Question 1

Use the following information for questions 
Richey Co.records purchases at net amounts.On May 5 Richey purchased merchandise on account, $16,000, terms 2/10, n/30.Richey returned $1,200 of the May 5 purchase and received credit on account.At May 31 the balance had not been paid.
-The amount to be recorded as a purchase return is

Accepted Answer

A)  $1,080.
B)  $1,224.
C)  $1,200.
D)  $1,176. D

Question 2

The following information was derived from the 2007 accounting records of Logan Co.: $\begin{array}{lrr}&& \text {Logan's Goods }\& \text { Logan 's Central Warehouse}& \text {Held by Consignees }\
\text { Beginning inventory } & \$ 130,000 & \$ 14,000 \
\text { Purchases } & 575,000 & 70,000 \
\text { Freight-in } & 10,000 &\\text { Transportation to consignees } & & 5,000 \
\text { Freight-out } & 30,000 & 8,000 \
\text { Ending inventory } & 145,000 & 20,000
\end{array}$ Logan 's 2007 cost of sales was

Accepted Answer

A)  $570,000.
B)  $600,000.
C)  $634,000.
D)  $639,000.  D

Question 3

Johnson Company had 500 units of "Tank" in its inventory at a cost of $4 each.It purchased, for $2,800, 300 more units of "Tank".Johnson then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600.The cost flow assumption used by Johnson

Accepted Answer

A)  is FIFO.
B)  is LIFO.
C)  is weighted average.
D)  cannot be determined from the information given. C

Question 4

Kingman Company had 400 units of "Dink" in its inventory at a cost of $6 each.It purchased 600 more units of "Dink" at a cost of $9 each.Kingman then sold 700 units at a selling price of $15 each.The LIFO liquidation overstated normal gross profit by

Accepted Answer

A)  $ -0-
B)  $300.
C)  $600.
D)  $900.

Question 5

Purchase Discounts Lost is a financial expense and is reported in the "other expenses and losses" section of the income statement.

Accepted Answer

A) True 
 B)False

Question 6

Use the following information for questions 
Kiner Co.has the following data related to an item of inventory: $\begin{array}{lc}
\text { Inventory, March } 1 & 100 \text { units } @ \$ 4.20 \
\text { Purchase, March } 7 & 350 \text { units } @ \$ 4.40 \
\text { Purchase, March } 16 & 70 \text { units } @\$ 4.50 \
\text { Inventory, March } 31 & 130 \text { units }
\end{array}$
-The value assigned to ending inventory if Kiner uses LIFO is

Accepted Answer

A)  $579.
B)  $552.
C)  $546.
D)  $585.

Question 7

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Accepted Answer

A)  manufacturing overhead costs for a product manufactured and sold in the same accounting period.
B)  costs which will not benefit any future period.
C)  costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
D)  costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

Question 8

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Accepted Answer

A)  net income, current assets, and retained earnings were overstated.
B)  net income was correct and current assets were understated.
C)  net income and current assets were overstated and current liabilities were understated.
D)  net income, current assets, and retained earnings were understated.

Question 9

Which of the following is correct?

Accepted Answer

A)  Selling costs are product costs.
B)  Manufacturing overhead costs are product costs.
C)  Interest costs for routine inventories are product costs.
D)  All of these.

Question 10

Use the following information for questions 
Transactions for the month of June were: $$\begin{array} { r r r r r r } 
 { \text { Purchases } } && { \text { Sales } } \
\hline  \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \
3 & 2,200 @  3.10 & 6 & 1,600 @  5.50 \
7 & 1,200 @  3.30 & 9 & 1,000 @  5.50 \
15 & 1,800 @  3.40 & 10 & 400 @  6.00 \
22 & 500 @  3.50 & 18 & 1,400 @  6.00 \
& &  25 & 200 @  6.00
\end{array}$$
-Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is

Accepted Answer

A)  $4,110.
B)  $4,160.
C)  $4,290.
D)  $4,470.

