Cornerstone ch 6

12. Which of the following is NOT a correct statement? a.A purchase of merchandise increases inventory. b.A purchase allowance increases inventory. c.A purchase return decreases inventory. d.All of these choices are correct.

b.A purchase allowance increases inventory.

18. Sequoia Company reported net income of $168,750 at the end of year 1. The balance sheet reported ending inventory of $76,200. Early in year 2, the company discovered that ending inventory should have been reported at $89,700. Which of the following statements is correct? a.Assets were understated by $79,050. b.Expenses were overstated by $13,500. c.Net income was understated $79,050. d.Equity was overstated by $13,500.

b.Expenses were overstated by $13,500.

15. War Eagle Kayaks uses a perpetual inventory system and recorded the following transactions during the month of March:Mar. 1Beginning inventory: 22 units @ $5005Sale: 10 units, sold for $1,250 each9Purchase: 28 units @ $52014Purchase: 16 units @ $52821Sale: 36 units, sold for $1,550 each28Purchase: 12 units @ $534Determine the cost of goods sold under the average cost method. a.$23,284 b.$23,480 c.$23,648 d.$23,848

c.$23,648

Companies use the inventory turnover ratio to satisfy the conflicting goals of having enough inventory on hand to meet customer demand while minimizing the cost of holding inventory. How is the inventory turnover ratio calculated? a.Current Assets/Current Liabilities b.Inventory Turnover/365 days c.Cost of Goods Sold/Average Inventory d.Gross Profit/Net Sales

c.Cost of Goods Sold/Average Inventory

Buckeye FanWare sells sports memorabilia, clothing, and gear. The retailer had a beginning inventory of $54,000 on January 1. During the year, the company purchased goods from a supplier costing $967,000. At the end of the year, the cost of the unsold inventory was $62,000. The cost of goods available for sale at the end of the year would be a.$975,000. b.$905,000. c.$959,000. d.$1,021,000.

d.$1,021,000.

21. Sue's Supplements had sales of $49,500 for the month of July. Cost of goods available for sale was $35,850. Ending inventory would have been $6,450 under FIFO, $5,400 under LIFO, and $6,020 under average cost. The gross margin under FIFO is a.$18,850. b.$19,050. c.$19,670. d.$20,100.

d.$20,100.

War Eagle Kayaks uses a periodic inventory system and recorded the following transactions during the month of March: Mar. 1Beginning inventory: 22 units @ $5005Sale: 10 units, sold for $1,250 each9Purchase: 28 units @ $52014Purchase: 16 units @ $52821Sale: 36 units, sold for $1,550 each28Purchase: 12 units @ $534 Determine the cost of goods sold under the FIFO method. a.$24,216 b.$23,848 c.$23,835 d.$23,480

d.$23,480

D & S Saddlery uses the periodic inventory system and collected the following data at the end of the year. Determine cost of goods available for sale.Beginning inventory$ 20,800Ending inventory30,400Purchases348,000Freight-in800Purchase returns and allowances4,000Purchase discounts16,000 a.$319,200 b.$328,000 c.$328,800 d.$349,600

d.$349,600

Sana's Sarees purchased merchandise from her supplier on July 11 on account. The invoice price of the purchase was $7,500. The supplier offers credit terms of 2/10, n/30. The goods were shipped F.O.B shipping point at a cost of $120. On July 15, Sana returned some of the merchandise, which cost $300, because it was damaged. Sana paid the invoice on July 24. By how much did Inventory increase on July 11? a.$7,170 b.$7,350 c.$7,500 d.$7,620

d.$7,620

If Smith Brothers uses the last-in, first-out (LIFO) method, the company is assuming that costs move through inventory a.to ending inventory and cost of goods sold based on the identification of the actual units sold and in inventory. b.to ending inventory and cost of goods sold based on a weighted average cost per unit. c.in an unbroken stream, the costs entering and leaving inventory in the order in which they were purchased. d.with the most recent purchases being sold first

14. d.with the most recent purchases being sold first

Which costing method provides higher net income during periods of rising prices? A. Specific identification B. FIFO C. LIFO D. Weighted average

B. FIFO

Inventory is classified as a ____________ on the ____________. A. current asset/income statement B. current asset/balance sheet C. current liability/balance sheet D. current liability/income statement

B. current asset/balance sheet

Why does the specific identification inventory method work well for business such as automobile dealerships? A. The inventory keeps track of the automobiles that are first-in first-out .B.This method works because each automobile has a unique serial number .C. It best shows the current cash flow at all times. D. It's the easiest method to factor the perpetual inventory costs.

B.This method works because each automobile has a unique serial number.

Christopher company has gross profit in the amount of $56,000 and cost of goods sold in the amount of $14,000. What is the amount of revenue? A. $42,000 B. $14,000 C. $70,000 D. $56,000

C. $70,000

Which statement applies to the specific identification inventory method? A. This method is also known as the average cash flow method. B. The ending inventory is made up of the most recent purchases. C. Each unit sold is identified with a specific purchase. D. This is closely related to a perpetual inventory system.

