Chapter 6 Accounting Multiple Choice Questions

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income? FIFO LIFO Weighted-average FILO

B

Using Weighted Average, what is the cost of Ending Inventory to the nearest $? a. $ 6,165 b. $ 6,363 c. $ 6,705 d. $ 6,950

B

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is a. FIFO. b. average cost. c. LIFO. d. none of these.

C

Using FIFO, what is the Cost of Goods Sold to the nearest $? a. $ 6,165 b. $ 6,705 c. $ 25,650 d. $ 25,110

D

A company's net sales revenue is $25,000,000. Its cost of goods sold is $15,000,000. Its beginning inventory is $100,000 and its ending inventory is $200,000. Which of the following is its rate of inventory turnover? A) 100 B) 75 C) 1.67 D) 0.01

A

Using a periodic inventory system, the sale of inventory on account would be recorded as: a. Debit Cost of Goods Sold; credit Inventory. b. Debit Inventory; credit Sales Revenue. c. Debit Sales Revenue; credit Accounts Receivable. d. Debit Inventory; credit Accounts Receivable.

A

Which inventory method or cost flow assumption most closely resembles the actual physical flow of goods? FIFO LIFO Weighted-average FILO

A

An inventory error that understates the amount of ending inventory will result in which of the following in the current year? Overstated cost of goods sold Overstated net income Overstated assets Overstated gross profit

A

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is a. FIFO. b. LIFO. c. base stock. d. weighted-average.

A

At the end of the year, a company reports the following inventory amounts ($ per unit): Item # of Units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6 The year-end adjustment using the lower of cost and net realizable value would include: A credit to Inventory for $300 A debit to Cost of Goods Sold for $400 A debit to Inventory for $500 A credit to Cost of Goods Sold for $700

A

Cost of goods sold is: Reported in the income statement Reported in the balance sheet A current asset The cost of inventory on hand at the end of the period

A

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy's gross profit ratio? a. 20% b. 10% c. 25% d. 30%

A

In a period of rising prices, the inventory method which tends to give the highest reported inventory is a. FIFO. b. moving average. c. LIFO. d. weighted-average.

A

Inventory Transactions For ABC Inc. for the month of June were as follows: Units Unit Cost Total Cost Beg Inventory, June 1 1,200 $ 3.20 $ 3,840 June 6 Purchase 3,300 3.10 10,230 June 16 Purchase 1,800 3.30 5,940 June 21 Purchase 2,700 3.40 9,180 June 29 Purchase 750 3.50 2,625 TOTALS 9,750 $ 31,815 ABC sold 7,800 units at $7.00/unit during June. 18. Using LIFO what is the cost of Ending Inventory to the nearest $? a. $ 6,165 b. $ 6,705 c. $ 25,650 d. $ 25,110

A

Net sales are $100,000 and cost of goods sold is $70,000. Inventory balances for the past two years are $10,000 and $20,000. What is the inventory turnover? 4.67 times per year 7.0 times per year 6.67 times per year 3.5 times per year

A

Samson Company had the following balances and transactions during 2015. January 1 Beginning inventory: 20 units at $70 each March 10 Purchased 10 units at $80 each June 10 Sold 23 units for $100 each 7) What would Samson Company's inventory amount be on December 31, 2015 if the LIFO method was used? A) $490 B) $510 C) $525 D) $560

A

The ending inventory for Misty Harbor Co. is $57,000. If beginning inventory was $68,000 and goods available for sale totaled $117,000, the cost of goods sold is: A) $60,000 B) $128,000 C) $68,000 D) $49,000 E) none of the above

A

The following statements regarding perpetual inventory and periodic inventory methods of handling merchandise are all correct except (choose one): a. A perpetual inventory method makes it unnecessary to take a physical count of inventory on hand. b. The perpetual inventory method offers better inventory control and more accurate determination of cost of goods sold than the period inventory method. c. The periodic inventory method is based upon the assumption that goods that were acquired and are not on hand have been previously sold. d. The periodic inventory system is less expensive to operate but may lead to inefficiencies.

