Deck 5: Inventories and Cost of Goods Sold

Question 1

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330.The cost of merchandise purchased is equal to

A)$12,670
B)$9,070
C)$8,420
D)$17,230

Answer 1

B

Question 2

Which one of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of a service company?

A)Cost of Goods Sold
B)Selling Expenses
C)Administrative Expenses
D)Income Tax Expense

Answer 2

A

Question 3

A customer returned damaged goods for credit.Which of the seller's accounts decreases?

A)Purchase Returns
B)Accounts Receivable
C)Sales Returns
D)Sales Revenue

Answer 3

B

Question 4

Asago Co.sold merchandise to Health Co.on account, $18,000, terms 2/15, net 45.The cost of the merchandise sold is $15,500.Asago Co.issued a credit memo for $1,750 for merchandise returned that originally cost $1,400.The Health Co.paid the invoice within the discount period.What is amount of net sales from the above transactions?

A)$16,250
B)$14,100
C)$15,925
D)$13,818

Question 5

Which one of the following types of inventory accounts would be used by a wholesaler or retailer?

A)Raw materials inventory
B)Work in process inventory
C)Finished goods inventory
D)Merchandise inventory

Question 6

Chen's Department Store
Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store Calculate Chen's cost of goods purchased

A)$ 84,000
B)$ 90,000
C)$ 103,000
D)$ 117,000

Question 7

Ending inventory is equal to the cost of items on hand plus

A)merchandise in transit sold to customers FOB shipping point.
B)merchandise in transit sold to customers FOB destination.
C)the cost of all inventory purchased during the period.
D)merchandise purchased in transit with terms FOB destination.

Question 8

Items should be reported as part of the company's "inventory" at year end, if they are

A)Purchased from a creditor, available for sale, and paid for the following year.
B)Held in anticipation of an increase in market value.
C)Determined to be part of cost of goods sold.
D)Sold during the period.

Question 9

Chen's Department Store
Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store.
Determine Chen's gross profit.

A)$68,000
B)$72,000
C)$78,000
D)$85,000

Question 10

Givens Corp.
Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the information for Givens Corp.Calculate the gross profit.

A)$241,000
B)$275,000
C)$289,000
D)$425,000

Question 11

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?

A)Assets and stockholders' equity decrease.
B)Assets and stockholders' equity increase.
C)Assets decrease and liabilities increase.
D)Stockholders' equity decreases and liabilities increase.

Question 12

Givens Corp.
Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the information for Givens Corp.
Calculate net income.

A)$289,000
B)$141,000
C)$131,000
D)$116,000

Question 13

Which of the following terms best describes "Cost of goods available for sale"?

A)Cost of goods available for sale is an expense account.
B)Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period.
C)Cost of goods available for sale is subtracted from net sales to arrive at the gross margin
D)Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year

Question 14

Which one of the following ratios is a common analytical tool used by merchandise corporations, but not by service corporations?

A)Gross profit ratio
B)Earnings per share
C)Current ratio
D)Profit margin

Question 15

Chen's Department Store
Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store.
Calculate Chen's net sales.

A)$162,000
B)$167,000
C)$170,000
D)$175,000

Question 16

The inventory account a manufacturer uses to record the cost of products completed and available for sale is called

A)Raw materials inventory
B)Work in process inventory
C)Finished goods inventory
D)Merchandise inventory

Question 17

For what reason might retailers like Target select an accounting period that ends on or near the end of January?

A)The company originally started business operations on that date.
B)Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year.
C)The company's CPAs are attempting to spread out the workload.
D)The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.

Question 18

Using the following information, what is the amount of cost of goods sold?

A)$26,900
B)$20,530
C)$28,130
D)$30,210

Question 19

Klein's Shoe Company uses a perpetual inventory system.The beginning balance in its inventory account is $1,500 and the ending balance is $1,000.Cost of goods sold is $6,500.What was the amount of inventory purchased during the year?

A)$ 500
B)$6,000
C)$7,000
D)$7,500

Question 20

Givens Corp.
Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to information for Givens Corp.
Calculate the cost of goods sold for Givens Corp.

A)$275,000
B)$259,000
C)$241,000
D)$211,000

Question 21

Texas Inc.sold merchandise to Fagin Corp.on December 28, 2014, with shipping terms of FOB destination.Fagin Corp.received the merchandise on January 3, 2015.Which one of the following statements is true?

A)Texas should record sales revenue on December 28, 2014.
B)Fagin Corp.should pay the transportation costs.
C)Fagin Corp.should include the merchandise in its inventory at December 31, 2014.
D)Fagin Corp.should record a liability for the purchase on January 3, 2015.

Question 22

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2015.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2015.Park paid the amount due on June 13, 2015.
Park uses a perpetual inventory system.When will the cost of merchandise sold be recorded as an expense?

