Deck 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Question 1

Maxell Company uses the periodic FIFO method to value inventory and had the followin transactions in the period. What are the cost of goods sold and ending inventory balances in dollars for the period?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Answer 1

D

Question 2

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A) valued at their selling price.
B) reflective of obsolescence.
C) valued at their current cost.
D) not under-valued.

Answer 2

B

Question 3

How is the cost of goods sold calculated under the periodic method?

A) By subtracting the cost of the inventory on hand at the ending of the period from the cost of goods available for sale.
B) By adding the cost of purchases during the period to the cost of the inventory on hand at the beginning of the period and adding this figure to the cost of the inventory on hand at the end of the period.
C) By carefully matching selling and administrative expenses with the sales to which they are related and then reporting these expenses in the same period the associated revenue is reported.
D) By adding the cost of purchases during the period to the cost of the inventory on hand at the end of the period and subtracting the inventory on hand at the beginning of the period.

Answer 3

A

Question 4

If ABC's statement of earnings showed cost of goods sold at $78,000, purchases of $80,000, freight-in at $300, purchases returns of $500 and end-of-the period inventory at
$11,900, its beginning-of-the-period-inventory must have been:

A) $9,200
B) $9,900
C) $10,100
D) $10,400

Question 5

In order to determine cost of goods sold in a periodic inventory system we

A) subtract ending inventory from beginning inventory.
B) add purchases to beginning inventory.
C) subtract purchases from ending inventory.
D) subtract ending inventory from beginning inventory plus purchases.

Question 6

In 20B, Landings Inc. provided the following information in their financial statements: Cost of goods sold under FIFO costing is $22.2 billion and their inventory value under FIFO is $1.3 billion at the end of 20B and $1.2 billion at the end of 20A. What would their inventory turnover ratio be under the FIFO cost flow method?

A) 18.5
B) 17.1
C) 17.8
D) 8.9

Question 7

In 20B, Landings Inc. provided the following items in their footnotes. Its cost of goods available for sale was $6.2 billion under FIFO costing and its ending inventory value under FIFO costing was $2.1 billion. Its opening inventory was $2.5 billion. What was its purchases?

A) $3.7 billion
B) $8.3 billion
C) $4.6 billion
D) $4.1 billion

Question 8

Which of the following is true?

A) Factory overhead consists of manufacturing costs other than direct materials and direct labour.
B) Purchases discounts increase sales revenue to arrive at net sales.
C) Net realizable value is the expected sales price plus selling costs.
D) FIFO Reserve is a contra sales account for the excess of FIFO over weighted-average inventory.

Question 9

Which of the following businesses would not have cost of goods sold?

A) A jewellery store
B) A manufacturer of batteries
C) A grocery store
D) A movie theatre

Question 10

Two systems are used in accounting for inventory-perpetual and periodic. Which of the following statements is correct?

A) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only.
B) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period.
C) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period.
D) In a periodic inventory system, the inventory account is increased for each purchase during the accounting period.

Question 11

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry for Joe Company to record the collection from Gibbs within 30 days if the company uses the periodic inventory system?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 12

Wilder Company reported pretax profit amounts of: 20B, $11,000; and 20C, $15,000. Later it was discovered that the ending inventory for 20B was understated by $2,000 (and not corrected in 20C). The correct pretax profit for each year was which of the following?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 13

If beginning inventory is understated by $1,300 and ending inventory is understated by $700, pretax profit for the period will be which of the following?

A) Overstated by $600.
B) Overstated by $2,000.
C) Understated by $2,000.
D) Understated by $600.

Question 14

When goods are sold on credit, revenue usually should be recognized at the date of which of the following?

A) receipt of the sales order
B) passage of title from the seller to the buyer.
C) receipt of the goods by the buyer.
D) manufacture of the goods.

Question 15

The inventory turnover ratio is calculated by dividing cost of goods sold by

A) beginning inventory.
B) 365 days.
C) ending inventory.
D) average inventory.