C. Each unit sold is identified with a specific purchase

Which of the following is not an inventory costing method? A. Specific identification B. FIFO C. LCM D. Weighted average

C. LCM

The calculation to determine the cost of goods sold requires the ____________ of purchases to/from the beginning balance. A. subtraction B. division C. addition D. multiplication

C. addition

Which costing method results in a more realistic amount for income?A. Specific identification B. FIFO C. Weighted average D. LIFO

D. LIFO

Cost of goods available for sale is equal to a.beginning inventory plus purchases made during the period. b.beginning inventory minus ending inventory. c.ending inventory plus the sales made. d.beginning inventory plus purchases made during the period minus ending inventory.

a.beginning inventory plus purchases made during the period.

To apply the lower of cost or market (LCM) rule, the company must establish the a.market value of the inventory. b.historical cost of the inventory. c.retail cost of the inventory. d.average cost of the inventory.

a.market value of the inventory

Errors in the ending inventory will affect all of the following EXCEPT a.accounts receivable. b.the income statement. c.the balance sheet. d.retained earnings.

a.accounts receivable

1. Bindi's Kites prepared an analysis of its ending inventory that consists of five different kinds of kites. The historical cost of the kites is $4,500. The market (net realizable value) of the kites is $4,410. The LCM value is $4,360. What is the adjusting journal entry? a.Debit Cost of Goods Sold and credit Inventory for $50 b.Debit Cost of Goods Sold and credit Inventory for $90 c.Debit Cost of Goods Sold and credit Inventory for $140 d.No adjusting entry required

c.Debit Cost of Goods Sold and credit Inventory for $140

Which of the following will increase net purchases under the periodic inventory system? a.Purchase discounts b.Purchase returns and allowances c.Freight-in d.None of these choices are correct.

c.Freight-in

8. Which of the following is NOT true of LIFO reserve? a.It reports the amount that inventory would change if the company had used FIFO. b.It assists in comparisons of companies that use different costing methods. c.It is the cash reserve amount required of companies that use LIFO. d.It is required of companies that use LIFO inventory costing.

c.It is the cash reserve amount required of companies that use LIFO.

6. When purchase prices are rising, which of the following inventory costing methods produces the lowest cost for ending inventory? a.Specific identification b.Average cost c.Last-in, first-out (LIFO) d.First-in, first-out (FIFO)

c.Last-in, first-out (LIFO)

Using the perpetual inventory system, which of the following is the correct journal entry for recording the revenue portion of a customer's return of inventory? a.Inventory debit; Cost of Goods Sold credit b.Cost of Goods Sold debit; Inventory credit c.Sales Revenue debit; Cash credit d.Cash debit; Sales Revenue credit

c.Sales Revenue debit; Cash credit

The cost of goods sold is reported on the a.statement of cash receipts and disbursements. b.statement of stockholders' equity. c.income statement. d.balance sheet

c.income statement

The following information is available for the fiscal year-end for two retail companies, Parker Company and Morgan Enterprises. Compute the gross profit ratio for (1) Parker Company and (2) Morgan Enterprises. Which company has more of each sales dollar available to cover expenses other than cost of goods sold?AccountParkerMorganNet sales$221,930$34,230Cost of goods sold 167,560 23,930Gross profit 54,360 10,300Beginning inventory 18,220 3,800Ending inventory 20,360 3,960 a.(1) 24.5%; (2) 30.1%; Parker b.(1) 75.5%; (2) 69.1%; Morgan c.(1) 75.5%; (2) 69.9%; Parker d.(1) 24.5%; (2) 30.1%; Morgan

d.(1) 24.5%; (2) 30.1%; Morgan

Which of the following could cause errors in determining ending inventory? a.Identification errors b.Mistakes in costing c.Incorrect counts d.All of these choices are correct.

d.All of these choices are correct

13. Ending inventory is reported on which of the following financial statements? a.Statement of retained earnings b.Statement of cash flow c.Income statement d.Balance sheet

d.Balance sheet

When a sale for cash is made under the periodic inventory system, the entry would include which of the following accounts? a.Cash, Sales Revenue, Purchases, Purchase Discounts b.Cash, Sales Revenue, Purchases, Cost of Goods Sold c.Cash, Sales Revenue, Inventory, Cost of Goods Sold d.Cash, Sales Revenue

d.Cash, Sales Revenue

3. When purchase prices are falling, which of the following inventory costing methods produces the lowest cost for ending inventory? a.Specific identification b.Average cost c.Last-in, first-out (LIFO) d.First-in, first-out (FIFO)

d.First-in, first-out (FIFO)

Under a periodic inventory system, the inventory costing methods are applied as if a.all purchases and sales during an accounting period take place at the same time. b.all purchases during an accounting period take place at the end of the period. c.each purchase during an accounting period takes place just before each batch of sales during the period. d.all purchases during an accounting period take place prior to any sales of the period.

d.all purchases during an accounting period take place prior to any sales of the period.

When the net realizable value of inventory is greater than the cost, a.the inventory is increased to its market value. b.the inventory is increased to its net realizable value. c.the inventory is increased to its selling price. d.no adjusting entry is required.

d.no adjusting entry is required.

17. When a company applies the average cost method under the periodic inventory system, the weighted average cost per unit is multiplied by the a.cost of the most recent purchases to determine the cost of goods available for sale. b.number of units in ending inventory to determine the gross profit. c.number of units sold to determine sales revenue. d.number of units in ending inventory to determine the cost of ending inventory.

d.number of units in ending inventory to determine the cost of ending inventory.