ACC Practice Quiz 3

A company that uses the perpetual inventory system sold goods to a customer for cash for​ $3,000. The cost of the goods sold was​ $600. Which of the following journal entries correctly records this​ transaction?

Cash ​3,000 Sales Revenue ​3,000 Cost of Goods Sold 600 Merchandise Inventory 600

Under the perpetual inventory​ system, the journal entry to record cost of goods​ sold:

Cost of Goods Sold XX Merchandise Inventory XX

​Murphy, Inc. had the following balances and transactions during 2017. Beginning Inventory 10 units at​ $72 June 10 Purchased 20 units at​ $85 December 30 Sold 15 units December 31 Replacement cost​ $67 The company maintains its records of inventory on a perpetual basis using the​ last-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory at December​ 31, 2017 using the​ lower-of-cost-or-market rule.

$1,005

Changing from the LIFO​ (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of​ ________.

consistency

Best​ Deals, Inc. has 10 units in ending merchandise inventory on December 31. The units were purchased in November for​ $160 each. The price lists from suppliers indicate the current replacement cost of the item to be​ $162 each. What would be the amount reported as Merchandise Inventory on the balance​ sheet?

​$1,600

The following information relates to Nebula Company. Sales Revenue ​$230,000 Cost of Goods Sold ​150,000 Interest Revenue ​10,000 Operating Expenses ​42,500 Sales Discounts ​20,000 Sales Returns and Allowances ​6,000 Calculate the operating income.

​$11,500

A company made net sales revenue of​ $540,000, and cost of goods sold totaled​ $324,000. Calculate its gross profit percentage.

​40%

A merchandiser sold merchandise inventory on account. The journal entry to record sales allowances in the books of the​ merchandiser, using the perpetual inventory system would​ be:

. Sales Returns and Allowances XX Accounts Receivable XX

A merchandiser uses a perpetual inventory system. The beginning​ Owner, Capital balance of the merchandiser was​ $95,000. During the​ year, Sales Revenue amounted to​ $80,000, Sales Returns and Allowances were​ $1,300, Sales Discounts were​ $2,700, Cost of Goods Sold was​ $40,000, and all other expenses totaled​ $13,000. The company paid​ $24,000 in withdrawals to the owner. The last step in the closing process would include​ ________.

. debit to the​ Owner, Capital account for​ $24,000

A company that uses the perpetual inventory system sold goods to a customer on account for​ $4,000. The cost of the goods sold was​ $2,000. Which of the following journal entries correctly records this​ transaction?

Accounts Receivable 4,000 Sales Revenue 4,000 Costs of Goods Sold ​2,000 Merchandise Inventory 2,000

A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the conservatism principle.

False

If the merchandise​ inventory's market value is greater than its​ cost, then it must be adjusted for the difference.

False

In a period of rising​ costs, the​ last-in, first-out​ (LIFO) method results in lower cost of goods sold and higher net income than the​ first-in, first-out​ (FIFO) method.

False

Under the​ last-in, first-out​ (LIFO) method, the cost of goods sold is based on the oldest purchases.

False

The ending merchandise inventory for the current accounting period is overstated by​ $3,500. What will be the effect of this​ error?

The net income for the current accounting period will be overstated by​ $3,500

A high rate of inventory turnover indicates ease in selling inventory.

True

The Merchandise Inventory account is an asset account that is used only for goods purchased that the business owns and intends to resell to customers.

True

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

True

The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company collects cash from customers

True

The specific identification method of inventory costing is recommended when a business deals in unique and​ high-priced inventory items.

True

The general ledger shows a balance of​ $66,900 in the Merchandise Inventory account at the end of the period. The physical inventory count shows inventory of​ $63,600. The adjusting entry includes a​ ________.

debit to Cost of Goods Sold and a credit to Merchandise Inventory for​ $3,300

​Exposition, Inc. had 200 units of inventory on hand at the end of the year. These were recorded at a cost of​ $14 each using the​ last-in, first-out​ (LIFO) method. The current replacement cost is​ $10 per unit. The selling price charged by​ Exposition, Inc. for each finished product is​ $16. As a result of recording the adjusting entry as per the​ lower-of-cost-or-market rule, the gross profit will​ ________.

decrease by​ $800

The terms of an invoice are​ 3/10, n/25. This means that a​ ________

discount of 3 percent is allowed if the invoice is paid within 10 days

Which of the following is an application of​ conservatism?

reporting inventory at the lower of cost or market