Exam 2

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

True

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

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

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

FIFO method

Sales Revenue less cost of goods sold is called

Gross profit

Under the perpetual system, freight costs incurred by the buyer for the transporting of goods is recorded in

Inventory

Freight terms of FOB shipping point mean that the

buyer must bear the freight costs

Under the lower-cost-or-market basis in valuing inventory, market is defined as

current replacement cost

An Intangible asset

does not have physical substance, yet after is very valuable

Intangible assets include each of the following except

land improvements

A correcting entry

must involve one balance sheet account and one income statement account

The credit terms offered to a customer by a business firm are 2/10, n/30, which means that

the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date

In a perpetual inventory system, cost of goods sold is recorded

With each sale

Overstating ending inventory will overstate all of the following except

cost of goods sold

Understating beginning inventory will understate

cost of goods sold

Closing revenue and expense accounts to the income summary account is an optional bookkeeping procedure.

False

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

False

If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the

Inventory account will be increased

If a company is given credit terms of 2/10, n/30, it should

Pay within the discount period and recognize a savings

Which of the following accounts has a normal credit balance?

Sales revenue

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

Service Firm

Closing entries are necessary for

Temporary accounts only

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

True

Goods out on consignment should be included in the inventory of the consignor.

True

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

True

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

True

Retailers and wholesalers are both considered merchandisers.

True

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

True

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

True

The final step in the accounting cycle is to prepare

a post-closing trial balance

A post-closing trial balance is prepared

after closing entries have been journalized and posted

The closing entry process consists of closing

all temporary accounts

Which one of the following is usually performed only at the end of a company's annual accounting period?

Journalizing and posting closing entries

After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

True

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

True

Closing entries are journalized after adjusting entries have been journalized.

True


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