Deck 5: Inventories and Cost of Goods Sold
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Deck 5: Inventories and Cost of Goods Sold
1
The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.
True
2
With the periodic inventory system, the inventory account is updated after each sale or purchase.
False
3
Net purchases equal purchases less purchase return, allowances, and discounts plus transportation-in.
False
4
A company using the periodic inventory system must total the selling prices of the units on hand at the end of the period to value the ending inventory.
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5
The three distinct types of cost to a manufacturer are direct materials, direct labor, and
manufacturing overhead.
manufacturing overhead.
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6
Gross margin as a percentage of sales is a common analytical tool for service companies.
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7
Sales revenue is an inflow of assets.
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8
Sales Returns and Allowances is a contra-asset account.
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9
Cost of goods sold is the difference between costs available for sale and beginning inventory.
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10
Under the perpetual inventory system, each time goods are purchased, the inventory account is transferred to sales revenue.
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11
Purchase returns and allowances is subtracted from cost of goods sold to determine net purchases.
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12
If cost of goods sold does not equal the cost of merchandise purchased during the period, an adjustment must be made to correct the error.
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13
If a customer returns merchandise which has already been paid for, the retailer may give either a cash refund or a credit on account.
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14
Cost of goods sold represents an outflow of an asset, inventory, from the sale of products.
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15
On the income statement of a merchandising company, cost of goods is added to net sales to arrive at gross margin or gross profit.
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16
Like sales revenue, cost of goods sold represents an inflow of assets.
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17
Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of the date of the invoice.
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18
Purchase discounts decrease the total cost of merchandise acquired.
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19
Under the periodic inventory system, a physical inventory must be taken at the end of the period to determine cost of goods sold.
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20
The three forms or states in the development of inventory for a manufacturer are direct materials, direct labor, and finished goods.
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21
FIFO results in the least amount of income before taxes, assuming a period of rising prices.
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22
Cost of goods available for sale is equal to beginning inventory less cost of goods sold.
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23
The inventory method that assigns the most recent costs to ending inventory is LIFO.
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24
Under FIFO, the units in the ending inventory represent the oldest purchase(s).
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25
Specific identification relies on matching unit costs with the actual units sold.
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26
The gross profit ratio is calculated as gross profit divided by net income.
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27
According to the IRS's LIFO conformity rule, a company that chooses LIFO to report net income to its shareholders may not use LIFO in preparing its income tax return.
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28
Under LIFO, the units in the ending inventory represent the most recent purchase(s).
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29
It important that the proper amount be assigned to inventory because the amount assigned to inventory will affect the amount eventually recorded as net sales.
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30
If ending inventory is understated, then cost of goods sold is overstated.
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31
The weighted average cost is calculated by adding up the units' costs from each purchase and then dividing by the number of purchases.
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32
The gross profit ratio is computed by dividing net sales by gross profit.
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33
When merchandise is sold FOB shipping point, the buyer is responsible for the shipping costs.
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34
A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis exceeds the cost of goods sold on a LIFO basis for the current year.
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35
A LIFO liquidation occurs when a company sells fewer units than it buys during the period.
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36
The LIFO conformity rule requires that if a company uses LIFO in reporting income to stockholders, it also must use LIFO on its tax return.
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37
A counterbalancing inventory error is one where the error on the balance sheet is offset by the same amount of error on the income statement.
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38
Changing inventory methods to take advantage of the tax breaks offered by LIFO is not a valid reason for a change in methods.
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39
If ending inventory is overstated, then net income is overstated as well.
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40
Many countries prohibit the use of LIFO for tax or financial reporting purposes.
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41
The journal entry to write down inventory to its market value results in a loss on the income statement.
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42
If the direct method is used to prepare the Operating Activities category of the statement of cash flows, the amount of cash paid
to suppliers of inventory is shown as an addition in this section of the statement.
to suppliers of inventory is shown as an addition in this section of the statement.
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43
The inventory turnover ratio is defined as cost of goods sold divided by average inventory.
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44
When inventory is sold by a wholesaler or retailer, it is recorded in a different account on the income statement than a manufacturer would use.
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45
Moving average is the name given to the use of an average cost method used with a periodic inventory system.
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46
If a company has a number of day's sales in inventory equal to 60, that means that it takes about two months on average to sell its inventory.
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47
Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the perpetual system is used.
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48
Under the indirect method, a decrease in inventory is added to net income to determine cash flow from operating activities.
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49
Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from operating activities.
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50
The effect of a misstatement of the year-end inventory is limited to the net income for that year.
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51
The lower of cost or market (LCM) rule violates the historical cost principle.
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52
Both U.S.GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost-or-market rule to value inventories.
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53
The value assigned to an asset such as inventory on the balance sheet determines the amount eventually recognized as an expense on the income statement.
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54
The lower the inventory turnover ratio, the less time inventory resides in storage.
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55
The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.
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56
The inventory costing method is applied after each sale of merchandise to update the Inventory account.
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57
Assets are unexpired costs, and expenses are expired costs.
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58
If a change in accounts payable was added back to net income on the statement of cash flows prepared using the indirect method, then the amount owed to suppliers during the period had decreased.
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59
Whether LIFO costing is applied at the time each sale is made or only at the end of the period, both the periodic and perpetual systems will yield the same ending inventory under LIFO.
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60
Finished goods are the equivalent of merchandise inventory for a retailer or wholesaler in that both represent the inventory of goods held for sale.
