Chapter 5, 6

A company just starting business made the following inventory transactions in August: Purchase on August 1 300 units $1,560 Sale on August 8 200 units 3,400 Purchase on August 12 400 units 1,340 Sale on August 24 350 units 5,950 Using the average cost perpetual inventory method, how much is the average cost of the units sold on August 24? a. $3.72 b. $9.80 c. $4.28 d. $4.14

a. $3.72

Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold? a. $35,000 b. $25,000 c. $45,000 d. $15,000

a. $35,000

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos' days in inventory? a. 121.7 days b. 102.5 days c. 84.5 days d. 73 days

a. 121.7 days

The following information was available for Camara Company at December 31, 2017: beginning inventory $8; ending inventory $12; cost of goods sold $63; and sales $90. Camara's days in inventory in 2017 was a. 40.6 days. b. 46.2 days. c. 57.9 days. d. 68.9 days.

c. 57.9 days.

The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio for 2017? a. 3.75 times b. 3.0 times c. 6.0 times d. 2.5 times

c. 6.0 times

The accounting records of Shumway Ag Implement show the following data. Beginning inventory 4 units at $3 Purchases 6 units at $4 Sales 7 units at $12 Determine the cost of goods sold during the period under a periodic system using FIFO.

$24

The accounting records of Shumway Ag Implement show the following data. Beginning inventory 40 units at $3 = $120 Purchases 60 units at $4 = $240 Sales 70 units at $12 Determine the cost of goods sold during the period under a periodic system using average cost.

$252

The accounting records of Shumway Ag Implement show the following data. Beginning inventory 4 units at $3 Purchases 6 units at $4 Sales 7 units at $12 Determine the cost of goods sold during the period under a periodic system using LIFO.

$27

Ending inventory plus the cost of goods purchased equals cost of goods available for sale. True/False

False

The primary source of revenue for a merchandising company results from performing services for customers. True/False

False

What does "FOB" stand for?

Free on Board

Sales revenue less cost of goods sold equals gross profit. True/False

True

The operating cycle of a service company is usually shorter than that of a merchandising company. True/False

True

Beginning inventory is $12,000: purchases are $34,000: sales revenue are $60,000: and cost of goods sold is $31,000. How much is ending inventory? a. $15,000 b. $14,000 c. $31,000 d. $46,000

a. $15,000

A company has the following account balances: Sales revenue $2,000,000: Sales Returns and Allowances $250,000: Sales Discounts $50,000: and Cost of Goods Sold $1,275,000. How much is the gross profit rate? a. 36% b. 25% c. 51% d. 64%

b. 25%

Which of the following statements about a periodic inventory system is true? a. Companies determine cost of goods sold only at the end of the accounting period. b. The periodic system provides better control over inventories than a perpetual system. c. The increased use of computerized systems has increased the use of the periodic system. d. Companies continuously maintain detailed records of the cost of each inventory purchase and sale.

a. Companies determine cost of goods sold only at the end of the accounting period.

The cost flow method that often parallels the actual physical flow of merchandise is the: a. FIFO method. b. LIFO method. c. average cost method. d. gross profit method.

a. FIFO method.

Which of the following should not be included in the inventory of a company using IFRS? a. Goods held on consignment from another company. b. Goods shipped on consignment to another company. c. Goods in transit from another company shipped FOB shipping point. d. None of the above.

a. Goods held on consignment from another company.

Which is true if the ending inventory is overstated? a. Net income will be overstated and the stockholders' equity will be overstated. b. Net income will be understated and the stockholders' equity will be understated. c. Net income will be understated and the stockholders' equity will be overstated. d. Net income will be overstated and the stockholders' equity will be understated.

a. Net income will be overstated and the stockholders' equity will be overstated.

Under a perpetual inventory system, acquisition of merchandise for resale is debited to a. the Inventory account. b. the Purchases account. c. the Supplies account. d. the Cost of Goods Sold account.

a. the Inventory account.

Manufactured inventory that has begun the production process but is not yet completed is a. work in process. b. raw materials. c. merchandise inventory. d. finished goods.

a. work in process.

