Acc 557 week 5 quiz – strayer new

ACC 557 Week 5 Quiz – Strayer NEW Click On The Link Below To Purchase A+ Graded Material Instant Download http://budapp.net/ACC-557-Week-5-Quiz-Strayer-NEW-ACC557W5Q.htm Chapter 5 and 6 All possible questions with answers.

TRUE-FALSE STATEMENTS Retailers and wholesalers are both considered merchandisers.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

The steps in the accounting cycle are different for a merchandising company than for a service company.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Sales minus operating expenses equals gross profit.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A periodic inventory system requires a detailed inventory record of inventory items.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Freight terms of FOB Destination means that the seller pays the freight costs.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Sales revenues are earned during the period cash is collected from the buyer.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The revenue recognition principle applies to merchandisers by recognizing sales revenues when they are earned.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Sales Allowances and Sales Discounts are both designed to encourage customers to pay their accounts promptly.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

To grant a customer a sales return, the seller credits Sales Returns and Allowances.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A company's unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A merchandising company has different types of adjusting entries than a service company.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Operating expenses are different for merchandising and service enterprises.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Net sales appears on both the multiple-step and single-step forms of an income statement.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A multiple-step income statement provides users with more information about a company’s income performance.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The multiple-step form of income statement is easier to read than the single-step form.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventory is classified as a current asset in a classified balance sheet.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The gross profit section for a merchandising company appears on both the multiplestep and single-step forms of an income statement.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

Ans:, LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Gross profit represents the merchandising profit of a company.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Gross profit is a measure of the overall profitability of a company.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Gross profit rate is computed by dividing cost of goods sold by net sales.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

a30. Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to determine net purchases.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a31. Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a32. Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a33. Under a periodic inventory system, freight-in on merchandise purchases should be charged to the Inventory account.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a34. In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a35. The steps in preparing a worksheet for a merchandising company are different than for a service company.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a36. A merchandising company generally has the same types of adjustments as a service company.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a37. The major difference between the balance sheet of a service company and a merchandiser is inventory.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Inventory is reported as a long-term asset on the balance sheet.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Sales revenue should be recorded in accordance with the matching principle.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a merchandising company sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The single-step income statement is so named because only one step, subtracting total expenses from total revenues, is required in determining net income or net loss.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS Income from operations is gross profit less financing expenses. operating expenses. other expenses and losses. other expenses.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

An enterprise which sells goods to customers is known as a proprietorship. corporation. retailer. service firm.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Which of the following would not be considered a merchandising company?

Retailer Wholesaler Service firm Dot Com firm Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

A merchandising company that sells directly to consumers is a retailer. wholesaler. broker. service company.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Two categories of expenses for merchandising companies are cost of goods sold and financing expenses. operating expenses and financing expenses. cost of goods sold and operating expenses. sales and cost of goods sold.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The primary source of revenue for a wholesaler is investment income. service fees. the sale of merchandise. the sale of fixed assets the company owns.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Sales revenue less cost of goods sold is called gross profit. net profit. net income. marginal income.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

After gross profit is calculated, operating expenses are deducted to determine gross margin. net income. gross profit on sales. net margin.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Cost of goods sold is determined only at the end of the accounting period in a perpetual inventory system. a periodic inventory system. both a perpetual and a periodic inventory system. neither a perpetual nor a periodic inventory system.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following expressions is incorrect?

Gross profit – operating expenses = net income Sales revenue – cost of goods sold – operating expenses = net income Net income + operating expenses = gross profit Operating expenses – cost of goods sold = gross profit Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Crain Department Store uses a perpetual inventory system. At year-end, the balance in the Merchandise inventory account is $1,500,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory is unnecessary. is required to determine the cost of goods sold for the period. probably will indicate more than $1,500,000 in merchandise on hand. probably will indicate less than $1,500,000 in merchandise on hand.

Ans: LO: 1, BT: K, Difficulty: Easy, TOT: 1.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

The freight cost incurred by the seller on outgoing merchandise reduces gross profit. is used in the calculation of net sales. is an operating expense. is part of cost of goods sold.

Ans: LO: 2, BT: K, Difficulty: Easy, TOT: 1.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Audio Express Co. uses a perpetual inventory system and records purchases of merchandise at net cost. The company recently purchased 200 CDs at an invoice price of $6,000 and term of 2/10, n/30. Half of these discs were incorrectly labeled and were returned immediately to the supplier, If the discount period has expired, the journal entry to record payment of this invoice includes a debit to Merchandise Inventory for $3,000. credit to Cash for $3,000. debit to an expense account for $60. credit to cash for $2,940.

Ans: LO: 2, BT: K, Difficulty: Easy, TOT: 1.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Greyson Manufacturing purchased switches at an invoice price of $4,000 and term of 2/10, n/30. Half of the switches were labeled inaccurately and were returned immediately to the supplier. If Greyson pay the remaining amount of the invoice within the discount period, what should that amount be? $2,080. $1,960. $1,920. $1,200.

Ans: LO: 2, BT: K, Difficulty: Easy, TOT: 1.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Detailed records of goods held for resale are not maintained under a perpetual inventory system. periodic inventory system. double entry accounting system. single entry accounting system.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A perpetual inventory system would likely be used by each of the following except a(an) candy store. hardware store. grocery store. automobile dealership.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Which of the following is a true statement about inventory systems?

Periodic inventory systems require more detailed inventory records.

Perpetual inventory systems require more detailed inventory records.

A periodic system requires cost of goods sold be determined after each sale.

A perpetual system determines cost of goods sold only at the end of the accounting period.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

In a perpetual inventory system, cost of goods sold is recorded on a daily basis. on a monthly basis. on an annual basis. with each sale.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a company determines cost of goods sold each time a sale occurs, it must have a computer accounting system. uses a combination of the perpetual and periodic inventory systems. uses a periodic inventory system. uses a perpetual inventory system.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Under a perpetual inventory system, acquisition of merchandise for resale is debited to the Inventory account.

Purchases account.

Supplies account.

Cost of Goods Sold account.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit Accounts Payable.

Purchase Returns and Allowances.

Sales Revenue.

Inventory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The Inventory account is used in each of the following except the entry to record goods purchased on account. the return of goods purchased. payment of freight on goods sold. payment within the discount period.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A buyer would record a payment within the discount period under a perpetual inventory system by crediting Accounts Payable.

Inventory.

Purchase Discounts.

Sales Discounts.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the Inventory account will be increased.

Inventory account will not be affected. seller will bear the freight cost. carrier will bear the freight cost.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Freight costs paid by a seller on merchandise sold to customers will cause an increase in the selling expense of the buyer. in operating expenses for the seller. to the cost of goods sold of the seller. to a contra-revenue account of the seller.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the seller. buyer. transportation company. buyer and the seller.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Glenn Company purchased merchandise inventory with an invoice price of $7,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Glenn Company pays within the discount period? $6,300 $6,440 $6,860 $7,000 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Scott Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

20% 24% 36% 72%

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If a company is given credit terms of 2/10, n/30, it should hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. pay within the discount period and recognize a savings. pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

Ans: LO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to Inventory.

Purchase Discounts.

Purchase Allowance.

Sales Discounts.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Jake’s Market recorded the following events involving a recent purchase of merchandise: Received goods for $50,000, terms 2/10, n/30.

Returned $1,000 of the shipment for credit.

Paid $250 freight on the shipment.

Paid the invoice within the discount period.