A

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? Costs of incoming freight charges on merchandise inventory A return of damaged inventory to the vendor A purchase discount taken for prompt payment Shipping charges for outgoing inventory

A

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January? $ 600 $ 500 $ 620 $ 720

B

A company receives an invoice that indicates that, as the buyer, they must pay the transportation costs of delivering the merchandise. Which of the following will most likely be noted as the delivery terms? A) FOB destination B) FOB shipping point C) FOB 2/10 n/30 D) None of the above

B

A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10 net/30. Which of the following entries would be made to record payment for the inventory if the payment is made within 10 days? A) The accounting entry would be a $1,000 debit to Accounts payable and a $1,000 credit to Cash. B) The accounting entry would be a $1,000 debit to Accounts payable, a $20 credit to Inventory and a $980 credit to Cash. C) The accounting entry would be a $20 debit to Inventory, a $1,000 debit to Accounts payable and a $1,020 credit to Cash. D) The accounting entry would be a $980 debit to Accounts payable, a $20 debit to Inventory and a $1,000 credit to Cash.

B

At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a market value of $5,800. The adjustment to write down inventory to market value would include: a. A debit to inventory for $5,800. b. A credit to inventory for $700. c. A debit to cost of goods sold for $5,800. d. A credit to cost of goods sold for $700.

B

FOB Shipping Point" means that: A) the seller normally pays the transportation costs. B) the buyer normally pays the transportation costs. C) both A and B are true. D) neither A nor B are true.

B

Katie Malls has the following inventory transactions for the year: Date Transaction Number of units Unit cost Total cost Jan. 1 Beginning inventory 20 $35 $ 700 Apr. 8 Purchase 50 40 2,000 $2,700 Jan. 1 - Dec. 31 Total sales to customers 60 What amount would Madison report for cost of goods sold using LIFO under a periodic inventory system? a. $2,100 b. $2,350 c. $2,300 d. $2,400

B

Niles Co. has the following data related to an item of inventory: Inventory, March 1 100 units @ $2.10 Purchase, March 7 350 units @ $2.20 Purchase, March 16 70 units @ $2.25 Inventory, March 31 130 units 16. The value assigned to ending inventory if Niles uses LIFO is a. $290. b. $276. c. $273. d. $292.

B

Referring to the following table, what is Gross profit? Sales revenue $460,000 Cost of goods sold 300,000 Operating expenses 85,000 Sales discounts 20,000 Sales returns and allowances 15,000 Interest revenue 5,000 A) $ 90,000 B) $125,000 C) $140,000 D) $160,000

B

Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error? a. Overstate net income. b. Understate net income. c. Have no effect on net income. d. Not possible to determine with information given.

B

The correct equation (COGS model) that applies to the computation of cost of goods sold is Beginning inventory - purchases + ending inventory = cost of goods sold. Beginning inventory + purchases - ending inventory = cost of goods sold. Beginning inventory + purchases + ending inventory = cost of goods sold. None of the above.

B

When a periodic inventory system and the FIFO method are used, which of the following is correct? The inventory account will be continuously updated. The amount of cost of goods sold will be the same under a perpetual system and the FIFO method. The cost of goods sold account will be debited for the cost of each sale made. The amount of ending inventory will be larger under a perpetual system and the FIFO method

B

Which level of profitability is considered profit from normal operations? Gross profit Operating income Income before taxes Net income

B

Which of the following is subtracted from Net sales revenue to arrive at Gross profit? A) Cost of goods available for sale B) Cost of goods sold C) Sales discounts and sales returns and allowances D) Operating expenses

B

#10 - JDC purchased inventory for $5000 and also paid a $300 freight in bill. JDC returned half the goods to the seller and later took a 2% purchase discount. What is JDC's cost of the inventory that it kept? A) $2700 B) $2800 C) $2750 D) $2500

C

3. Regan Corporation's December 31, 2015, ending inventory was understated by $42,000. What effect will this understatement have on total assets and net income for 2015? Assets Net income A understate No effect B No effect No effect C understate understate D No effect overstate

C

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the LIFO method if 120 units were sold in January? $ 600 $ 500 $ 700 $ 720

C

A company uses the perpetual inventory method. Which of the following entries would be made to record a purchase of inventory on account? A) The accounting entry would be a debit to Purchases and a credit to Accounts payable. B) The accounting entry would be a debit to Accounts payable and a credit to Purchases. C) The accounting entry would be a debit to Inventory and a credit to Accounts payable. D) The accounting entry would be a debit to Accounts payable and a credit to Inventory.