Question 11

If ending inventory is understated, then net income is understated.

Accepted Answer

A) True 
 B)False

Question 12

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

A)  invoice price.
B)  invoice price plus any purchase discount lost.
C)  invoice price less the purchase discount taken.
D)  invoice price less the purchase discount allowable whether taken or not.

Question 13

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

Accepted Answer

A)  weighted-average method.
B)  moving average method.
C)  LIFO method.
D)  FIFO method.

Question 14

Use the following information for questions 
The following information was available from the inventory records of Neer Company for January: $\begin{array}{lcr}
&\text { Units }&\text {Unit Cost }&\text {Total Cost }\
\text { Balance at January } 1&3,000 &\$ 9.77 & \$ 29,310 \\text { Purchases: }\
\text { January } 6&2,000 & 10.30 & 20,600 \
\text { January } 26&2,700 & 10.71 & 28,917\\\text { Sales: } & \
\quad \text { January } 7 & (2,500) \\text { January } 31 & {(4,000)}\
\text { Balance at January } 31&1,200
\end{array}$
-Assuming that Neer does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?

Accepted Answer

A)  $12,606.
B)  $12,284.
C)  $12,312.
D)  $12,432.

Question 15

Use the following information for 
Ely Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $126,500, and the price index was 110.
-What is Ely Company's ending inventory?

Accepted Answer

A)  $110,000.
B)  $115,000.
C)  $116,500.
D)  $126,500.

Question 16

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

Accepted Answer

A)  only as an asset on the balance sheet.
B)  only in the cost of goods sold section of the income statement.
C)  as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
D)  as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

Question 17

When using a perpetual inventory system,

Accepted Answer

A)  no Purchases account is used.
B)  a Cost of Goods Sold account is used.
C)  two entries are required to record a sale.
D)  all of these.

Question 18

Use the following information for questions 
Transactions for the month of June were: $$\begin{array} { r r r r r r } 
 { \text { Purchases } } && { \text { Sales } } \
\hline  \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \
3 & 2,200 @  3.10 & 6 & 1,600 @  5.50 \
7 & 1,200 @  3.30 & 9 & 1,000 @  5.50 \
15 & 1,800 @  3.40 & 10 & 400 @  6.00 \
22 & 500 @  3.50 & 18 & 1,400 @  6.00 \
& &  25 & 200 @  6.00
\end{array}$$
-Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

Accepted Answer

A)  $4,110.
B)  $4,160.
C)  $4,290.
D)  $4,470.

Question 19

In a period of rising prices, the inventory method which tends to give the highest reported net income is

Accepted Answer

A)  base stock.
B)  first-in, first-out.
C)  last-in, first-out.
D)  weighted-average.

Question 20

How should the following costs affect a retailer's inventory valuation? $\begin{array}{lcc} 
& \text { Freight-in } & \text { Interest on Inventory Loan } \
\text { a. } & \text { Increase } & \text { No effect } \
b.&\text {  Increase } & \text { Increase } \
 c.&\text { No effect } & \text { Increase } \
d.&\text {  No effect } & \text { No effect }
\end{array}$

Accepted Answer

The answer of How should the following costs affect a...

Exam 8: Valuation of Inventories: a Cost-Basis Approach

Johnson Company had 500 units of "Tank" in its inventory at a cost of $4 each.It purchased, for $2,800, 300 more units of "Tank".Johnson then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600.The cost flow assumption used by Johnson

Kingman Company had 400 units of "Dink" in its inventory at a cost of $6 each.It purchased 600 more units of "Dink" at a cost of $9 each.Kingman then sold 700 units at a selling price of $15 each.The LIFO liquidation overstated normal gross profit by

Purchase Discounts Lost is a financial expense and is reported in the "other expenses and losses" section of the income statement.

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Which of the following is correct?

If ending inventory is understated, then net income is understated.

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

When using a perpetual inventory system,

In a period of rising prices, the inventory method which tends to give the highest reported net income is