As a result of these events, the company’s inventory increased by $48,020.

$48,265. $48,270. $49,250.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Costner’s Market recorded the following events involving a recent purchase of merchandise: Received goods for $20,000, terms 2/10, n/30.

Returned $400 of the shipment for credit.

Paid $100 freight on the shipment.

Paid the invoice within the discount period.

As a result of these events, the company’s inventory increased by $19,208. increased by $19,306. increased by $19,308. increased by $19,700.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods are recorded in Freight Expense Freight - In Inventory d Freight - Out

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA Glover Co. returned defective goods costing $4,000 to Mal Company on April 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Glover Co. on April 19, in receiving full credit is: Accounts Payable.................................................................. 4,000 Inventory....................................................................... 4,000

Accounts Payable.................................................................. 4,000 Inventory................................................................................ 120 Cash.............................................................................. 4,120 Accounts Payable.................................................................. 4,000 Purchase Discounts...................................................... 120 Inventory....................................................................... 3,880 Accounts Payable.................................................................. 4,000 Inventory....................................................................... 120 Cash.............................................................................. 3,880

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

McIntyre Company made a purchase of merchandise on credit from Marvin Company on August 8, for $8,000, terms 3/10, n/30. On August 17, McIntyre makes the appropriate payment to Marvin. The entry on August 17 for McIntyre Company is: Accounts Payable.................................................................. 8,000 Cash.............................................................................. 8,000 Accounts Payable.................................................................. 7,760 Cash.............................................................................. 7,760 Accounts Payable.................................................................. 8,000 Purchase Returns and Allowances.............................. 240 Cash.............................................................................. 7,760 Accounts Payable.................................................................. 8,000 Inventory....................................................................... 240 Cash.............................................................................. 7,760

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On July 9, Sheb Company sells goods on credit to Wooley Company for $3,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is: Cash....................................................................................... 3,000 Accounts Receivable.................................................... 3,000 Cash....................................................................................... 3,000 Sales Discounts............................................................ 30 Accounts Receivable.................................................... 2,970 Cash....................................................................................... 2,970 Sales Discounts..................................................................... 30 Accounts Receivable.................................................... 3,000 Cash....................................................................................... 3,030 Sales Discounts............................................................ 30 Accounts Receivable.................................................... 3,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA On November 2, 2012, Kasdan Company has cash sales of $4,500 from merchandise having a cost of $2,700. The entries to record the day's cash sales will include: a $2,700 credit to Cost of Goods Sold. a $4,500 credit to Cash. a $2,700 credit to Inventory. d a $4,500 debit to Accounts Receivable.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A credit sale of $2,000 is made on April 25, terms 2/10, n/30, on which a return of $125 is granted on April 28. What amount is received as payment in full on May 4? $1,837.50 $1,875.00 $1,960.00 d $2,000.00

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The entry to record the receipt of payment within the discount period on a sale of $1,000 with terms of 2/10, n/30 will include a credit to Sales Discounts for $20.

Cash for $980.

Accounts Receivable for $1,000.

Sales Revenue for $1,000.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The collection of a $4,000 account within the 2 percent discount period will result in a debit to Sales Discounts for $80. debit to Accounts Receivable for $3,920. credit to Cash for $3,920. credit to Accounts Receivable for $3,920.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Company X sells $600 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y remits a check taking advantage of the discount offered, what is the amount of Company Y's check? $420 $480 $540 $588 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Cleese Company sells merchandise on account for $3,000 to Langston Company with credit terms of 2/10, n/30. Langston Company returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? $2,352 $2,400 $2,940 $2,952

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA The collection of a $1,200 account after the 2 percent discount period will result in a debit to Cash for $1,176. debit to Accounts Receivable for $1,200. debit to Cash for $1,200. debit to Sales Discounts for $24.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The collection of a $800 account after the 2 percent discount period will result in a debit to Cash for $784. credit to Accounts Receivable for $800. credit to Cash for $800. debit to Sales Discounts for $16.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

In a perpetual inventory system, the Cost of Goods Sold account is used only when a cash sale of merchandise occurs. only when a credit sale of merchandise occurs. only when a sale of merchandise occurs. whenever there is a sale of merchandise or a return of merchandise sold.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Sales revenues are usually considered earned when cash is received from credit sales. an order is received. goods have been transferred from the seller to the buyer. adjusting entries are made.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A sales invoice is a source document that provides support for goods purchased for resale. provides evidence of incurred operating expenses. provides evidence of credit sales. serves only as a customer receipt.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Sales revenue may be recorded before cash is collected. will always equal cash collections in a month. only results from credit sales. is only recorded after cash is collected.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The journal entry to record a credit sale is Cash Sales Revenue Cash Service Revenue Accounts Receivable Service Revenue Accounts Receivable Sales Revenue

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A credit memorandum is prepared when an employee does a good job. goods are sold on credit. goods that were sold on credit are returned. customers refuse to pay their accounts.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The Sales Returns and Allowances account is classified as a(n) asset account. contra asset account. expense account. contra revenue account.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A credit memorandum is used as documentation for a journal entry that requires a debit to Sales Revenue and a credit to Cash.

Sales Returns and Allowances and a credit to Accounts Receivable.

Accounts Receivable and a credit to a contra-revenue account.

Cash and a credit to Sales Returns and Allowances.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales discount. return. contra asset. allowance.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A credit sale of $2,700 is made on July 15, terms 2/10, n/30, on which a return of $150 is granted on July 18. What amount is received as payment in full on July 24? $2,499 $2,550 $2,646 d $2,700

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

When goods are returned that relate to a prior cash sale, the Sales Returns and Allowances account should not be used. the cash account will be credited.

Sales Returns and Allowances will be credited.

Accounts Receivable will be credited.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The Sales Returns and Allowances account does not provide information to management about possible inferior merchandise. the percentage of credit sales versus cash sales. inefficiencies in filling orders. errors in overbilling customers.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA A Sales Returns and Allowances account is not debited if a customer returns defective merchandise. receives a credit for merchandise of inferior quality. utilizes a prompt payment incentive. returns goods that are not in accordance with specifications.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

As an incentive for customers to pay their accounts promptly, a business may offer its customers a sales discount. free delivery. a sales allowance. a sales return.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The credit terms offered to a customer by a business firm are 2/10, n/30, which means that the customer must pay the bill within 10 days. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date. two sales returns can be made within 10 days of the invoice date and no returns thereafter.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A sales discount does not provide the purchaser with a cash saving. reduce the amount of cash received from a credit sale. increase a contra-revenue account. increase an operating expense account.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Company A sells $1,500 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check? $1,050 $1,200 $1,350

$1,470 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Kern Company sells merchandise on account for $6,000 to Block Company with credit terms of 2/10, n/30. Block Company returns $1,200 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? $4,704 $4,800 $5,880 $5,904 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Carter Company sells merchandise on account for $3,000 to Hannah Company with credit terms of 2/10, n/30. Hannah Company returns $450 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Carter Company make upon receipt of the check?

Cash....................................................................................... 2,550 Accounts Receivable.................................................... 2,550 Cash....................................................................................... 2,499 Sales Returns and Allowances............................................. 501 Accounts Receivable.................................................... 3,000 Cash....................................................................................... 2,499 Sales Returns and Allowances............................................. 450 Sales Discounts..................................................................... 51 Accounts Receivable.................................................... 3,000 Cash....................................................................................... 2,940 Sales Discounts..................................................................... 60 Sales Returns and Allowances.................................... 450 Accounts Receivable.................................................... 2,550

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Which of the following would not be classified as a contra account?

