetual system and the weighted-average cost formula, what is the cost of goods sold closest to?

A) $24,380
B) $24,840
C) $25,459
D) $25,631

Question 47

Use the following information for questions 49-52.
A company had the following inventory activity during January:
If the company is using a perpetual system and the FIFO cost formula, what is the cost of goods sold closest to?

A) $25,700
B) $25,500
C) $25,200
D) $25,930

Question 48

The inventory writedown incurred from applying the LCM rule to inventory is

A) not reflected on the Statement of Financial Position.
B) an adjustment to cost of goods sold.
C) not reflected on the Statement of Income.
D) not considered a permanent loss.

Question 49

Use the following information to answer questions 59-60.
Hannibal Inc. values its inventory on an LCM basis. The following data came from the 2017 inventory, which consisted of two items:
The appropriate carrying value for the entire inventory when applying the LCM rule using net realizable value on an item-by-item basis would be

A) $25,000.
B) $26,000.
C) $27,000.
D) $28,000.

Question 50

Best Beauties Ltd. had a fire at its warehouse and was trying to determine the cost of the inventory lost. For the year to date, sales had been $525,000, opening inventory was $25,000, purchases to date were $198,000, the cost-to-sales ratio is normally 60%. Inventory not damaged in the fire was $18,000. What was the cost of the inventory damaged in the fire?

A) $110,000
B) $124,000
C) $160,000
D) $74,000

Question 51

Use the following information to answer questions 59-60.
Hannibal Inc. values its inventory on an LCM basis. The following data came from the 2017 inventory, which consisted of two items:
The appropriate carrying value for the entire inventory when applying the LCM rule using net realizable value to the inventory as a whole would be

A) $25,000.
B) $26,000.
C) $27,000.
D) $28,000.

Question 52

When applying the LCM, the following is true:

A) The inventory account remains at its original value.
B) A contra account to inventory is used.
C) COGS rises when ending inventory is reduced to market value.
D) LCM can only be applied to individual items.

Question 53

When using the LCM rule in Canada, the market value is most commonly

A) net present value.
B) selling price less profit margin.
C) replacement cost.
D) net realizable value.

Question 54

Which of the following statements best describes net realizable value when applying the LCM rule?

A) Net realizable value is the selling price less the costs necessary to sell the item.
B) Net realizable value is the selling price plus the costs necessary to sell the item.
C) Net realizable value is the selling price plus the normal profit margin.
D) Net realizable value is the selling price less the normal profit margin.

Question 55

Cullen Company has a normal markup of 40%. Its cost-to-sales ratio is

A) 71.4%.
B) 67.5%.
C) 60%.
D) Cannot be calculated.

Question 56

The inventory writedown that results from the application of the LCM rule is often hidden in the

A) selling expense.
B) inventory account.
C) cost of goods sold.
D) loss due to market decline of inventory.

Question 57

Use the following information for questions 49-52.
A company had the following inventory activity during January:
Net realizable value is also known as the

A) replacement cost.
B) wholesale price.
C) estimated selling price.
D) liquidated price.

Question 58

Grey Industries. had beginning inventory of $10,000 and purchased $75,000 during 2017. The company had sales of $90,000 and has traditionally had a cost-to-sales ratio of 75%. Using the gross margin estimation method, the company estimates its ending inventory to be

A) $67,500.
B) $65,000.
C) $17,500.
D) $22,500.

Question 59

Use the following information for questions 62-64.
A company had the following inventory activity during May:
If the company uses a perpetual system and the weighted-average cost formula, what is the gross margin on the May 5 sale closest to?

A) $6,100
B) $8,100
C) $8,190
D) $8,550

Question 60

Use the following information for questions 62-64.
A company had the following inventory activity during May:
If the company uses a perpetual system and the FIFO cost formula, what is the gross margin for the month closest to?

A) $12,100
B) $16,200
C) $16,300
D) $17.100