Ch. 5 accounting test 2 video questions

All other things being equal, the profitability is maximized when a company sells inventory with 1. a high gross margin per unit and a high inventory turnover 2. a high gross margin per unit and a low inventory turnover 3. a low gross margin per unit and a high inventory turnover 4. a low gross margin per unit and low inventory turnover

1

The gross margin method of estimating ending inventory is frequently used 1. to avoid having to take a physical count of the inventory on hand 2. to check the accuracy of a physical count of inventory on hand 3. to determine the balance of the inventory shown on the balance sheet 4. to determine the amount of cost of goods available for sale shown on the statement of cash flows

2

To avoid the risk of fraud associated with inventory manipulation 1. the company chief executive officer (CEO) should supervise the counting of inventory 2. the employee in charge of counting inventory should be different from the employee in charge of recording inventory transactions 3. companies should not sell inventory 4. all inventory must be counted by government regulators

2

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment? 1. Fifo 2. LIFO 3. weighted average 4. NIFO

2

Which of the following industries is likely to have the highest number of days to sell inventory? 1. grocery stores 2. wine producers 3. fast food restaurants 4. discount retail stores

2

Which of the following statements is true? 1. a low inventory turnover ratio produces a low number of days to collect inventory 2. a high inventory turnover rate produces a low number of days to collect inventory 3. a high inventory turnover rate produces a high number of days to collect inventory 4. the inventory turnover rate is not related to the number of days to collect inventory

2

A key component of estimating the amount of ending inventory is to determine the gross margin percentage for prior years. The gross margin percentage is calculated by 1. dividing net income by net sales 2. dividing net sales by net income 3. dividing gross margin by net sales 4. dividing net sales by gross margin

3

Assume that the amount of ending inventory is overstated in Year 1. Further assume the overstatement in Year 1 is not discovered and the ending inventory in Year 2 is reported accurately. Under these circumstances, 1. cost of goods sold in year 2 will be understated 2. total assets in year 2 will be understated 3. the year 2 ending balance in retained earnings will be accurate 4. none of the above are correct

3

If the amount of ending inventory is overstated, the amount of 1. net income will be understated 2. liabilities will be overstated 3. cost of goods sold will be understated 4. cash flow from operating activities will be overstated

3

The journal entry to recognize the write down of inventory based on the lower of cost or market rule will 1. decrease the amount of liabilities 2. decrease the cash flow from operating activities 3. increase the amount of expenses 4. increase the amount of assets

3

Which of the following formulas is used to calculate the number of days to sell inventory? 1. inventory turnover/365 2. inventory turnover *365 3. 365/inventory turnover 4. 365*gross margin

3

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be

30

In Year 1 Pepper Company reported a $40,000 gross margin on $200,000 of sales revenue. In Year 2 Pepper's accounting records showed sales revenue of $220,000 and cost of goods available for sale of $210,000. Using the gross margin method of estimating inventory, the estimated amount of ending inventory for Year 2 is

34000

The following information was drawn from the inventory records of Alpha Company as of December, Year 2. beginning-200 @ $5 purchases made - 800 @ $8 units sold- 900 @ 12 Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a LIFO cost flow method?

3900

If the amount of ending inventory is overstated, the amount of 1. net income will be overstated 2. total assets will be overstated 3. retained earnings will be overstated 4. all of the answers are correct

4

Which of the following formulas is used to calculate the inventory turnover ratio? 1. inventory/cost of goods sold 2. inventory/net sales 3. net income/inventory 4. cost of goods sold/inventory

4

The following information was drawn from the inventory records of Alpha Company as of December, Year 2. beginning 200@ $5 purchases made 800@ $8 units sold 900 @ 12 Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a weighted average cost flow method?

4140

The following information was drawn from the inventory records of Alpha Company as of December 31, Year 2. Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method? beginning- 200@ $5 purchases made in year- 800 @$8 units sold- 900 @ 12

4200

The following information was drawn from the inventory records of Preston Company. beginning - 100 @ 10 first purchase- 400 @ 12 second purchase- 500 @ 14 total sold 950 @ 15 Based on this information, which of the following represents the amount of ending inventory appearing on the balance sheet assuming a LIFO

500

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be

9

true or false GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value. This statement is

false

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. When the Company sold one of the items for $40, it expensed $30 to its cost of goods sold account. Based on this information which of the following cost flow methods is the company using?

fifo

Inventory turnover = Cost of goods sold ÷ Average inventory

inventory turnover formula

true or false Because of its size, cost of goods sold normally has a significant impact on the amount of net income that is reported on the income statement. Since the reported balance in the inventory account has a direct effect on the amount of cost of goods sold, inventory manipulation is a target for unscrupulous managers seeking to control the amount of reported earnings. These statements are

true

true or false The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method. This statement is

true