Sales Revenue Sales Returns and Allowances Accumulated Depreciation Sales Discounts Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following accounts has a normal credit balance?

Sales Returns and Allowances Sales Discounts Sales Revenue Selling Expense Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

With respect to the income statement, contra-revenue accounts do not appear on the income statement. sales discounts increase the amount of sales. contra-revenue accounts increase the amount of operating expenses. sales discounts are included in the calculation of gross profit.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When a seller grants credit for returned goods, the account that is credited is Sales Revenue.

Sales Returns and Allowances.

Inventory.

Accounts Receivable.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are credit, credit, credit. debit, credit, debit. credit, debit, debit. credit, debit, credit.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

All of the following are contra revenue accounts except sales revenue. sales allowances. sales discounts. sales returns.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A merchandising company using a perpetual system will make the same number of adjusting entries as a service company does. one more adjusting entry than a service company does. one less adjusting entry than a service company does. different types of adjusting entries compared to a service company.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of sales revenue. inventory. sales discounts.

freight-out.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A merchandising company using a perpetual system may record an adjusting entry by debiting Income Summary. crediting Income Summary. debiting Cost of Goods Sold. debiting Sales Revenue.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The operating cycle of a merchandiser is always one year in length. generally longer than it is for a service company. about the same as for a service company. generally shorter than it is for a service company.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When the physical count of Rosanna Company inventory had a cost of $4,300 at year end and the unadjusted balance in Inventory was $4,500, Rosanna will have to make the following entry: Cost of Goods Sold................................................................ 200 Inventory....................................................................... 200 Inventory................................................................................ 200 Cost of Goods Sold....................................................... 200 Income Summary.................................................................... 200 Inventory....................................................................... 200 Cost of Goods Sold................................................................ 4,500 Inventory....................................................................... 4,500

Ans: LO: 4, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Arquette Company's financial information is presented below.

Sales $ ???? Cost of Goods Sold 270,000 Sales Returns and Allowances 20,000 Gross Profit ????

Net Sales 450,000 The missing amounts above are: Sales Gross Profit $470,000 $180,000 $430,000 $180,000 $470,000 $210,000 $430,000 $210,000 Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The sales revenue section of an income statement for a retailer would not include Sales discounts.

Sales revenue.

Net sales.

Cost of goods sold.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The operating expense section of an income statement for a wholesaler would not include freight-out. utilities expense. cost of goods sold. insurance expense.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Income from operations will always result if the cost of goods sold exceeds operating expenses. revenues exceed cost of goods sold. revenues exceed operating expenses. gross profit exceeds operating expenses.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.

Gross profit Operating expenses Sales revenues Cost of goods sold Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Conrad Company reported the following balances at June 30, 2013: Sales $10,800 Sales Returns and Allowances 400 Sales Discounts 200 Cost of Goods Sold 5,000 Net sales for the month is $5,200. $10,200. $10,400. $10,800.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Income from operations appears on both a multiple-step and a single-step income statement. neither a multiple-step nor a single-step income statement. a single-step income statement. a multiple-step income statement.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Gross profit does not appear on a multiple-step income statement. on a single-step income statement. to be relevant in analyzing the operation of a merchandiser. on the income statement if the periodic inventory system is used because it cannot be calculated.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following is not a true statement about a multiple-step income statement?

Operating expenses are similar for merchandising and service enterprises.

There may be a section for nonoperating activities.

There may be a section for operating assets.

There is a section for cost of goods sold.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which one of the following is shown on a multiple-step but not on a single-step income statement?

Net sales Net income Gross profit Cost of goods sold

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

All of the following items would be reported as other expenses and losses except freight-out. casualty losses. interest expense. loss from employees' strikes.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

During 2013, merchandise inventory for Falcon Supplies Company decreased by $50,000. If the income statement for 2013 reported cost of goods sold of $650,000, purchases during the year must have been $700,000. $600,000. $650,000.

There is not enough information given to determine the amount.

Ans: LO: 5, BT: AP, Difficulty: Easy, TOT: 2.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

At the beginning of 2013, Ralston Mills has an inventory of $300,000. Because sales growth was strong during 2013, the company wants to increase inventory on hand to $350,000 at December 31, 2013. If net sales for 2013 are expected to be $1,500,000, and the gross profit rate is expected to be 30%, what is the cost of the merchandise the company should expect to purchase during 2013? $1,700,000. $1,050,000. $1,100,000. $1,500,000.

Ans: LO: 5, BT: AP, Difficulty: Easy, TOT: 2.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

If cost of goods sold is $420,000 and the gross profit rate is 40%, what is the gross profit? $280,000. $252,000. $700,000. $168,000.

Ans: LO: 5, BT: AP, Difficulty: Easy, TOT: 2.0 Min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

If a company has net sales of $700,000 and cost of goods sold of $490,000, the gross profit percentage is 15%.

30%.

70%.

100%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company shows the following balances: Sales Revenue $2,000,000 Sales Returns and Allowances 360,000 Sales Discounts 40,000 Cost of Goods Sold 1,120,000 What is the gross profit percentage?

30% 44% 56% 70% Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The gross profit rate is computed by dividing gross profit by cost of goods sold. net income. net sales. sales revenue.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In terms of liquidity, inventory is more liquid than cash. more liquid than accounts receivable. more liquid than prepaid expenses. less liquid than store equipment.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

On a classified balance sheet, inventory is classified as an intangible asset. property, plant, and equipment. a current asset. a long-term investment.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Gross profit for a merchandiser is net sales minus operating expenses. cost of goods sold. sales discounts. cost of goods available for sale.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

During 2013, Parker Enterprises generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.

Parker’s gross profit is $16,000. $18,000. $30,000. $60,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

During 2013, Parker Enterprises generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.

Parker’s income from operations is $12,000. $18,000. $30,000. $60,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During 2013, Parker Enterprises generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.

Yoder’s net income is $16,000. $18,000. $30,000. $60,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 40,000 Sales Revenue 150,000 Cost of Goods Sold 90,000

Gross profit would be $20,000. $60,000. $110,000. $150,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 40,000 Sales Revenue 150,000 Cost of Goods Sold 90,000

The gross profit rate would be .133. .400. .600. .733.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 13,000 Sales Discounts 6,000 Sales 150,000 Cost of Goods Sold 79,000

Gross profit would be $52,000. $58,000. $65,000. $71,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 13,000 Sales Discounts 6,000 Sales Revenue 150,000 Cost of Goods Sold 79,000

The gross profit rate would be .347. .397. .473. .542.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 9,000 Sales Discounts 6,000 Sales Revenue 160,000 Cost of Goods Sold 87,000

The amount of net sales on the income statement would be $145,000. $151,000. $154,000. $160,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 9,000 Sales Discounts 6,000 Sales Revenue 160,000 Cost of Goods Sold 87,000

Gross profit would be $13,000.

$58,000. $64,000. $67,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 9,000 Sales Discounts 6,000 Sales Revenue 160,000 Cost of Goods Sold 87,000

The gross profit rate would be .363. .400. .456. .503.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

If a company has sales revenue of $630,000, net sales of $600,000, and cost of goods sold of $378,000, the gross profit rate is 37%.

40% 60%.

63%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Dawson’s Fashions sold merchandise for $40,000 cash during the month of July.