Question 16

David Company uses the gross method to record its credit purchases, and it uses the periodic inventory system. On July 21, 20D, the company purchased goods that had an invoice price of $3,000 with terms of 3/10, n/30. If payment in full is made on July 30, the journal entries to record the purchase and payment should be which of the following?

A) Entry A
B) Entry B
C) Entry C
D) Entry D

Question 17

When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true?

A) Cost of goods sold is computed at the end of the accounting periods rather than at each sale.
B) The inventory account is updated throughout the year as purchases are made.
C) Purchases are recorded in the cost of goods sold account.
D) The inventory account is updated after each sale.

Question 18

The following information was taken from the 20B income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases,
$90,000. Compute the amount of the ending inventory.

A) $18,000
B) $10,000
C) $88,000
D) $8,000

Question 19

Upaway Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and ending inventory was overstated by $12,000. What would be the effect of this error in ending inventory?

A) Cost of goods sold would be overstated.
B) Ending retained earnings would be understated.
C) Profit would be overstated.
D) Profit would be understated.

Question 20

The cost of goods sold account is which of the following?

A) a contra-asset
B) an asset
C) an expense
D) an extraordinary item

Question 21

Selection of an inventory cost formula by management should be influenced most by the

A) physical flow of goods.
B) goal of reporting inventory at its lowest cost.
C) fiscal year end.
D) income tax effects.

Question 22

Days in inventory is calculated by dividing 365 days by

A) ending inventory.
B) average inventory.
C) beginning inventory.
D) the inventory turnover ratio.

Question 23

On February 20, 20A, Ross Sound Company purchased $10,000 of stereo equipment for resale on credit, subject to the terms 3/15, n/30. The company records all purchases using the gross method. The periodic inventory system is used. If the company paid for these goods on March 20, the entry made to record the payment should include which of the following?

A) A $9,700 debit to Purchases.
B) A $300 debit to Purchases discounts.
C) A $10,000 debit to Trade payables.
D) An $8,500 credit to Cash.

Question 24

If merchandise for resale is purchased for $2,000, terms 2/10, n/30, the entry to record the purchase should be which of the following (assuming a periodic inventory system and the gross method)?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 25

A company purchased inventory as follows: On March 5, it sold 400 units for $17 each.
The weighted- average unit cost to be used for the cost of goods sold on March 5, in a perpetual inventory system, is

A) $9.40.
B) $9.00.
C) $9.60.
D) $10.00.

Question 26

The following information was taken from the 20B income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses, $20,000; Sales revenue, $120,000. Compute the cost of goods sold.

A) $108,000
B) $88,000
C) $100,000
D) $112,000

Question 27

In a periodic inventory system, the cost of goods sold is determined

A) after each sale.
B) at the end of the accounting period.
C) at the beginning of the accounting period.
D) after each purchase.

Question 28

The consistent application of an inventory cost formula is essential for

A) relevance.
B) accuracy.
C) neutrality.
D) comparability.

Question 29

Which of the following costs would not be part of product inventory costs for a manufacturer such as Harley Davidson?

A) Costs to store finished motorcycles until they are sold.
B) The factory manager's salary and benefits.
C) Kickstands purchased for use in manufacturing the motorcycles.
D) The wages and benefits of an employee in the welding department.

Question 30

Which one of the following statements concerning the periodic and perpetual inventory systems is true?

A) The periodic system uses a purchases account.
B) None of the accounting entries vary between the two systems.
C) Inventory controls are only needed for the periodic inventory systems.
D) Due to advances in computers, many businesses recently have begun to use the periodic inventory system.

Question 31

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A) not over-valued.
B) not under-valued.
C) valued at their selling price.
D) valued at their current cost.

Question 32

An overstatement of ending inventory in one period results in

A) an overstatement of the ending inventory of the next period.
B) an understatement of profit of the next period.
C) an overstatement of profit of the next period.
D) no effect on profit of the next period.

Question 33

For 2013, Wilver Inc. reported $24,000 beginning inventory and $26,000 ending inventory. Net sales were $160,000 and gross profit was $55,000 for the same period. Based on these figures, inventory turnover for 2013 was:

A) 9.2 times.
B) 6.4 times.
C) 3.4 times.
D) 4.2 times.

