Deck 15: Accounting for Merchandise Inventory

Question 1

The journal entry to record the purchase of inventory under the perpetual system includes:

A) a debit to Cost of Goods Sold and a credit to Merchandise Inventory.
B) a debit to Merchandise Inventory and a credit to Accounts Payable or Cash.
C) a debit to Accounts Receivable or Cash and a credit to Sales.
D) Both A and C are correct.

Answer 1

B

Question 2

The journal entry to record a purchase of inventory on credit under the perpetual system includes:

A) a credit to Merchandise Inventory.
B) a debit to Cash.
C) a credit to Accounts Payable.
D) Both A and C are correct.

Answer 2

C

Question 3

The company returned $500 of damaged merchandise purchased on credit. The entry to record this under the periodic inventory system is:

A) debit Cost of Goods Sold $500; credit Accounts Payable $500.
B) debit Merchandise Inventory $500; credit Accounts Payable $500.
C) debit Accounts Payable $500; credit Purchases Returns and Allowances $500.
D) debit Accounts Payable $500; credit Merchandise Inventory $500.

Answer 3

C

Question 4

Mack Industries uses the periodic inventory system. What is the entry to record a $300 sale on account to customer Jake Sanders, with a $100 cost of sale?

A) Debit Accounts Receivable for $300; credit Sales for $300; debit Cost of Goods Sold for $100; credit Merchandise Inventory for $100.
B) Debit Accounts Receivable for $300; credit Sales for $100; debit Cost of Goods Sold for $300; credit Merchandise Inventory for $100.
C) Debit Sales for $300; credit Accounts Receivable for $300.
D) Debit Accounts Receivable for $300; credit Sales for $300.

Question 5

Mack Industries uses the periodic inventory system. What is the entry to record a $450 merchandise purchase on account from Nickel Corporation?

A) Debit Accounts Payable for $450; credit Sales for $450.
B) Debit Purchases for $450; credit Accounts Payable for $450.
C) Debit Purchases for $450; credit Merchandise Inventory for $450.
D) Debit Merchandise Inventory for $450; credit Accounts Payable for $450.

Question 6

The journal entry to record the return of a purchase of inventory under the periodic system includes a:

A) debit to Sales.
B) credit to Purchases Returns and Allowances.
C) credit to Merchandise Inventory.
D) credit to Sales.

Question 7

Merchandise Inventory is recorded on the:

A) Balance Sheet.
B) Statement of owner's equity.
C) Income Statement.
D) None of these is correct.

Question 8

Which of the following accounts is used with a periodic inventory system?

A) Sales
B) Sales Discounts
C) Purchases Returns and Allowances
D) All of these answers are correct.

Question 9

______ accounts for merchandise inventory on a transaction-by-transaction basis.

A) A periodic inventory system
B) A perpetual inventory system
C) An inventory accounting system
D) Both A and B are correct.

Question 10

Under the perpetual inventory system, in addition to making the entry to record a return of goods from a customer, a company would:

A) debit Merchandise Inventory and credit Cost of Goods Sold.
B) debit Cost of Goods Sold and credit Merchandise Inventory.
C) debit Sales and credit Cost of Goods Sold.
D) debit Purchases and credit Cost of Goods Sold.

Question 11

Mack Industries uses the perpetual inventory system. What is the entry to record a $450 merchandise purchase on account from Nickel Corporation?

A) Debit Accounts Payable for $450; credit Sales for $450.
B) Debit Purchases for $450; credit Accounts Payable for $450.
C) Debit Purchases for $450; credit Merchandise Inventory for $450.
D) Debit Merchandise Inventory for $450; credit Accounts Payable for $450.

Question 12

Under the perpetual system, when merchandise is sold, the journal entry would include a:

A) debit to Merchandise Inventory; a credit to Accounts Payable or Cash.
B) debit to Cost of Goods Sold; a credit to Merchandise Inventory.
C) debit to Accounts Receivable or Cash and a credit to Sales.
D) Both B and C are correct.

Question 13

The perpetual inventory system is a system which:

A) updates inventory only at the end of each period.
B) uses only LIFO method.
C) needs a physical inventory taken.
D) Both A and B are correct.

Question 14

Mack Industries uses the perpetual inventory system. What is the entry to record a $300 sale on account to customer Jake Sanders, with a $100 cost of sale?

A) Debit Accounts Receivable for $300; credit Sales for $300; debit Cost of Goods Sold for $100; credit Merchandise Inventory for $100.
B) Debit Accounts Receivable for $300; credit Sales for $100; debit Cost of Goods Sold for $300; credit Merchandise Inventory for $100.
C) Debit Accounts Receivable for $300; credit Sales for $300.
D) Debit Sales for $300; credit Accounts Receivable for $300.