Returns that month totaled $1,000. If the company’s gross profit rate is 40%, Murray’s will report monthly net sales revenue and cost of goods sold of $39,000 and $23,400. $39,000 and $24,000. $40,000 and $23,400. $40,000 and $24,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During August, 2013, Baxter’s Supply Store generated revenues of $30,000. The company’s expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.

Baxter’s gross profit for August, 2013 is $10,000. $10,500. $11,500. $12,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During August, 2013, Baxter’s Supply Store generated revenues of $30,000. The company’s expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.

Baxter’s nonoperating income (loss) for the month of August, 2013 is $0.

$500. $1,000. $1,500.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During August, 2013, Baxter’s Supply Store generated revenues of $30,000. The company’s expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.

Baxter’s operating income for the month of August, 2013 is $10,000. $10,500. $11,500. $12,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During August, 2013, Baxter’s Supply Store generated revenues of $30,000. The company’s expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.

Baxter’s net income for August, 2013 is $10,000. $10,500. $11,500. $12,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Cobb Company's accounting records show the following at the year ending on December 31, 2013: Purchase Discounts $ 5,600 Freight - in 7,800 Purchases 201,000 Beginning Inventory 23,500 Ending Inventory 28,800 Purchase Returns 6,400

Using the periodic system, the cost of goods purchased is $189,000. $191,500. $196,800. $202,100.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Cobb Company's accounting records show the following at the year ending on December 31, 2013: Purchase Discounts $ 5,600 Freight - in 7,800 Purchases 201,000 Beginning Inventory 23,500

Ending Inventory 28,800 Purchase Returns 6,400

Using the periodic system, the cost of goods sold is $189,000. $191,500. $196,800. $202,100.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The following information is available for Dennehy Company: Sales $260,000 Freight-in $20,000 Ending Inventory 25,000 Purchase Returns and Allowances 10,000 Purchases 180,000 Beginning Inventory 30,000

Dennehy's cost of goods sold is $175,000. $190,000. $195,000. $230,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

At the beginning of September, 2013, Stella Company reported Inventory of $4,000.

During the month, the company made purchases of $17,800. At September 31, 2013, a physical count of inventory reported $4,200 on hand. Cost of goods sold for the month is $17,600. $17,800. $18,000.

$21,800.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

At the beginning of the year, Hunt Company had an inventory of $500,000. During the year, the company purchased goods costing $1,600,000. If Hunt Company reported ending inventory of $600,000 and sales of $2,500,000, the company’s cost of goods sold and gross profit rate must be $1,000,000 and 66.7%. $1,500,000 and 40%. $1,000,000 and 40%. $1,500,000 and 60%.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During the year, Slick’s Pet Shop’s inventory decreased by $20,000. If the company’s cost of goods sold for the year was $400,000, purchases must have been $380,000. $400,000. $420,000.

Unable to determine.

Ans: LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Cost of goods available for sale is computed by adding beginning inventory to net purchases. beginning inventory to the cost of goods purchased. net purchases and freight-in. purchases to beginning inventory.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The Freight-in account increases the cost of merchandise purchased. is contra to the Purchases account. is a permanent account. has a normal credit balance.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Net purchases plus freight-in determines cost of goods sold. cost of goods available for sale. cost of goods purchased. total goods available for sale.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Goldblum Company has the following account balances: Purchases $48,000 Sales Returns and Allowances 6,400 Purchase Discounts 4,000 Freight-in 3,000 Delivery Expense 5,000 The cost of goods purchased for the period is $40,400. $44,000. $47,000. $52,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

McKendrick Shoe Store has a beginning inventory of $30,000. During the period, purchases were $130,000; purchase returns, $4,000; and freight-in $10,000. A physical count of inventory at the end of the period revealed that $20,000 was still on hand. The cost of goods available for sale was $126,000. $136,000. $146,000. $166,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In a periodic inventory system, a return of defective merchandise to a supplier is recorded by crediting Accounts Payable.

Inventory.

Purchases.

Purchase Returns and Allowances.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which one of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system?

Cash received on account with a discount Payment of freight costs on a purchase Return of merchandise purchased Purchase of merchandise on credit Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be Accounts Payable Purchase Returns and Allowances

Purchase Returns and Allowances Accounts Payable Accounts Payable Inventory Inventory Accounts Payable

Ans: LO: 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Under a periodic inventory system, acquisition of merchandise is debited to the Inventory account.

Cost of Goods Sold account.

Purchases account.

Accounts Payable account.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following accounts has a normal credit balance?

Purchases Sales Returns and Allowances Freight-in Purchase Discounts Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are credit, credit, debit. debit, credit, credit. debit, credit, debit. debit, debit, debit.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In a worksheet for a merchandising company, Inventory would appear in the trial balance and adjusted trial balance columns only. trial balance and balance sheet columns only. trial balance, adjusted trial balance, and balance sheet columns. trial balance, adjusted trial balance, and income statement columns.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The Inventory account balance appearing in a worksheet represents the ending inventory. beginning inventory. cost of merchandise purchased. cost of merchandise sold.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Ezra Company has sales revenue of $40,000, cost of goods sold of $24,000 and operating expenses of $9,000 for the year ended December 31. Ezra's gross profit is $0. $7,000. $16,000. $31,000.

Ans: LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Rae Company made a purchase of merchandise on credit from Tyree Corporation on August 3, for $7,000, terms 2/10, n/45. On August 10, Rae makes the appropriate payment to Tyree. The entry on August 10 for Rae Company is Accounts Payable.................................................................. 7,000 Cash............................................................................... 7,000 Accounts Payable.................................................................. 6,860 Cash............................................................................... 6,860

Accounts Payable.................................................................. 7,000 Purchase Returns and Allowances............................... 140 Cash............................................................................... 6,860 Accounts Payable.................................................................. 7,000 Inventory........................................................................ 140 Cash............................................................................... 6,860

Ans: LO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Kate Company purchased inventory from Phoebe Company. The shipping costs were $500 and the terms of the shipment were FOB shipping point. Kate would have the following entry regarding the shipping charges: There is no entry on Kate's books for this transaction.

Freight Expense..................................................................... 500 Cash.............................................................................. 500 Freight-out.............................................................................. 500 Cash.............................................................................. 500 Inventory................................................................................ 500 Cash.............................................................................. 500

Ans: LO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting Purchases.

Purchase Returns.

Purchase Allowance.

Inventory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA

On October 4, 2013, JT Corporation had credit sales transactions of $3,200 from merchandise having cost $1,900. The entries to record the day's credit transactions include a debit of $3,200 to Inventory. credit of $3,200 to Sales Revenue. debit of $1,900 to Inventory. credit of $1,900 to Cost of Goods Sold.

Ans: LO: 3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Which of the following accounts is not closed to Income Summary?

Cost of Goods Sold Inventory Sales Revenue Sales Discounts Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In the Augie Company, sales were $500,000, sales returns and allowances were $20,000, and cost of goods sold was $300,000. The gross profit rate was 36%.

37.5%.

40%.