C

How does the buyer's accountant record transportation charges on a shipment labeled FOB shipping point, and who pays the charges? The charges were paid with cash. A) No entry is made, because the seller pays the shipping charges. B) Debit Transportation Expense, Credit cash, because the buyer pays the shipping charges. C) Debit Inventory, Credit cash, because the buyer pays the shipping charges. D) Debit Sales Revenue, Credit cash, because the buyer pays the shipping charges.

C

Samson Company had the following balances and transactions during 2015. January 1 Beginning inventory: 20 units at $70 each March 10 Purchased 10 units at $80 each June 10 Sold 23 units for $100 each December 31 Replacement cost: $75 each 9) What would Samson Company's inventory amount be on December 31, 2015 if the FIFO method was used with lower of cost or market? A) $490 B) $510 C) $525 D) $560

C

Using LIFO what is Gross Margin to the nearest $? a. $ 54,600 b. $ 28,470 c. $ 28,950 d. $ 25,452

C

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising? a. Specific identification. b. First-in, first-out (FIFO). c. Last-in, first-out (LIFO). d. Average cost.

C

Which of the following assets does a merchandising company—but NOT a service company—need? A) Accounts receivable B) Prepaid insurance C) Merchandise inventory D) Equipment

C

A company uses the perpetual inventory method. Which of the following entries would be made to record a sale of merchandise on account? A) The accounting entry would be a debit to Accounts receivable and a credit to Sales revenue. B) The accounting entry would be a debit to Sales revenue and a credit to Accounts receivable. C) The accounting entry would be a debit to Cost of goods sold and a credit to Inventory. D) Both A and C would be necessary to record the sale.

D

At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold? a. $8,200 b. $17,800 c. $20,000 d. $22,200

D

At the end of the year, a company reports the following inventory amounts ($ per unit): Item # of Units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6 The amount to report for ending inventory using the lower of cost and net realizable value is: $1,600 $1,700 $2,000 $1,300

D

Merchandising consists of: A) buying products. B) providing a service. C) selling products. D) both buying and selling products.

D

Samson Company had the following balances and transactions during 2015. January 1 Beginning inventory: 20 units at $70 each March 10 Purchased 10 units at $80 each June 10 Sold 23 units for $100 each 8) What would Samson Company's inventory amount be on December 31, 2015 if the FIFO method was used? A) $490 B) $510 C) $525 D) $560

D

The value assigned to cost of goods sold if Niles uses FIFO is a. $290. b. $276. c. $862. d. $848.

D

Under a perpetual inventory system, which of the following would not be required? A) A tracking of the receipt of inventory B) A tracking of the payment of inventory C) A tracking of the cost of goods sold D) A weekly counting of the inventory

D

Under a perpetual inventory system: a. Cost of good sold is recorded with a period-end adjusting entry. b. Purchase discounts are not recorded. c. Inventory purchases are recorded only at the end of the period. d. Cost of goods sold is recorded with each sale.

D

What is Freight-out? A) Transportation costs to ship goods into the warehouse B) Inventory costs C) Costs that are not expensed D) Transportation costs to ship goods out of the warehouse

D

Which of following best describes a merchandising company? a. A company whose revenues exceed expenses. b. A company that produces products from raw materials, labor, and overhead. c. A company that provides services to its customers. d. A company that purchases products that are primarily in finished form for resale to customers.

D

Which of the following inventory accounts consists of items for which the manufacturing process is complete? Raw Materials Work-In-Process Cost of Goods Sold Finished Goods

D

Which of the following is subtracted from Gross profit to arrive at Operating income? A) Cost of goods available for sale B) Cost of goods sold C) Sales discounts and sales returns and allowances D) Operating expenses

D

Which of the following levels of profitability in a multiple-step income statement represents all revenues less all expenses? a. Gross profit. b. Operating income. c. Income before income taxes. d. Net income.

D