Question 34

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2012. At the end of 2013, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2013 statement of financial position?

A) $8,500.
B) $10,000.
C) $9,500.
D) $10,500.

Question 35

Which cost determination method smoothes the effects of price changes?

A) Average cost.
B) FIFO.
C) Lower of cost and net realizable value.
D) Specific identification.

Question 36

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry for Joe Company to record the payment by Gibbs within the 10 days if the company uses the periodic inventory system and the gross method to record purchases?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 37

Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a

A) credit to the Sales account.
B) debit to the Cost of Goods Sold account.
C) credit to the Cost of Goods Sold account.
D) debit to the Inventory account.

Question 38

At the end of 20A, a $2,500 understatement was discovered in the amount of the 20A ending inventory as reflected in the perpetual inventory records. What were the 20A effects of the $2,500 inventory error (before correction)?

A) Cost of goods sold was understated by $2,500 and pretax profit was understated by $2,500.
B) Cost of goods sold was overstated by $2,500 and pretax profit was overstated by $2,500.
C) Assets (inventory) were understated by $2,500 and pretax profit was overstated by $2,500.
D) Assets (inventory) were understated by $2,500 and pretax profit was understated by $2,500.

Question 39

An increase in inventory turnover means, days in inventory

A) increases.
B) remains the same.
C) decreases.
D) cannot be determined.

Question 40

During a period of inflation, using the cost formula will approximate a company's current cost of ending inventory.

A) FIFO.
B) average cost.
C) both FIFO and average cost.
D) lower of cost and net realizable value.

Question 41

On December 15, 20A, Toby Company accepted delivery of merchandise which it purchased on credit. As of December 31, 20A, the company had neither recorded the transaction nor included the merchandise in its inventory because the seller's invoice had not been received. The effect of this omission on its statement of financial position at December 31, 20A, (end of the accounting period) was which of the following?

A) Shareholder's equity was the only item affected by the omission.
B) Assets and liabilities were understated but shareholders' equity was not affected.
C) Assets and shareholders' equity were overstated but liabilities were not affected.
D) Assets and shareholders' equity were understated but liabilities were not affected.

Question 42

Which of the following is true under the perpetual inventory system?

A) A separate account for purchases is required.
B) Cost of goods sold cannot be determined unless a physical inventory is taken.
C) One entry is required to record a sales return.
D) Two entries are required to record a sale.

Question 43

On March 15, 20A, Jack Company purchased $5,000 of merchandise on credit subject to terms 2/10, n/20. Jack records its purchases using the gross amount. The periodic inventory system is used. If Jack pays for these goods on March 30, the entry made to record the payment should include which of the following?

A) Credit of $4,900 to cash.
B) Credit of $100 to Purchase discounts.
C) Debit of $4,900 to Trade payables.
D) Debit of $5,000 to Trade payables.

Question 44

A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared. What was the effect of the inventory error on the 20B financial statements?

A) Current assets were overstated and profit was overstated.
B) Current assets were understated and profit was overstated.
C) Current assets were understated and profit was understated.
D) Current assets were overstated and profit was understated.

Question 45

In order to determine cost of goods sold in a periodic inventory system we

A) subtract purchases from ending inventory.
B) add purchases to beginning inventory.
C) subtract ending inventory from beginning inventory.
D) subtract ending inventory from cost of goods available for sale.

Question 46

Which of the following statements regarding inventories is correct?

A) FIFO assumes that the costs of the earliest goods acquired are the last to be sold.
B) FIFO seldom coincides with the actual physical flow of inventory.
C) Under FIFO, the ending inventory is based on the latest units purchased.
D) It is generally good business management to sell the most recently acquired goods first.

Question 47

A company recorded net purchases of $20.3 billion for 20B. In 20A, ending trade payables was $1.2 billion and in 20B, it was $1.6 billion. How much cash was paid to suppliers in 20B?