41.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Net sales is sales less sales discounts. sales returns. sales returns and allowances. sales discounts and sales returns and allowances.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In the balance sheet, ending inventory is reported in current assets immediately following accounts receivable. in current assets immediately following prepaid expenses. in current assets immediately following cash. under property, plant, and equipment.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a184. Cost of goods available for sale is computed by adding freight-in to net purchases. beginning inventory to net purchases. beginning inventory to purchases and freight-in. beginning inventory to cost of goods purchased.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

TRUE-FALSE STATEMENTS Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Manufacturers usually classify inventory into two categories: finished goods and work in process.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Work in process is that portion of manufactured inventory that has been placed into the production process but is not yet complete.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company may use more than one inventory costing method concurrently.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under the lower-of-cost-or-market basis, market is defined as current replacement cost.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

An error that overstates the ending inventory will also cause net income for the period to be overstated.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventory turnover is calculated as cost of goods sold divided by ending inventory.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventory turnover measures the number of times on average the inventory sold during the period.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Days in inventory is calculated as the inventory turnover ratio dividend by 365.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting The average-cost method in a perpetual inventory system is called the movingaverage method.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If a company uses the FIFO cost assumption, the cost of goods sold for the period will be the same under a perpetual or periodic inventory system.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Under generally accepted accounting principles, management has the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The retail inventory method requires a company to value its inventory on the balance sheet at retail prices.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

The lower-of-cost-or-market basis is an example of the accounting concept of conservatism.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventories are reported in the current assets section of the balance sheet immediately below receivables.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS Inventories affect only the balance sheet.

only the income statement. both the balance sheet and the income statement. neither the balance sheet nor the income statement.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventory is reported under the classification of Property, Plant, and Equipment on the balance sheet. often reported as a miscellaneous expense on the income statement. reported as a current asset on the balance sheet. generally valued at the price for which the goods can be sold.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Items waiting to be used in production are considered to be raw materials. work in process. finished goods. merchandise inventory.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In a manufacturing company, inventory that is ready for sale is called raw materials inventory. work in process inventory. finished goods inventory. store supplies inventory.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The factor which determines whether or not goods should be included in a physical count of inventory is physical possession. legal title. management's judgment. whether or not the purchase price has been paid.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If goods in transit are shipped FOB destination the seller has legal title to the goods until they are delivered. the buyer has legal title to the goods until they are delivered. the transportation company has legal title to the goods while the goods are in transit. no one has legal title to the goods until they are delivered.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

An auto manufacturer would classify vehicles in various stages of production as finished goods. merchandise inventory. raw materials. work in process.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following should be included in the physical inventory of a company?

Goods held on consignment from another company.

Goods in transit to another company shipped FOB shipping point.

Goods in transit from another company shipped FOB shipping point.

Both b and c above.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls

Manufacturers usually classify inventory into all the following general categories except: work in process finished goods merchandise inventory raw materials Ans: LO: 1, Blooms Taxonomy: C, Difficulty: Easy, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Freight terms of FOB shipping point mean that the seller must debit freight out. buyer must bear the freight costs. goods are placed free on board at the buyer's place of business. seller must bear the freight costs.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except: to check the accuracy of the records. to determine the amount of wasted raw materials. to determine losses due to employee theft. to determine ownership of the goods.

Ans: LO: 1, Blooms Taxonomy: C, Difficulty: Easy, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem solving, IMA: Internal Controls

Fetherston Company's goods in transit at December 31 include: sales made purchases made (1) FOB destination (3) FOB destination (2) FOB shipping point (4) FOB shipping point

Which items should be included in Fetherston's inventory at December 31?

(2) and (3) (1) and (4) (1) and (3) (2) and (4) Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The term "FOB" denotes free on board. freight on board. free only (to) buyer. freight charge on buyer.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

Under a consignment arrangement, the consignor has ownership until goods are sold to a customer. consignor has ownership until goods are shipped to the consignee. consignee has ownership when the goods are in the consignee's possession. consigned goods are included in the inventory of the consignee.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic

As a result of a thorough physical inventory, Horace Company determined that it had inventory worth $270,000 at December 31, 2012. This count did not take into consideration the following facts: Herschel Consignment currently has goods worth $47,000 on its sales floor that belong to Horace but are being sold on consignment by Herschel. The selling price of these goods is $75,000. Horace purchased $22,000 of goods that were shipped on December 27. FOB destination, that will be received by Horace on January 3. Determine the correct amount of inventory that Horace should report. $270,000.

$290,000. $317,000. $337,000.

Ans: LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Partridge Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows: Date Purchases Sales Jan. 14 375 @ $28 17 250 @ $20 25 250 @ $22 29 260 @ $32

Partridge does not maintain perpetual inventory records. According to a physical count, 365 units were on hand at January 31.

The cost of the inventory at January 31, under the FIFO method is: $6,570. $7,300. $7,800. $8,030.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Partridge Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows: Date Purchases Sales Jan. 14 375 @ $28 17 250 @ $20

25 250 @ $22 29 260 @ $32

Partridge does not maintain perpetual inventory records. According to a physical count, 365 units were on hand at January 31.

The cost of the inventory at January 31, under the LIFO method is: $6,570. $7,300. $7,800. $8,030.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Nick's Place recorded the following data: Units Unit Date Received Sold On Hand Cost 1/1 Inventory 600 $2.00 1/8 Purchased 1,000 1,600 2.40 1/12 Sold 1,200 300

The weighted average unit cost of the inventory at January 31 is: $2.00. $2.20. $2.25. $2.40.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Inventoriable costs include all of the following except the freight costs incurred when buying inventory. costs of the purchasing and warehousing departments. cost of the beginning inventory. cost of goods purchased.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Beginning inventory plus the cost of goods purchased equals cost of goods sold. cost of goods available for sale. net purchases. total goods purchased.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Cost of goods sold is computed from the following equation: beginning inventory – cost of goods purchased + ending inventory. sales – cost of goods purchased + beginning inventory – ending inventory. sales + gross profit – ending inventory + beginning inventory. beginning inventory + cost of goods purchased – ending inventory.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $250 and used FIFO costing, the gross profit for the period would be $70. $75. $77. $85.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The LIFO inventory method assumes that the cost of the latest units purchased are the last to be allocated to cost of goods sold. the first to be allocated to ending inventory. the first to be allocated to cost of goods sold. not allocated to cost of goods sold or ending inventory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company just starting business made the following four inventory purchases in June: June 1 150 units $ 390 June 10 200 units 585 June 15 200 units 630 June 28 150 units 510 $2,115

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is $536. $668. $1,447. $1,564.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company just starting business made the following four inventory purchases in June: June 1 150 units $ 390 June 10 200 units 585 June 15 200 units 630 June 28 150 units 510 $2,115 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is $536. $668. $1,447. $1,564.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company just starting business made the following four inventory purchases in June: June 1 150 units $ 390 June 10 200 units 585 June 15 200 units 630 June 28 150 units 510 $2,115

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is $536. $604. $668. $1,511.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company just starting business made the following four inventory purchases in June: June 1 150 units $ 390 June 10 200 units 585 June 15 200 units 630 June 28 150 units 510 $2,115

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.

The inventory method which results in the highest gross profit for June is the FIFO method. the LIFO method. the weighted average unit cost method. not determinable.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A company purchased inventory as follows: 150 units at $10 350 units at $12 The average unit cost for inventory is $10.00. $11.00. $11.40. $12.00.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Which of the following items will increase inventoriable costs for the buyer of goods?

Purchase returns and allowances granted by the seller Purchase discounts taken by the purchaser Freight charges paid by the seller Freight charges paid by the purchaser Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventoriable costs may be thought of as a pool of costs consisting of which two elements?