Question 15

Under the perpetual inventory system, which of the following accounts is debited with a merchandise purchase?

A) Sales
B) Purchases
C) Purchase Returns and Allowances
D) Merchandise Inventory

Question 16

Which of the following would be used to record the payment for purchases under the periodic system?

A) Debit to Accounts Payable
B) Debit to Purchase Discounts
C) Credit to Accounts Payable
D) Debit to Cash

Question 17

In a perpetual inventory system:

A) Merchandise Inventory is debited every time inventory is purchased.
B) Cost of Goods Sold is credited every time inventory is sold.
C) a physical inventory is never performed.
D) All of the above

Question 18

Sales Returns & Allowances is recorded on the:

A) Balance Sheet.
B) Statement of owner's equity.
C) Income Statement.
D) None of these is correct.

Question 19

A credit customer purchased $800 worth of items. Four days later, the customer returned $100 worth of those items. The entry to record this under the perpetual inventory method would include:

A) a debit to Sales Returns and Allowances $100.
B) a credit to Merchandise Inventory at cost.
C) a debit to Cost of Goods Sold at cost.
D) a credit to Sales Returns and Allowances $100.

Question 20

Mack Industries uses the perpetual inventory system. What is the entry to record $250 of returned merchandise, with a cost of $100, from customer Jake Sanders?

A) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250.
B) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250; debit Purchases for $100; credit Purchase Returns & Allowances for $100.
C) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250; debit Merchandise Inventory for $100; credit Cost of Goods Sold for $100.
D) Debit Sales Returns & Allowances for $250; credit Cash for $100, credit Sales for $150.

Question 21

Indicate the account(s) to be debited and credited to record the following transactions.


-Paid for freight charges. - Periodic
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 22

Under the perpetual or periodic inventory system, customer merchandise returns are recorded to ___________ and Accounts Receivable (or Cash).

Question 23

When using a periodic inventory system, a physical inventory is required.

Question 24

Under the ________ inventory system, cost of goods sold and the amount of merchandise inventory on hand are updated at the end of the accounting period.

Question 25

Indicate the account(s) to be debited and credited to record the following transactions.


-Purchased merchandise on credit; terms of 2/10, n/30. - Periodic
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 26

Indicate the account(s) to be debited and credited to record the following transactions.


-Purchased merchandise on credit; terms of 2/10, n/30. - Perpetual
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 27

Indicate the account(s) to be debited and credited to record the following transactions.


-Sold merchandise in exchange for cash. - Periodic
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 28

Under the ________ inventory system, entries are made to the merchandise inventory or cost of goods sold account during the year.

Question 29

In a perpetual inventory system, Merchandise Inventory is credited when recording the cost of a sale.

Question 30

When merchandise is sold, the periodic inventory system requires a debit to Cost of Goods Sold and a credit to Merchandise Inventory.

Question 31

Merchandise Inventory is a liability account.

Question 32

Indicate the account(s) to be debited and credited to record the following transactions.


-Returned merchandise inventory for cash - Periodic
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 33

Under the _________ inventory system, every sale has a corresponding cost entry.

Question 34

Indicate the account(s) to be debited and credited to record the following transactions.


-Paid for merchandise within the discount period. - Perpetual
Debit ________ Credit ________ & ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 35

In a periodic inventory system, Purchases, Freight-In, and Purchases Returns and Allowances accounts are used.

Question 36

Mack Industries uses the periodic inventory system. What is the entry to record $250 of returned merchandise, with a cost of $100, from customer Jake Sanders?

A) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250; debit Merchandise Inventory for $100; credit Cost of Goods Sold for $100.
B) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250; debit Purchases for $100; credit Purchase Returns & Allowances for $100.
C) Debit Sales Returns & Allowances for $250; credit Cash for $100; credit Sales for $150.
D) Debit Sales Returns & Allowances for $250; credit Accounts Receivable for $250.

Question 37

Under the periodic inventory method, purchases are debited to ________.

Question 38

Indicate the account(s) to be debited and credited to record the following transactions.


-Paid for freight charges. - Perpetual
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 39

In a perpetual inventory system, Sales Returns and Allowances is credited when a sales return occurs.

Question 40

Under a perpetual inventory system, inventory purchases are entered in the Merchandise Inventory account at cost.

Question 41

Individual inventory items are tracked in the:

A) accounts receivable ledger.
B) purchases journal
C) accounts payable ledger.
D) inventory ledger.

Question 42

A purchases journal may be used to track inventory.

Question 43

The inventory method that matches most recently acquired costs with current selling prices is:

A) LIFO.
B) FIFO.
C) weighted-average.
D) specific invoice.

Question 44

This method assumes that the oldest goods are sold first.

