Accounting TEST 4 study guide
The recording of a sale requires a a. credit to a sales account and a debit to an asset account. b. debit to Cash and a credit to Owner's Capital. c. debit to a sales account and credit to an asset account. d. credit to Sales Revenue and a debit to Sales Discounts.
Answer a.
Which of the following would not be considered an operating expense? a. Cost of goods sold b. Rent expense c. Freight-out d. Office expense
Answer a.
A retail company has goods available for sale of $300,000 at retail and $210,000 at cost, and ending inventory of $80,000 at retail. What is the estimated cost of goods sold? a. $220,000 b. $154,000 c. $210,000 d. $56,000
Answer b.
When a company uses the perpetual method of accounting for inventories the a. Inventory account does not change until the end of the year. b. Inventory account is debited when inventory is purchased and Cost of Goods Sold is debited when inventory is sold. c. sale of inventory requires a credit to Cost of Goods Sold. d. acquisition of merchandise requires a debit to Purchases.
Answer b.
Double-counting an inventory item at year end will result in a. understated tax liability. b. overstated cost of goods sold. c. overstated net income. d. understated beginning inventory for the next period.
Answer c.
The cost flow method that results in the lowest income taxes when prices are rising is a. average cost. b. FIFO. c. LIFO. d. specific identification.
Answer c.
Sales Discounts a. is a contra revenue account. b. has a normal debit balance. c. appears on the income statement. d. all of the above.
Answer d.
The data below are for Parrett Enterprises: Beginning inventory 150 units at $2.00 Purchase—August 375 units at $1.50 Purchase—October 150 units at $3.00 A periodic inventory system is used; ending inventory is 330 units. What is the ending inventory under FIFO? a. $570 b. $743 c. $593 d. $720
Answer d.
Which method might be used to estimate inventory costs when physical inventories are not taken? a. First-in, first-out b. Last-in, first-out c. Average cost method d. Gross profit method
Answer d.
Which of the following is reported on both a multiple-step and a single-step income statement? a. Gross profit b. Income from operations c. Other revenues and gains d. Net sales
Answer d.
The cost of goods sold is determined only at the end of the accounting period under a perpetual inventory system. True False
False companies keep detailed records of the cost of each inventory purchase and sale. These records continuously—perpetually—show the inventory that should be on hand for every item.
In the balance sheet, inventory is reported as a current asset immediately below accounts receivable. True False
True
Measuring net income for a merchandising company is conceptually the same as for a service company. True False
True
Merchandising companies report nonoperating activities in the income statement immediately after the company's primary operating activities. True False
True
Sales Discounts is a contra revenue account and has a debit balance. True False
True
The gross profit method estimates the cost of ending inventory by applying a gross profit rate to net sales. True False
True
The retail inventory method and the gross profit method are both methods of inventory estimation. True False
True
Under the LCM basis, market is defined as current replacement cost, not selling price. True False
True
When prices are rising, FIFO results in a higher ending inventory than LIFO. True False
True
A customer may receive a sales discount for goods that are damaged or defective. True False
False
Cost of goods purchased less the ending inventory equals cost of goods sold. True False
False
Goods in transit would be included in the ending inventory of the buyer and the seller. True False
False
In a single-step income statement, gross profit and operating income are shown on the income statement. True False
False
Income from operations is determined by subtracting other expenses and losses from gross profit. True False
False
The LIFO method assumes that the earliest goods purchased are the first to be sold. True False
False
The inventory turnover is computed by dividing the cost of goods sold by the ending inventory. True False
False
Under the perpetual inventory system, the purchase of merchandise is recorded with a debit to the Purchases account. True False
False
We can use the LIFO inventory method only if we know that the newest units are always sold first. True False
False
When beginning inventory is understated, net income will be understated. True False
False