The cost of beginning inventory and the cost of ending inventory The cost of ending inventory and the cost of goods purchased during the year The cost of beginning inventory and the cost of goods purchased during the year The difference between the costs of goods purchased and the cost of goods sold during the year Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The cost of goods available for sale is allocated between beginning inventory and ending inventory. beginning inventory and cost of goods on hand. ending inventory and cost of goods sold. beginning inventory and cost of goods purchased.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Indrisano's Used Cars uses the specific identification method of costing inventory.

During March, Indrisano purchased three cars for $6,000, $7,200, and $9,600, respectively. During March, two cars are sold for a total of $17,300. Indrisano determines that at March 31, the $7,200 car is still on hand. What is Indrisano’s gross profit for March? $500. $1,700. $2,100. $4,100.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Music store specializing in organ sales Farm implement dealership Antique shop Hardware store Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A problem with the specific identification method is that inventories can be reported at actual costs. management can manipulate income. matching is not achieved. the lower-of-cost-or-market basis cannot be applied.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic

The selection of an appropriate inventory cost flow assumption for an individual company is made by the external auditors. the SEC. the internal auditors. management.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic

Which one of the following inventory methods is often impractical to use?

Specific identification LIFO FIFO Average cost Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

Which of the following is not a common cost flow assumption used in costing inventory?

First-in, first-out Middle-in, first-out Last-in, first-out Average cost Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is called the expense recognition principle. called the consistency principle. nonexistent; that is, there is no accounting requirement. called the physical flow assumption.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following statements is true regarding inventory cost flow assumptions?

A company may use more than one costing method concurrently.

A company must comply with the method specified by industry standards.

A company must use the same method for domestic and foreign operations.

A company may never change its inventory costing method once it has chosen a method.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following statements is correct with respect to inventories?

The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.

It is generally good business management to sell the most recently acquired goods first.

Under FIFO, the ending inventory is based on the latest units purchased.

FIFO seldom coincides with the actual physical flow of inventory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

The cost of goods available for sale is allocated to the cost of goods sold and the beginning inventory. ending inventory. cost of goods purchased. gross profit.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 300 units at $8

The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost method. The average cost per unit for May is $7.000. $7.375. $7.500. $8.000.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost method. The value of Kibbee’s inventory at May 31, 2013 is $1,500.00. $2,212.50. $2,250.00. $3,750.00.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 200 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost method. Kibbee’s gross profit for the month of May is $2,250.00. $3,750.00. $3,787.50. $4,500.00.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2013 are as follows: Units Per unit price Total Balance, 1/1/13 200 $5.00 $1,000 Purchase, 1/15/13 100 5.30 530 Purchase, 1/28/13 100 5.50 550

An end of the month (1/31/13) inventory showed that 140 units were on hand. How many units did the company sell during January, 2013?

60 140 200 260 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2013 are as follows: Units Per unit price Total Balance, 1/1/13 200 $5.00 $1,000 Purchase, 1/15/13 100 5.30 530 Purchase, 1/28/13 100 5.50 550

An end of the month (1/31/13) inventory showed that 140 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

$700 $728 $742 $762 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2013 are as follows: Units Per unit price Total Balance, 1/1/13 200 $5.00 $1,000 Purchase, 1/15/13 100 5.30 530 Purchase, 1/28/13 100 5.50 550

An end of the month (1/31/13) inventory showed that 140 units were on hand. If the company uses LIFO, what is the value of the ending inventory? $700 $728 $742 $762 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2013 are as follows: Units Per unit price Total Balance, 1/1/13 200 $5.00 $1,000 Purchase, 1/15/13 100 5.30 530

Purchase, 1/28/13 100 5.50 550

An end of the month (1/31/13) inventory showed that 140 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month? $1,220 $1,282 $1,838 $1,900 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method.

Under the FIFO method, the December 31 inventory is valued at $14,000. $16,133. $16,480. $18,400.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data:

Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. What is the cost of goods available for sale? $84,600 $89,000 $103,000 $162,500 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. Under the LIFO method, cost of goods sold is $14,000. $84,600. $86,520. $89,000.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. The weighted-average cost per unit is $8.00. $8.01. $8.24. $9.30.

Ans: LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. If the company uses FIFO, what is the gross profit for the period? $47,500 $49,633

$49,980 $51,900 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.20 Purchases: June 18 4,500 8.00 November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. What is the difference in taxes if LIFO rather than FIFO is used? $880 additional taxes $496 additional taxes $384 additional taxes $496 tax savings Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Priscilla has the following inventory information.

July 1 Beginning Inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $23 230 $2,010

A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the average-cost method, the value of ending inventory is $580. $603. $620. $630.

Ans: LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Priscilla has the following inventory information.

July 1 Beginning Inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $23 230 $2,010

A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is $1,380. $1,390. $1,407. $1,430.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Priscilla has the following inventory information.

July 1 Beginning Inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $23 230 $2,010

A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is $1,380. $1,390. $1,407. $1,430.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Moroni Industries has the following inventory information.

July 1 Beginning Inventory 10 units at $120 5 Purchases 60 units at $112 14 Sale 40 units 21 Purchases 30 units at $115 30 Sale 35 units

Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis? $2,875 $2,880 $8,490 $8,495 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Moroni Industries has the following inventory information.

July 1 Beginning Inventory 10 units at $120 5 Purchases 60 units at $112

14 Sale 40 units 21 Purchases 30 units at $115 30 Sale 35 units

Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis? $2,875 $2,880 $8,490 $8,495 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Netta Shutters has the following inventory information.

Nov. 1 Inventory 15 units @ $8.00 8 Purchase 60 units @ $8.30 17 Purchase 30 units @ $8.40 25 Purchase 45 units @ $8.80

A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Cost of goods sold (rounded to the nearest dollar) under the average-cost method is $870. $886. $889. $897.

Ans: LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Netta Shutters has the following inventory information.

Nov. 1 Inventory 15 units @ $8.00 8 Purchase 60 units @ $8.30 17 Purchase 30 units @ $8.40 25 Purchase 45 units @ $8.80

A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is $369. $396. $870. $897.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Netta Shutters has the following inventory information.

Nov. 1 Inventory 15 units @ $8.00 8 Purchase 60 units @ $8.30 17 Purchase 30 units @ $8.40 25 Purchase 45 units @ $8.80

A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Ending inventory under LIFO is $369. $396. $870. $897.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Netta Shutters has the following inventory information.

Nov. 1 Inventory 15 units @ $8.00 8 Purchase 60 units @ $8.30 17 Purchase 30 units @ $8.40 25 Purchase 45 units @ $8.80

A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Assuming that the specific identification method is used and that ending inventory consists of 10 units from each of the three purchases and 15 units from the November 1 inventory, cost of goods sold is $870. $886. $891. $897.