A) LIFO
B) FIFO
C) Specific invoice method
D) Weighted-average method

Question 45

A disadvantage of the FIFO method is that:

A) recent sales are not matched with recent costs.
B) the cost flow tends to follow the physical flow.
C) the figure for ending inventory is made up of current costs on the income statement.
D) None of the above is correct.

Question 46

The following transactions took place during August of the current year for Roadhouse School Supplies.
August 6 Purchased merchandise on account from Abe's Papermill for $10,000.
August 8 Paid freight charges of $600 on merchandise purchased on the 6th.
August 12 Sold merchandise on account to Johnson Elementary for $2,500.
The cost of the merchandise was $500.
August 17 Received a credit memo from Abe's Papermill for merchandise returned, $1,000
August 21 Issued a credit memo to Johnson Elementary for merchandise returned, $400.
The cost of the merchandise is $150.
Journalize the above transactions using the periodic inventory system.

Question 47

The inventory method that assumes the recent goods are sold first is:

A) LIFO.
B) FIFO.
C) weighted-average.
D) specific invoice.

Question 48

Indicate the account(s) to be debited and credited to record the following transactions.


-Customer returned goods purchased on credit - Perpetual
Debit ________ & ________ Credit ________ & ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 49

A disadvantage of the LIFO method is that:

A) it doesn't match physical flow of goods.
B) ending inventory is valued at very old costs.
C) it matches current selling prices and current costs.
D) Both A and B are correct.

Question 50

Prepare journal entries for the following transactions for Mark Machine Parts applying the perpetual inventory system. Omit explanations.
July 9 Purchased on account 4 tires for $700.
11 Returned 1 tire for $175 credit.
15 Sold 2 tires for $1,500 cash, cost $350.
19 Paid the balance due on account.

Question 51

An inventory ledger is not used to track details of quantities and costs.

Question 52

An advantage of the weighted-average method is that:

A) it assigns an equal cost to each unit so net income does not fluctuate as much as with other methods.
B) it takes into account the number of units purchased at each amount, not a simple average cost.
C) it matches current selling prices and current costs.
D) Both A and B are correct.

Question 53

Prepare journal entries for the following transactions for HO Train Shop applying the perpetual inventory system. Omit explanations.
Nov. 2 Purchased on account 300 model engines for $3,000.
12 Returned 30 engines for full credit.
19 Sold 40 of the engines to R. Holmes for $800 cash.
25 Paid the balance due on the engines.

Question 54

Indicate the account(s) to be debited and credited to record the following transactions.


-Sold merchandise in exchange for cash. - Perpetual
Debit ________ & ________ Credit ________ & ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 55

Joe owns an auto parts store called Joe's Auto Care. The following transactions took place during July of the current year.
July 8 Purchased merchandise on account from Wheeler Auto for $6,000
July 10 Paid freight charges of $400 on merchandise purchases on the 8th.
July 12 Sold merchandise on account to Lancaster Auto Sales for $5,500.
The cost of the merchandise was $3,500
July 16 Received a credit memo from Wheeler for merchandise returned, $900
July 22 Issued a credit memo to Lancaster Auto Sales for merchandise returned, $1,000.
The cost of the merchandise is $550.
Journalize the above transactions using the perpetual inventory system.

Question 56

The weighted-average method:

A) calculates an average unit cost by dividing the total cost of goods sold by the total units sold.
B) calculates an average unit cost by dividing the total cost of goods available for sale by the total units of goods available for sale.
C) calculates an average unit cost by adding the total cost of goods available for sale to the total units of goods available for sale.
D) None of these answers is correct.

Question 57

Journalize the following assuming periodic inventory.
June 20 Made purchases of inventory for $4,500 on account.
June 21 Made sales of $3,500 cash and $2,500 credit.
June 22 Returned $2,000 of purchases for defects.

Question 58

The inventory method where the flow of goods and flow of costs are the same is:

A) LIFO.
B) specific invoice.
C) weighted-average.
D) FIFO.

Question 59

Indicate the account(s) to be debited and credited to record the following transactions.


-Customer returned goods purchased on credit - Periodic
Debit ________ Credit ________

A) Cash
B) Accounts receivable
C) Merchandise inventory
D) Supplies
E) Accounts payable
F) Sales
G) Sales returns and allowances
H) Sales discounts
I) Cost of goods sold
J) Purchases
K) Purchase returns and allowances
L)Purchase discounts
M) Freight-in

Question 60

When there is more than one product in inventory:

A) only one inventory record is used to track both inventory items.
B) a new inventory record tracks each individual product.
C) the inventory ledger is not updated.
D) the Accounts Payable will be less than the subsidiary ledger.

Question 61

Sterling Supply uses a periodic inventory system. Sterling Supply sold 35 globes during March. Other data for March include: Round per unit cost to two decimal places. Ending inventory under the weighted-average method is:

A) $358.
B) $270.
C) $417.
D) $505.