A)The date the merchandise was purchased
B)The date the merchandise is sold
C)The end of the accounting period
D)Cannot be determined without further information

Question 23

The cost of goods sold is

A)Purchases less beginning inventory plus ending inventory
B)Reported on the balance sheet in the inventory account
C)Goods available for sale less ending inventory
D)Equal to the amount of inventory on hand at the end of the accounting period

Question 24

Blenham, Inc.sells merchandise on credit.If a customer pays its balance due after the discount period has passed, what is the effect of the payment on Blenham's accounting equation?

A)Assets and stockholders' equity decrease.
B)Assets and stockholders' equity increase.
C)Assets decrease and liabilities increase.
D)No net effect.

Question 25

Sales Discounts is classified as what type of account?

A)an expense
B)a revenue
C)a contra-asset
D)a contra-revenue

Question 26

When an inventory system updates the Inventory account at the time of each sale, this is known as:

A)a periodic system
B)a contra-purchase system
C)a perpetual system
D)an accrual system

Question 27

Baker Corp.sold merchandise to a customer on credit.The invoice amount was $1,000; the invoice date was June 10; credit terms were 1/10, n/30.Which one of the following statements is true?

A)The customer can take a $10 discount if the invoice is paid on June 30.
B)The customer should pay $1,000 if the invoice is paid on July 9.
C)The customer must pay a $10 penalty if payment is made after July 9.
D)The customer must pay $1,010 if payment is made after June 20.

Question 28

Cost of goods sold is equal to

A)the total amount of merchandise purchased during the year.
B)the cost of merchandise purchased plus transportation-in costs less ending inventory.
C)the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts minus ending inventory.
D)the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts.

Question 29

Floors, Inc.offers terms of 2/10, n/30 to credit customers.Tile Magic Corp.purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account.
Tile Magic Corp.paid the invoice on August 31, 2015.How much sales discount will Floors recognize?

A)$ -0-
B)$ 40
C)$ 200
D)$ 236

Question 30

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for

A)The periodic inventory system
B)The perpetual inventory system
C)Both the periodic and perpetual inventory systems
D)Neither the periodic nor perpetual inventory systems

Question 31

Slotkin Company buys designer clothing to sell in its retail stores.Since much of the merchandise comes from Dallas and Europe, Slotkin Company must pay freight charges to get the merchandise shipped in.Which statement is true?

A)Transportation-in, paid by Slotkin Company, is added to the inventory account under the periodic system.
B)Transportation-in, paid by Slotkin Company, is subtracted from purchases under the periodic system.
C)Freight charges are only paid by a buyer in a periodic system.
D)Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.

Question 32

The following is from Goldman Inc.'s 2015 income statement. How much will Goldman report as cost of goods purchased in its 2015 income statement?

A)$184,600
B)$193,000
C)$201,400
D)$211,100

Question 33

The following is from Goldman Inc.'s 2015 income statement. How much will Goldman report as its cost of goods sold in its 2015 income statement?

A)$179,900
B)$182,300
C)$186,900
D)$190,700

Question 34

Floors, Inc.offers terms of 2/10, n/30 to credit customers.Tile Magic Corp.purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account.
If Tile Magic Corp.pays the amount of the invoice for its purchase on August 14, 2015, how much cash will Floors receive from Tile Magic Corp.?

A)$1,764
B)$1,800
C)$1,960
D)$2,000

Question 35

Blenham, Inc.sells merchandise on credit.If a customer pays its balance due within the discount period, what is the effect of the payment on Blenham's accounting equation?

A)Assets and stockholders' equity decrease.
B)Assets and stockholders' equity increase.
C)Assets decrease and liabilities increase.
D)Stockholders' equity decreases and liabilities increase.

Question 36

Which one of the following is correct?

A)Inventory losses can be identified and controlled better under the perpetual system.
B)Inventory can only be sold at the end of an accounting period under the periodic system.
C)There is no difference in cost to implement a perpetual as compared to a periodic system.
D)The perpetual system eliminates the need for an annual inventory count.

Question 37

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the

A)matching principle
B)full disclosure principle
C)revenue realization principle
D)historical cost principle

Question 38

In a periodic inventory system, the cost of purchases is recognized as

A)an integral part of the calculation of cost of goods sold.
B)the only part of the calculation of cost of goods sold.
C)an increase in the inventory account.
D)an increase in an asset account.

Question 39

Which one of the following statements is false?

A)The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system.
B)The inventory account is updated only at the end of the accounting period under the periodic inventory system.
C)A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system.
D)A purchases account is used only under the periodic inventory system.

Question 40

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?