Ans: LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

The specific identification method of costing inventories is used when the physical flow of units cannot be determined. company sells large quantities of relatively low cost homogeneous items. company sells large quantities of relatively low cost heterogeneous items. company sells a limited quantity of high-unit cost items.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

The specific identification method of inventory costing always maximizes a company's net income. always minimizes a company's net income. has no effect on a company's net income. may enable management to manipulate net income.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic Romanoff Industries had the following inventory transactions occur during 2013: Units Cost/unit 2/1/13 Purchase 18 $45 3/14/13 Purchase 31 $47 5/1/13 Purchase 22 $49

The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using LIFO? (rounded to whole dollars) $1,106 $1,184 $2,316 $2,394 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Romanoff Industries had the following inventory transactions occur during 2013: Units Cost/unit 2/1/13 Purchase 18 $45 3/14/13 Purchase 31 $47

5/1/13 Purchase 22 $49

The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s after-tax income using LIFO? (rounded to whole dollars) $774 $829 $1,106 $1,184 Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Romanoff Industries had the following inventory transactions occur during 2013: Units Cost/unit 2/1/13 Purchase 18 $45 3/14/13 Purchase 31 $47 5/1/13 Purchase 22 $49

The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using FIFO? (rounded to whole dollars) $1,106 $1,184 $2,316 $2,394 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Romanoff Industries had the following inventory transactions occur during 2013: Units Cost/unit 2/1/13 Purchase 18 $45 3/14/13 Purchase 31 $47 5/1/13 Purchase 22 $49

The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s after-tax income using FIFO? (rounded to whole dollars) $774 $829 $1,106 $1,184 Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Companies adopt different cost flow methods for each of the following reasons except balance sheet effects. cost effects. income statements effects. tax effects.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the FIFO method.

LIFO method. average-cost method. tax method.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using LIFO will have the highest ending inventory.

FIFO will have the highest cost of good sold.

FIFO will have the highest ending inventory.

LIFO will have the lowest cost of goods sold.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the cost of goods sold of the companies will be identical. cost of goods available for sale of the companies will be identical. ending inventory of the companies will be identical. net income of the companies will be identical.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

FIFO LIFO Average Cost Income tax expense for the period will be the same under all assumptions.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The managers of Constantine Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?

LIFO Average Cost FIFO Physical inventory method Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In periods of inflation, phantom or paper profits may be reported as a result of using the perpetual inventory method.

FIFO costing assumption.

LIFO costing assumption. periodic inventory method.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Selection of an inventory costing method by management does not usually depend on the fiscal year end. income statement effects. balance sheet effects. tax effects.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In a period of rising prices, the costs allocated to ending inventory may be understated in the average-cost method.

FIFO method. gross profit method.

LIFO method.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

The accountant at Almira Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $5,460. The LIFO method will result in income before taxes of $4,860. What is the difference in tax that would be paid between the two methods? $180. $420. $600.

Cannot be determined from the information provided.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

The accountant at Cedric Company has determined that income before income taxes amounted to $7,000 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $225 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption? $6,250 $7,000 $7,225 $7,750 Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Quantitative Methods

The manager of Brick Company is given a bonus based on income before income taxes. Net income, after taxes, is $5,600 for FIFO and $4,900 for LIFO. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of LIFO? $42

$1,400 $200 $210 Ans: LO: 3, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

The consistent application of an inventory costing method is essential for conservatism. accuracy. comparability. efficiency.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which costing method cannot be used to determine the cost of inventory items before lower-of-cost-or-market is applied?

Specific identification FIFO LIFO All of these methods can be used.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventory is reported in the financial statements at cost. market. the higher-of-cost-or-market. the lower-of-cost-or-market.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The lower-of-cost-or-market basis of valuing inventories is an example of comparability. the cost principle. conservatism. consistency.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under the lower-of-cost-or-market basis in valuing inventory, market is defined as current replacement cost. selling price. historical cost plus markup. selling price less markup.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The lower-of-cost-or-market (LCM) basis may be used with all of the following methods except average cost.

FIFO. LIFO. The LCM basis may be used with all of these.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Alfalfa Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: Product Cost Market A $110,000 $120,000 B 80,000 76,000

C 155,000 162,000 If Alfalfa applies the LCM basis, the value of the inventory reported on the balance sheet would be $341,000. $345,000. $358,000. $362,000.

Ans: LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Switzer, Inc. has 5 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date, each computer has a current replacement cost of $400. What value should Switzer, Inc., have for the computers at the end of the year? $1,500. $2,000. $3,000. $4,500.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Switzer, Inc. has 5 computers which have been part of the inventory for over two years. Each computer cost $600 and originally retailed for $900. At the statement date, each computer has a current replacement cost of $400. How much loss should Switzer, Inc., record for the year? $1,000. $1,500. $2,000. $2,500.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Othello Company understated its inventory by $20,000 at December 31, 2012. It did not correct the error in 2012 or 2013. As a result, Othello's owner's equity was:

understated at December 31, 2012, and overstated at December 31, 2013. understated at December 31, 2012, and properly stated at December 31, 2013. overstated at December 31, 2012, and overstated at December 31, 2013. understated at December 31, 2012, and understated at December 31, 2013.

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Understating beginning inventory will understate assets. cost of goods sold. net income. owner's equity.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

An error in the physical count of goods on hand at the end of a period resulted in a $15,000 overstatement of the ending inventory. The effect of this error in the current period is Cost of Goods Sold Net Income Understated Understated Overstated Overstated Understated Overstated Overstated Understated Ans: LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If beginning inventory is understated by $13,000, the effect of this error in the current period is Cost of Goods Sold Net Income

Understated Understated Overstated Overstated Understated Overstated Overstated Understated Ans: LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company uses the periodic inventory method and the beginning inventory is overstated by $7,000 because the ending inventory in the previous period was overstated by $7,000. The amounts reflected in the current end of the period balance sheet are Assets Owner’s Equity Overstated Overstated Correct Correct Understated Understated Overstated Correct Ans: LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Overstating ending inventory will overstate all of the following except assets. cost of goods sold. net income. owner's equity.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

On July 31, Tractor Supplies sold merchandise to J. Robson on account. The sales price was $8,400, and the cost of goods sold was $6,300. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated August 2. As a results , net income for July was overstated by $8,400. overstated by $6,300. overstated by $2,100.

not affected, but the net income for August is understated.

Ans: LO: 5, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Evergreen, Inc. is a successful company, but has a lower inventory turnover rate then the industry average. Which of the following offers the most likely explanation for these result?

Evergreen uses LIFO (assume rising purchase costs).

Evergreen has a just-in-time inventory system.

Evergreen sells unusually popular items.

Evergreen offers its customers an unusually large selection of merchandise.

Ans: LO: 6, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Disclosures about inventory should include each of the following except the basis of accounting. costing method. quantity of inventory. major inventory classifications.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Days in inventory is calculated by dividing the inventory turnover ratio by 365 days. average inventory by 365 days.

365 days by the inventory turnover ratio.

365 days by average inventory.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The following information is available for Everett Company at December 31, 2013: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $700,000; and sales $1,200,000. Everette’s inventory turnover in 2013 is 5.8 times.

7 times.

8.8 times.

12 times.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The following information was available for Pete Company at December 31, 2013: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $656,000; and sales $900,000. Pete’s inventory turnover ratio in 2013 was 7.3 times.

8.2 times.

9.4 times.

11.3 times.

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The following information was available for Pete Company at December 31, 2013: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $656,000; and sales $900,000. Pete’s days in inventory in 2013 was a 32.3 days.

38.8 days.

44.5 days.

50.0 days.

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Delmar Company had beginning inventory of $90,000, ending inventory of $110,000, cost of goods sold of $500,000, and sales of $800,000. Delmar's days in inventory is: a 45.6 days.

65.2 days.

73.0 days.

81.1 days.

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During July, the following purchases and sales were made by Big Dan Company.

There was no beginning inventory. Big Dan Company uses a perpetual inventory system.

Purchases Sales July 3 20 units @ $12 July 13 25 units 11 20 units @ $13 22 10 units 20 10 units @ $15 Under the FIFO method, the cost of goods sold for each sale is: July 13 July 22 $300 $120 305 130 325 130 375 150 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During July, the following purchases and sales were made by Big Dan Company.