Question 62

An advantage of the FIFO method is that:

A) the figure for ending inventory is made up of current costs on the income statement.
B) the cost flow tends to follow the physical flow.
C) it matches current selling prices and current costs.
D) Both A and B are correct.

Question 63

Which of the following should be included in inventory costs?

A) Goods that are not resalable
B) Goods on consignment to you
C) Goods for sale at a value that is greater than cost
D) Both A and B are correct.

Question 64

The principle of consistency states that:

A) changes in accounting methods should occur from one fiscal period to the next.
B) a company cannot change from one inventory valuation method to another.
C) a company should switch from LIFO to FIFO every other period.
D) by using the same inventory method from one fiscal period to another, the financial statements are more meaningful.

Question 65

Shayla's Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data for January include: Cost of Goods Sold under the LIFO method is:

A) $1,278.
B) $1,044.
C) $1,000.
D) $766.

Question 66

Which of the following items should NOT be included in merchandise inventory?

A) Goods that are damaged or obsolete
B) Goods that have been consigned to another company
C) Goods in transit shipped to another company FOB destination
D) All of the above

Question 67

Barry's Books uses a periodic inventory system. Barry's Books sold 40 copies of Helpful Hints during September. Other data for September include: Cost of goods sold under the FIFO method is:

A) $720.
B) $975.
C) $1,575.
D) some other number.

Question 68

The inventory method where items in the ending inventory will be valued at the costs shown on the most recent invoices is:

A) LIFO.
B) specific invoice.
C) FIFO.
D) weighted-average.

Question 69

The full disclosure principle says that if a change is made to the inventory valuation method, the company should:

A) disclose the change.
B) show the effects of the change on profit and inventory valuation.
C) show justification for the change in a footnote on the financial reports.
D) All of these answers are correct.

Question 70

Prescott Plates uses a periodic inventory system. Prescott sold 35 dining sets during September. Other data for September include: Prescott sold 10 units from the Sept 1 balance, 15 from the Sept 6 purchase, and 10 from the Sept 12 purchase. Cost of Goods Sold under the Specific Invoice method is:

A) $5,020.
B) $9,750.
C) $9,170.
D) $11,050.

Question 71

Lois's Furniture uses a periodic inventory system. Lois sold 60 tables during August. Other data for August include: Cost of Goods Sold under the LIFO method is:

A) $11,380.
B) $280.
C) $11,240.
D) $420.

Question 72

The inventory method where unit cost is found by dividing the cost of goods available for sale by the total number of units for sale is:

A) LIFO.
B) specific invoice.
C) FIFO.
D) weighted-average.

Question 73

Lois's Furniture uses a periodic inventory system. Lois sold 45 tables during August. Other data for August include: Ending inventory under the LIFO method is:

A) $6,440.
B) $5,550.
C) $2,590.
D) $1,700.

Question 74

An advantage of the specific invoice method is that:

A) costs are matched with the sales they helped to produce.
B) it is simple to use if company has small amounts of high-cost goods.
C) flow of goods and flow of costs are the same.
D) All of the above is correct.

Question 75

Goods that are consigned to another party:

A) belong to the other party because title has passed.
B) belong to the company that has consigned them.
C) belong to the consignee.
D) Both B and C are correct.

Question 76

A disadvantage of the weighted-average method is that:

A) current prices have no more significance than prices of goods bought a month earlier.
B) net income will not fluctuate as much as with other methods.
C) it takes into account the number of units purchased at each amount, not a simple average cost.
D) All of the above is correct.

Question 77

Which of the following goods should Blake Company include in its December 31, 201X, count?

A) Goods held on consignment for Goodson Automotive
B) Goods sold to Denning, F.O.B. destination, and arrival date scheduled for February 10
C) Goods in transit purchased F.O.B.
D) Goods that are not salable

Question 78

Barry's Books uses a periodic inventory system. Barry's Books sold 40 copies of Helpful Hints during September. Other data for September include: Ending inventory under the FIFO method is:

A) $500.
B) $560.
C) $640.
D) $625.

Question 79

Prescott Plates uses a periodic inventory system. Prescott sold 35 dining sets during September. Other data for September include: Prescott sold 10 units from the Sept 1 balance, 15 from the Sept 6 purchase, and 10 from the Sept 12 purchase. Ending Inventory under the Specific Invoice method is:

A) $11,750.
B) $6,240.
C) $5,820.
D) $4,520.

Question 80

Hall Novelty Shop uses a periodic inventory system. It sold 55 balloons during April. Other data for April include: Cost of goods sold under the weighted-average method (rounded to the nearest dollar) is:

A) $395.
B) $705.
C) $310.
D) $165.