Financial Accounting 5-7

If a sales invoice shows credit terms of 2/10, n/30, the discount period is: a. 10 days b. 2 days c. 30 days d. Cannot be determined from the information given

a

In a periodic inventory system, the cost of goods sold is determined: a. At the end of the accounting period b. Each time a sale occurs c. Each time a purchase occurs d. None of the above

a

A quality of earnings ratio: a. Is computed as net income divided by net cash provided by operating activities. b. That is less than 1 indicates that a company might be using aggressive accounting tactics c. That is greater than 1 indicates that a company might be using aggressive accounting tactics d. Is computed as net cash provided by operating activities divided by total assets.

b

General Motors would classify automobiles on the assembly line in various stages of completion as: a. Raw materials b. Work in process c. Finished gods d. None of these answer choices are correct

b

In a period of increasing prices, the inventory system that will yield the highest net income is: a. Specific identification b. FIFO c. LIFO d. Average-cost

b

The LIFO reserve is: a. An amount used to adjust inventory to the lower-of-cost-or-market b. The difference between the value of the inventory under LIFO and the value under FIFO c. The difference between the value of the inventory under LIFO and the value under average-cost d. An amount used to adjust inventory to historical cost.

b

The three assumed cost flow methods are: a. Specific identification, FIFO, LIFO b. FIFO, LIFO, and average cost c. Perpetual, periodic, and specific identification d. None of these answer choices are correct

b

When legal title of the goods remains with the seller until the goods reach the buyer, the terms are said to be: a. Consigned goods b. FOB destination c. FOB shipping point d. None of these answer choices are correct

b

Which of the following is not an element of the fraud triangle?: a. Opportunity b. Segregation of duties c. Financial pressure d. Rationalization

b

Which of the following statements about a periodic inventory system is true? a. Companies continuously maintain detailed records of the cost of each inventory purchase and sale. b. Companies determine cost of goods sold only at the end of the accounting period. c. The periodic system provides better control over inventories than a perpetual system. d. The increased use of computerized systems has increased the use of the periodic system.

b

Which of these would cause inventory turnover to increase the most? a. Increasing the amount of inventory on hand b. Decreasing the amount of inventory on hand and increasing sales c. Keeping the amount of inventory on hand constant but decreasing sales d. Keeping the amount of inventory on hand constant but increasing sales.

b

Freight costs incurred by the seller on outgoing merchandise are considered: a. Part of purchases b. Part of merchandise inventory c. Operating expenses to the seller d. Part of cost of goods sold

c

Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of: a. Documentation procedures b. Independent internal verification c. Establishment of responsibility d. Other controls

c

The concept of reasonable assurance rests on the premise that: a. Employees duties should be rotated b. Employees should be required to take nations c. The cost of establishing control procedures should not exceed their expected benefit d. Physical controls should be in place

c

The principles of internal control consist of all the following except: a. Establishment of responsibility b. Segregation of duties c. Generally accepted accounting principles d. Documentation procedures

c

The use of pre numbered checks in disbursing cash is an application of the principle of: a. Establishment of responsibility b. Physical controls c. Documentation procures d. Segregation of duties

c

Under lower-of-cost-or-market (LCM), market is defined as: a. Historical cost b. Selling price c. Current replacement cost d. None of the above

c

Under the perpetual inventory system, purchases of merchandise for sale are recorded in an account called: a. Purchases. b. Cost of goods sold. c. Inventory. d. Finished goods.

c

Which of the following statements is not true regarding LIFO?: a. Assumes the latest goods purchased are the first to be sold b. Seldom coincides with the actual physical flow of inventory. c. Ending inventory is based on the price of the most recent units purchased d. Ending inventory is obtained by takin the unit cost of the earliest goods available for sale and working forward until all units of inventory have been costed

c

In order to be classified as merchandise inventory, merchandise must be: a. Owned by the company b. In a form ready for sale to customers in the ordinary course of business c. Shipped FOB destination d. Both owned by the company and in a form ready for sale to customers in the ordinary course of business

d

In some lines of business, it is customary to hold the goods of other parties and try to sell the goods for them for a fee. These goods are called: a. Goods in transit b. Work in process c. Merchandise inventory d. Consigned goods

d

Sales returns and allowances and sales discounts are: a. Sales accounts b. Liability accounts c. Expense accounts d. Contra-revenue accounts

d

The gross profit rate is equal to: a. Net income divided by sales b. Cost of goods sold divided by sales c. Net sales minus cost of goods sold, divided by net sales d. Sales minus cost of goods sold, divided by cost of goods sold.

d

The multiple-step income statement for a merchandising company shows each of these features except: a. Gross profit b. Cost of goods sold c. A sales section d. All of these are present

d