A)As a direct reduction to the Purchases account
B)In contra accounts to the Purchases account
C)As operating expenses
D)As miscellaneous expenses

Question 41

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2015.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2015.Park paid the amount due on June 13, 2015.
If Park uses the periodic inventory system, the effect of recording the payment on June 13, 2015, will include

A)a decrease to Purchases for $15,000.
B)an increase to Inventory for $14,850.
C)a decrease to Cash for $15,000.
D)a decrease to Accounts Payable for $15,000.

Question 42

Transportation-in is

A)an operating expense.
B)part of purchases.
C)added to transportation-out as part of the calculation of cost of goods sold.
D)part of cost of goods purchased.

Question 43

At the year end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of

A)The seller
B)The buyer
C)Both the seller and the buyer
D)Neither the seller no the buyer

Question 44

The ending inventory balance represents

A)Expired costs and is reported on the balance sheet as an asset.
B)The cost of goods sold during the current period and is reported on the balance sheet as an asset.
C)Expired costs and is reported on the income statement as an expense
D)Unexpired costs and is reported on the balance sheet as an asset.

Question 45

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2015.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2015.Park paid the amount due on June 13, 2015.
Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park?

A)Jay Zee Music Company
B)Park, Inc.
C)Split equally between the two companies
D)Cannot be determined from the information provided

Question 46

Which method assigns the cost of the most recent items purchased to cost of goods sold?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 47

All of the following statements regarding the gross profit ratio are true except:

A)The gross profit ratio alone is sufficient to determine a company's profitability.
B)Managers, investors, and creditors use the gross profit ratio to measure one aspect of profitability.
C)The gross profit ratio explains how many cents on every dollar are available to cover expenses other than cost of goods sold and to earn a profit.
D)If a company's net sales were $200,000 and cost of goods sold were $120,000, its gross profit ratio would be 40%.

Question 48

Herndon Corp.purchased merchandise on account from Likert Corp.on November 18, 2014.On November 21, 2014, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account.Herndon uses the periodic inventory system.What effect does the merchandise return have on Herndon's accounting equation?

A)Assets and stockholders' equity decrease.
B)Assets and liabilities decrease.
C)Liabilities decrease and stockholders' equity increases.
D)Liabilities and stockholders' equity decrease.

Question 49

In order to evaluate a company's gross profit ratio,

A)the ratio should be compared with forecasted financial statements.
B)the ratio should be compared with those of prior years.
C)the ratio should be compared with other companies in the same industry.
D)the ratio should be compared with those of both prior years and competitors.

Question 50

For which type of inventory would a company most likely use the specific identification method?

A)Barbie dolls
B)Cartons of milk
C)Custom designed diamond rings
D)Gasoline in storage tanks at a gasoline station

Question 51

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2015.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2015.Park paid the amount due on June 13, 2015.
Park uses the periodic inventory system.What effect does recording the purchase of merchandise on June 5, 2015 have on Park's accounting equation?

A)Assets and liabilities increase.
B)Liabilities increase and stockholders' equity decreases.
C)Assets and stockholders' equity increase.
D)Liabilities and stockholders' equity decrease.

Question 52

The Ramien Store held inventory items at the end of 2014.Which items should Ramien include as part of its total inventory cost?

A)Freight incurred in shipping goods to customers.
B)Annual income taxes paid for operations.
C)Cost of storing inventory before it is sold.
D)Cost of salaries of clerks that sell the inventory items.

Question 53

At the year end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of

A)The seller
B)The buyer
C)Neither the buyer nor the seller

Question 54

Which method assigns the cost of the most recent items purchased to ending inventory?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 55

Park, Inc.purchased merchandise from Jay Zee Music Company on June 5, 2015.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10, n/30.The shipping terms were FOB shipping point.Park received the merchandise on June 10, 2015.Park paid the amount due on June 13, 2015.
When did title to the merchandise transfer from Jay Zee Music Company to Park?

A)June 5, 2015
B)June 10, 2015
C)June 13, 2015
D)Cannot be determined from the information provided

Question 56

Which one of the following is not a contra account?

A)Purchase Returns and Allowances
B)Accumulated Depreciation
C)Transportation-in
D)Sales Discounts

Question 57

Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold.All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incurred.Which accounting principle or concept is applied in this example?

A)Historical cost
B)Matching
C)Cost/Benefit
D)Conservatism

Question 58

Cost of goods sold represents

A)Expired costs during a period and is reported on the income statement.
B)Unexpired costs and is reported on the balance sheet as an asset.
C)The cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an asset.
D)Expired costs and is reported on the balance sheet as an expense.