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61
The inventory account a manufacturer uses to record the cost of products completed and available for sale is called
A) Raw materials inventory
B) Merchandise inventory
C) Finished goods inventory
D) Work in process inventory
A) Raw materials inventory
B) Merchandise inventory
C) Finished goods inventory
D) Work in process inventory
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62
Takenson Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
-Refer to the information for Takenson Corp. Calculate net income.
A) $289,000
B) $131,000
C) $141,000
D) $116,000
-Refer to the information for Takenson Corp. Calculate net income.
A) $289,000
B) $131,000
C) $141,000
D) $116,000
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63
Items should be reported as part of the company's "inventory" at year end, if they are
A) Sold during the period.
B) Determined to be part of cost of goods sold.
C) Purchased from a creditor, available for sale, and paid for the following year.
D) Held in anticipation of an increase in market value.
A) Sold during the period.
B) Determined to be part of cost of goods sold.
C) Purchased from a creditor, available for sale, and paid for the following year.
D) Held in anticipation of an increase in market value.
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64
George'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 George's Department Store. Determine George's gross profit.
A) $93,000
B) $97,000
C) None of these choices
D) $103,000
-Refer to the account information for George's Department Store. Determine George's gross profit.
A) $93,000
B) $97,000
C) None of these choices
D) $103,000
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65
A customer returned damaged goods for credit.Which of the seller's accounts decreases?
A) Sales Returns
B) Purchase Returns
C) Accounts Receivable
D) Sales Revenue
A) Sales Returns
B) Purchase Returns
C) Accounts Receivable
D) Sales Revenue
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66
What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?
A) Stockholders' equity decreases and liabilities increase.
B) Assets and stockholders' equity decrease.
C) Assets and stockholders' equity increase.
D) Assets decrease and liabilities increase.
A) Stockholders' equity decreases and liabilities increase.
B) Assets and stockholders' equity decrease.
C) Assets and stockholders' equity increase.
D) Assets decrease and liabilities increase.
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67
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
A) $26,900
B) $20,530
C) $28,130
D) $30,210
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68
Which one of the following types of inventory accounts would be used by a wholesaler or retailer?
A) Merchandise inventory
B) Finished goods inventory
C) Work in process inventory
D) Raw materials inventory
A) Merchandise inventory
B) Finished goods inventory
C) Work in process inventory
D) Raw materials inventory
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69
Ending inventory is equal to the cost of items on hand plus
A) the cost of all inventory purchased during the period.
B) merchandise in transit sold to customers FOB shipping point.
C) merchandise purchased in transit with terms FOB destination.
D) merchandise in transit sold to customers FOB destination.
A) the cost of all inventory purchased during the period.
B) merchandise in transit sold to customers FOB shipping point.
C) merchandise purchased in transit with terms FOB destination.
D) merchandise in transit sold to customers FOB destination.
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70
George'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 George's Department Store Calculate George's cost of goods purchased
A) $ 90,000
B) $ 84,000
C) $ 117,000
D) $ 103,000
-Refer to the account information for George's Department Store Calculate George's cost of goods purchased
A) $ 90,000
B) $ 84,000
C) $ 117,000
D) $ 103,000
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71
Travelli Co.sold merchandise to Trapani Co.on account, $17,000, terms 2/15, net 45.The cost of the merchandise sold is $15,400.Tavella Co.issued a credit memo for $1,750 for merchandise returned that originally cost $1,400.The Trapani Co.paid the invoice within the discount period.What is amount of net sales from the above transactions?
A) $17,000
B) $14,945
C) $15,250
D) None of these choices
A) $17,000
B) $14,945
C) $15,250
D) None of these choices
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72
Takenson Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
-Refer to the information for Takenson Corp. Calculate the gross profit.
A) $241,000
B) $275,000
C) $425,000
D) $289,000
-Refer to the information for Takenson Corp. Calculate the gross profit.
A) $241,000
B) $275,000
C) $425,000
D) $289,000
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73
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) Income Tax Expense
B) Cost of Goods Sold
C) Selling Expenses
D) Administrative Expenses
A) Income Tax Expense
B) Cost of Goods Sold
C) Selling Expenses
D) Administrative Expenses
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74
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
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
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75
Takenson Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
-Refer to information for Takenson Corp. Calculate the cost of goods sold for Takenson Corp.
A) $275,000
B) $211,000
C) $241,000
D) $259,000
-Refer to information for Takenson Corp. Calculate the cost of goods sold for Takenson Corp.
A) $275,000
B) $211,000
C) $241,000
D) $259,000
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76
For what reason might retailers like Target select an accounting period that ends on or near the end of January?
A) The company's CPAs are attempting to spread out the workload.
B) The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.
C) The company originally started business operations on that date.
D) Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year.
A) The company's CPAs are attempting to spread out the workload.
B) The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.
C) The company originally started business operations on that date.
D) Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year.
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77
Which one of the following ratios is a common analytical tool used by merchandise corporations, but not by service corporations?
A) Earnings per share
B) Gross profit ratio
C) Current ratio
D) Profit margin
A) Earnings per share
B) Gross profit ratio
C) Current ratio
D) Profit margin
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78
George'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 George's Department Store. ?
Calculate George's net sales.
A) $200,000
B) $187,000
C) $195,000
D) $192,000
-Refer to the account information for George's Department Store. ?
Calculate George's net sales.
A) $200,000
B) $187,000
C) $195,000
D) $192,000
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79
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) $8,420
B) $17,230
C) $12,670
D) $9,070
A) $8,420
B) $17,230
C) $12,670
D) $9,070
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80
Anthony'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) $7,000
C) $7,500
D) $6,000
A) $ 500
B) $7,000
C) $7,500
D) $6,000
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