A) $19.9 billion
B) $18.7 billion
C) $21.9 billion
D) $20.7 billion

Question 48

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry to record the purchase by Gibbs if the company uses the periodic inventory system and the gross method to record purchases?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 49

Which of the following types of inventory usually is not held by a manufacturing business?

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

Question 50

The lower of cost and net realizable value basis of valuing inventories is a departure from the

A) historical cost principle
B) matching principle
C) prudence principle.
D) valuation principle

Question 51

Retail Company reported the following amounts on its 20B income statement: Purchases, $45,000; Beginning 20B inventory, $15,000; and Cost of goods sold, $50,000. What was the 20B ending inventory?

A) $27,000
B) $10,000
C) $25,000
D) $26,000

Question 52

Wilburn Company reported the following data at year-end: Sales, $100,000; Beginning inventory, $8,000; Ending inventory, $6,000; Cost of goods sold, $60,000; and Gross margin, $40,000. What was the amount of merchandise purchases for the year?

A) $58,000
B) $40,000
C) $46,000
D) $68,000

Question 53

Sue Company reported profit in 20A of $27,000 and in 20B of $32,000. Later it was discovered that the ending inventory for 20A was understated by $15,000. Disregard income taxes. The correct amounts of profit for 20A and 20B were which of the following?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 54

Richmond Company had the following information taken from its 20A adjusted trial balance: Sales, $200,000; Sales Discounts, $4,000; Beginning Inventory, $10,000; and Purchases, $140,000. A physical count of the merchandise on hand at the end of the year showed $20,000. Compute the gross margin (gross profit) that would appear in the statement of earnings.

A) $70,000
B) $74,000
C) $62,000
D) $66,000

Question 55

Seinerfeld Company had its merchandise inventory warehouse destroyed by a fire. Thankfully, the owner had the accounting records at home to prepare financial statements after counting the inventory earlier in the day. The company used the periodic inventory system. In the shock of being notified of the fire, the owner spilled his dinner on the statement of earnings he had just completed. However, the following information was readable: Sales, $200,000; Beginning Inventory, $20,000; Purchases, $130,000; Total Operating Expenses (not including taxes), $40,000; and Profit Before Taxes, $20,000. There were no sales returns, purchases returns, sales discounts nor purchases discounts. Compute the amount of the ending inventory on hand before the fire.

A) $10,000
B) $30,000
C) $-0-
D) $20,000

Question 56

During the audit of Virginia Company's 20B financial statements, the auditors discovered that the 20A ending inventory had been overstated by $10,000 and that the 20B ending inventory had been overstated by $8,000. Before the effect of these errors, 20B pretax profit had been computed as $100,000. What should be reported as the correct 20B profit before taxes?

A) $100,000
B) $102,000
C) $98,000
D) $118,000

Question 57

Darkhorse Ltd. has a days in inventory ratio of 40 and average inventory of $254,000. What is its cost of goods sold?

A) $1,854,200.
B) $12,700,000.
C) $2,317,750.
D) Cannot be determined.

Question 58

A company reports its 20B cost of goods sold at $20.0 billion. Its ending inventory for 20B is $1.8 billion and for 20A, ending inventory was $1.5 billion. How much inventory did the company purchase during 20B?

A) $20.3 billion
B) $19.7 billion
C) $21.8 billion
D) $18.5 billion

Question 59

An automobile dealer would most likely have a

A) low profit margin.
B) high volume.
C) low inventory turnover.
D) high inventory turnover.

Question 60

An understatement of the beginning inventory results in

A) an understatement of earnings.
B) no effect on the period's earnings.
C) an overstatement of earnings.
D) a need to adjust purchases.

Question 61

The results under FIFO in a perpetual inventory system are the same as in a periodic inventory system.

Question 62

Match the inventory system with the statement by entering the appropriate letters the left:
A. Perpetual inventory system.
B. Periodic inventory system.
C. Neither of the above is correct.
D. Both A and B are correct.