There was no beginning inventory. Big Dan Company uses a perpetual inventory system.

Purchases Sales July 3 20 units @ $12 July 13 25 units 11 20 units @ $13 22 10 units

20 10 units @ $15

Under the LIFO method, the cost of goods sold for each sale is: July 13 July 22 $300 $120 320 150 325 150 375 130 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Pappy’s Staff has the following inventory information.

July 1 Beginning Inventory 10 units at $90 5 Purchases 60 units at $92 14 Sale 40 units 21 Purchases 30 units at $95 30 Sale 28 units

Assuming that a perpetual inventory system is used, what is the ending inventory on a FIFO basis? $2,924 $2,930 $3,034 $6,346 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

144 Pappy’s Staff Junkets has the following inventory information.

July 1 Beginning Inventory 10 units at $90 5 Purchases 60 units at $92 14 Sale 40 units 21 Purchases 30 units at $95 30 Sale 28 units

Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis? $2,924 $2,930 $3,034 $6,346 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Pappy’s Staff has the following inventory information.

July 1 Beginning Inventory 10 units at $90 5 Purchases 60 units at $92 14 Sale 40 units 21 Purchases 30 units at $95 30 Sale 28 units

Assuming that a perpetual inventory system is used, what is the ending inventory (rounded) under the average-cost method? $2,930 $2,966 $2,987 $3,054

Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A new average cost is computed each time a purchase is made in the average-cost method. moving-average cost method. weighted-average cost method. all of these methods.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

When valuing ending inventory under a perpetual inventory system, the valuation using the LIFO assumption is the same as the valuation using the LIFO assumption under the periodic inventory system. moving average requires that a new average be computed after every sale. valuation using the FIFO assumption is the same as under the periodic inventory system. earliest units purchased during the period using the LIFO assumption are allocated to the cost of goods sold when units are sold.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Sawyer Company uses the perpetual inventory system and the moving-average method to value inventories. On August 1, there were 10,000 units valued at $40,000 in the beginning inventory. On August 10, 20,000 units were purchased for $8 per unit. On August 15, 24,000 units were sold for $16 per unit. The amount charged to cost of goods sold on August 15 was $40,000. $144,000. $160,000. $192,000.

Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

Under the gross profit method, each of the following items are estimated except for the cost of ending inventory. cost of goods sold. cost of goods purchased. gross profit.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under the retail inventory method, the estimated cost of ending inventory is computed by multiplying the cost-to-retail ratio by net sales. goods available for sale at retail. goods purchased at retail. ending inventory at retail.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Inventories are estimated more frequently under a periodic inventory system than a perpetual inventory system. using the wholesale inventory method. more frequently under a perpetual inventory system than the periodic inventory system. using the net method.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Clooney Department Store estimates inventory by using the retail inventory method.

The following information was developed: At Cost At Retail

Beginning inventory $360,000 $ 750,000 Goods purchased 900,000 1,350,000 Net sales 1,200,000 The estimated cost of the ending inventory is $360,000. $432,000. $540,000. $600,000.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Turturro Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 75%. Goods available for sale at retail amounted to $400,000 and goods were sold during the period for $280,000. The estimated cost of the ending inventory is $90,000. $120,000. $210,000. $300,000.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

TB Nelson Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $60,000; the beginning inventory on June 1 was $18,000; and the cost of goods purchased during June amounted to $30,000. The estimated cost of TB Nelson Company's inventory on June 30 is $7,200. $12,000. $24,000. $42,000.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Towson Products uses the retail method to estimate ending inventory in its monthly financial statement. The following information is available for the month ended March 31 Cost Retail Sales $320,000 Inventory, March 1 $136,000 219,000 Net purchases 182,000 273,000 Goods available for sale $318,000 $492,000

The cost ratio that would be used in estimating the March 31 inventory using the retail method is 64.6%.

61.0%.

62.1%.

66.7%.

Ans: LO: 8, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Towson Products uses the retail method to estimate ending inventory in its monthly financial statement. The following information is available for the month ended March 31 Cost Retail Sales $320,000 Inventory, March 1 $136,000 219,000 Net purchases 182,000 273,000 Goods available for sale $318,000 $492,000

The cost of the March 31 inventory using the retail method is $101,000. $111,112. $106,813. $205,428.

Ans: LO: 8, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Towson Products uses the retail method to estimate ending inventory in its monthly financial statement. The following information is available for the month ended March 31 Cost Retail Sales $320,000 Inventory, March 1 $136,000 219,000 Net purchases 182,000 273,000 Goods available for sale $318,000 $492,000

The cost of the goods sold for March using the retail method is $211,187. $217,000. $206,888. $172,000.

Ans: LO: 8, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Over the last few years, Mohawk Industries has operated with a gross profit rate of 35%. On January 1, 2012, the company had inventory on hand with a cost of $750,000. Purchases of merchandise during January amounted to $215,000, and sales for the month were $480,000. Using the gross profit method, what is the estimated inventory at January 31 $169,750. $627,250.

$480,000. $653,000.

Ans: LO: 8, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

During March, Vetter Corporation had sales of $380,000 and a cost of goods available for sale of $750,000. The company consistently earns a gross profit rate of 42%.

Using the gross profit method, the estimated inventory at March 31 amounts to $315,000. $155,400. $435,000. $529,600.

Ans: LO: 8, BT:AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: none, AICPA FN: Measurement, AICPA PC: Problem Solving

Goods in transit should be included in the inventory of the buyer when the public carrier accepts the goods from the seller. goods reach the buyer. terms of sale are FOB destination. terms of sale are FOB shipping point.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

161.... Inventory items on an assembly line in various stages of production are classified as Finished goods.

Work in process.

Raw materials.

Merchandise inventory.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The cost flow method that often parallels the actual physical flow of merchandise is the FIFO method.

LIFO method. average-cost method. gross profit method.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Goodman Company's inventory records show the following data: Units Unit Cost Inventory, January 1 5,000 $9.00 Purchases: June 18 4,500 8.20 November 8 3,000 7.00 A physical inventory on December 31 shows 3,000 units on hand. Under the FIFO method, the December 31 inventory is $21,000. $24,600. $24,696. $27,000.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In a period of inflation, the cost flow method that results in the lowest income taxes is the FIFO method.

LIFO method. average-cost method. gross profit method.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

In a period of rising prices, FIFO will have lower net income than LIFO. lower cost of goods sold than LIFO. lower income tax expense than LIFO. lower net purchases than LIFO. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Under the LCM approach, the market value is defined as FIFO cost.

LIFO cost. current replacement cost. selling price.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

Penny Company made an inventory count on December 31, 2013. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, 2013, the effects of this error are Assets Liabilities Stockholders' Equity overstated understated overstated understated no effect understated overstated no effect overstated overstated overstated understated Ans: LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The inventory turnover ratio is computed by dividing cost of goods sold by beginning inventory. ending inventory. average inventory.

365 days.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

H. Hunter Company's records indicate the following information for the year: Merchandise inventory, 1/1 $ 550,000 Purchases 2,250,000 Net Sales 3,200,000 On December 31, a physical inventory determined that ending inventory of $500,000 was in the warehouse. H. Hunter's gross profit on sales has remained constant at 30%.

H. Hunter suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of missing inventory? $60,000 $100,000 $150,000 $1,340,000 Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods