Exam 2
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