Question 63

Match the appropriate letter regarding inventory systems with each of the following statements.
A. The perpetual inventory system.
B. The periodic inventory system.
C. Both the perpetual and periodic inventory systems.
D. Neither the perpetual nor the periodic inventory systems.
1. Uses a separate account for recording purchases.
____ 2. Requires that purchases be recorded at their cash equivalent cost.
____ 3. Requires that two concurrent journal entries be made to record a purchase
____ 4. Cost of goods sold cannot be determined until a physical count is taken.
5. Inventory account is increased for each purchase and decreased for each sale.
____ 6. Used to reveal any inventory shortages and shrinkage that occur during the period.

Question 64

For each of the following types of inventory, enter a letter to indicate the type of business in which the inventory is more likely to appear.
Type of Business
A. Retail
B. Manufacturing Type of Inventory
____ 1. Raw materials.
____ 2. Merchandise.
____ 3. Finished goods.
____ 4. Work in progress.

Question 65

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A) not undervalued.
B) valued at their current cost.
C) monitored on an ongoing basis as to their value relative to their cost.
D) valued at their selling price.

Question 66

An error in the ending inventory of the current period will have a similar but inverse effect on profit of the next accounting period.

Question 67

Will Company's independent accountant discovered that the ending inventory for 20B had been overstated by the company by $2,000. Before the correction, what was the effect in the 20B statement of earnings because of the overstatement of the ending inventory?

A) Pretax profit was understated by $2,000.
B) Cost of goods sold was overstated by $2,000.
C) Pretax profit was overstated and the cost of goods sold was understated by $2,000.
D) Pretax profit understated by $2,000.

Question 68

If net realizable value of the inventory is lower than its cost, the total assets on the statement of financial position and net earnings on the statement of earnings will be reduced.

Question 69

Inventory that originally cost $20,000 was written down to its net realizable value of $18,500 in the last accounting period. At the end of the current accounting period, the net realizable value is determined to be $23,000. At what amount should the inventory be reported on the current period's statement of financial position?

A) $16,000.
B) $18,500.
C) $23,000.
D) $20,000.

Question 70

Which of the following costs would be included in the costs of inventory of a manufacturer?

A) Wages for administrative staff.
B) Electricity for the office building.
C) Wages for factory workers.
D) Sales salaries.

Question 71

On March 10, Frazier Company received merchandise for resale from its normal supplier. The invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory. What is the unit cost that should be recorded for each of the 100 units of Part #345?

A) $36.48
B) $37.20
C) $37.56
D) $36.00

Question 72

If transportation costs are the responsibility of the buyer, they should be added to the cost of purchases for the period.

Question 73

Inventory is a tangible asset purchased for use in the company's operations.

Question 74

An overstatement of the beginning inventory results in

A) an overstatement of profit.
B) a need to adjust purchases.
C) an understatement of profit.
D) no effect on the period's profit.

Question 75

Which of the following is correct?

A) Beginning Inventory + Ending Inventory - Purchases = Cost of Goods Sold.
B) Income Before Taxes - Operating Expenses = Cost of Goods Sold.
C) Sales + Cost of Goods Sold = Gross Margin.
D) Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory.

Question 76

The 20B records of Tom Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000. What was the purchases amount for 20B?

A) $12,000
B) $9,000
C) $10,000
D) $16,000

Question 77

An error that understates the ending inventory will cause the cost of goods sold for the period to be understated.

Question 78

In the average cost formula used in a periodic inventory system, the same weighted average cost per unit is used to calculate all of the goods sold during the period.

Question 79

In 20B, Landings, Inc. provided the following items in their footnotes. Their cost of goods available for sale was $4.5 billion under FIFO costing and their ending inventory value under FIFO costing was $2.1 billion. Their purchases were $4.1 billion. What was their opening inventory?

A) $0.4 billion
B) $2.4 billion
C) $2.0 billion
D) $6.2 billion

Question 80

Match the descriptions with inventory costing methods by entering the proper lett in the space to the left.
A. Specific identification
B. Weighted average
C. FIFO
D. None of the above is correct.