Question 59

Wendt, Inc.counted its ending inventory as $178,000 at year-end, January 31, 2014.Upon review of the records, it was noted that the following items were in transit during the count:
A) $2,000 of goods shipped by a supplier to Wendt sent FOB destination on January 31 were received February 5, and were not counted by Wendt.
B) $5,000 of goods shipped by a supplier to Wendt sent FOB shipping point on January 30 were received February 2, and were not counted by Wendt.
C) $6,000 of goods shipped by Wendt to a customer FOB shipping point on January 31 were received by the customer February 3, and were counted by Wendt.
Determine the correct inventory balance at January 31.

A)$178,000
B)$177,000
C)$174,000
D)$172,000

Question 60

Which method assigns the same cost to all units whether sold or left in ending inventory?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 61

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the FIFO inventory method, the amount assigned to the June 30 inventory would be

A)$1,354.00
B)$1,366.50
C)$1,590.42
D)$1,594.00

Question 62

Xu Corp.started business at the beginning of 2015.Xu selected the FIFO method for its inventory.In order to maximize its profits for 2015 under this method, prices must be

A)Increasing
B)Decreasing
C)Stable
D)Fluctuating up and down at the same amount consistently over the year

Question 63

If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO?

A)There would be no tax savings.
B)$ 800
C)$ 1,200
D)$ 2,000

Question 64

A major advantage of the weighted average method of inventory costing is that

A)Cost flows correspond with the physical flow of merchandise.
B)It is relatively easy to apply.
C)It matches current costs with revenues.
D)Recent costs are assigned to the ending inventory balance.

Question 65

Eversoll Inc.uses the periodic inventory system. If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase, Eversoll's cost of goods sold for June under the specific identification method would be

A)$2,263.00
B)$2.373.00
C)$2,945.00
D)$3,626.50

Question 66

Which method of inventory costing is not acceptable for financial accounting purposes?

A)Specific Identification
B)FIFO
C)LIFO
D)Replacement Cost

Question 67

Summer, Inc.has been in business for 20 years.During that time the company has consistently used the LIFO inventory costing method.Because of inflation, prices for merchandise have increased consistently over the 20 years.The company has maintained the same inventory quantities over the 20-year period.Which one of the following statements is true?

A)Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method.
B)Summer, Inc.will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method.
C)Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules.
D)The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

Question 68

Which one of the following statements regarding changing inventory methods is true?

A)A change in inventory methods can be justified if the change is made to better match profits with revenue.
B)Changing inventory methods affects consistency.
C)One place that the reader of an annual report would be able to identify that a company changed inventory methods is the statement of stockholders' equity.
D)Tax advantages are valid justification for changing inventory methods.

Question 69

Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial reporting with one exception.Which of the following situations is not allowed by federal income tax rules?

Question 70

Which one of the following statements is false?

A)Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in the purchases
B)Differences in cash flows between LIFO and FIFO inventory methods are caused by differences in taxes.
C)The amount of cash to acquire inventory is the same for companies that use LIFO as for those companies that use FIFO.
D)The primary determinant in selecting an inventory costing method should be the ability of the method to accurately reflect the net income of the period.

Question 71

Which inventory costing method results in the highest inventory balance during a period of rising prices?

A)Weighted average cost
B)FIFO
C)LIFO
D)Both FIFO and LIFO result in the same inventory balance

Question 72

During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold?

A)Any method in which the company uses a periodic inventory system
B)FIFO
C)LIFO
D)Weighted Average Cost

Question 73

Quan uses a periodic inventory system.At the end of April, Quan had 20 units on hand. If Quan, Inc.uses the weighted average cost inventory method, how much is cost of goods sold for April?

A)$230
B)$232
C)$240
D)$250

Question 74

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the LIFO inventory method, the cost of goods sold for June would be

A)$1,354.00
B)$2,200.00
C)$2,272.50
D)$2,296.08

Question 75

Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?

A)FIFO
B)LIFO
C)Specific Identification
D)Weighted Average Cost

Question 76

Quan uses a periodic inventory system.At the end of April, Quan had 20 units on hand. If Quan uses the LIFO inventory method, how much is inventory on the balance sheet as of April 30?

A)$40
B)$50
C)$58
D)$60

Question 77

Quan uses a periodic inventory system.At the end of April, Quan had 20 units on hand. If Quan, Inc.uses FIFO inventory costing, how much is cost of goods sold for April?

A)$230
B)$232
C)$240
D)$250

Question 78

Eversoll Inc.uses the periodic inventory system. How many units did Eversoll, Inc.sell during June?

A)50
B)90
C)100
D)150

Question 79

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the weighted average cost inventory method, the amount assigned to the June 30th inventory would be

A)$1,359.90
B)$1,486.50
C)$1,549.00
D)$1,591.50

Question 80

Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income?

A)FIFO
B)LIFO
C)Specific Identification
D)Weighted Average Cost