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system? a. $440,000 b. $390,000 c. $420,000 d. $410,000

b. $390,000

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase? a. $3,864 b. $4,074 c. $4,200 d. $3,780

b. $4,074

In 2017, a company shows inventory of $250,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $40,000 and $30,000 in 2017 and 2016, respectively. How much is the company's LIFO reserve in 2017? a. $70,000 b. $40,000 c. $10,000 d. $30,000

b. $40,000

At December 31, 2017, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following: • $112,000 in inventory purchases made by Sunrise shipped from the seller December 27, 2016 terms FOB destination, but not due to be received until January 2, 2017 • $74,000 in goods sold by Sunrise with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6, 2017 • $6,000 of goods received on consignment from Wallwood Company What is Sunrise's correct ending inventory balance at December 31, 2017? a. $746,000 b. $634,000 c. $560,000 d. $640,000

b. $634,000

Nelson Corporation sells three different products. The following information is available on December 31: Item Units Cost per unit Market value per unit X 30 $4.00 $3.50 Y 60 $2.00 $1.50 Z 150 $3.00 $4.00 When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory balance be? a. $690 b. $645 c. $795 d. $660

b. $645

Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000: ending inventory $11,600: beginning inventory $17,200: purchases $60,400: purchases discounts $3,000: purchase returns and allowances $1,100: freight-in $600: freight-out $900. Calculate the cost of goods available for sale. a. $69,400 b. $74,100 c. $56,900 d. $197,700

b. $74,100

Financial information is presented below: Operating expenses $28 Sales returns and allowances 7 Sales discounts 3 Sales revenue 150 Cost of goods sold 98 The gross profit rate would be a. .35 b. .30 c. .70 d. .28

b. .30 Net Sales = ($150-7-3) = $140 Gross Profit = ($140-$98) = $42 Gross Profit Rate = $42 / $140 = 30%

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin? a. 16% b. 20% c. 79% d. 75%

b. 20%

Which of the following would affect the gross profit rate if sales remain constant? a. A decrease in depreciation expense b. An increase in cost of goods sold c. A decrease in insurance expense d. An increase in advertising expense

b. An increase in cost of goods sold

Which of the following statements is true? a. GAAP dictates the method of inventory costing method a company must use. b. Company management selects the method of inventory costing method a company will use. c. The IRS dictates the method of inventory costing method a company must use. d. The SEC dictates the method of inventory costing method a company must use.

b. Company management selects the method of inventory costing method a company will use.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period? a. It will have no effect on the net income of the next accounting period. b. It will have the reverse effect on the net income during the next accounting period. c. If net income was overstated in the current period, it will be overstated in the next period. d. Cannot be determined from the information given.

b. It will have the reverse effect on the net income during the next accounting period.

In a period of falling prices, which of the following methods will give the largest net income? a. Specific identification b. LIFO c. FIFO d. Average-cost

b. LIFO

A company just starting business made the following purchases in August: August 1 300 units $1,560 August 12 400 units 2,340 August 24 400 units 2,520 August 30 300 units 1,980 1,400 units $8,400 A physical count of the inventory on August 31 reveals that there are 500 units on hand. What inventory method produces the lowest gross profit for August? a. Average cost method b. LIFO method c. FIFO method d. Not determinable

b. LIFO method

In a period of inflation, the cost flow method that results in the lowest income taxes is the: a. FIFO method. b. LIFO method. c. average cost method. d. gross profit method.

b. LIFO method.

Fran Company's ending inventory is understated by $4,000. What are the effects of this error on the current year's cost of goods sold and net income, respectively? a. Understated and overstated b. Overstated and understated c. Overstated and overstated d. Understated and understated

b. Overstated and understated

Which of the following items does not result in an entry to the Inventory account under a perpetual system? a. A purchase of merchandise b. Payment of freight costs for goods shipped to a customer c. Payment of freight costs for goods received from a supplier d. A return of Inventory to the supplier

b. Payment of freight costs for goods shipped to a customer

How do the results under FIFO in a perpetual system compare to the results using a periodic system? a. There is not enough information to determine the answer. b. They are the same. c. FIFO cost of goods sold is higher using a perpetual system. d. FIFO cost of goods sold is higher using a periodic system.

b. They are the same.

The cost of goods sold is determined and recorded each time a sale occurs in: a. periodic inventory system only. b. a perpetual inventory system only. c. both a periodic and perpetual inventory system. d. neither a periodic nor perpetual inventory system.

b. a perpetual inventory system only.

Understating ending inventory will overstate: a. assets. b. cost of goods sold. c. net income. d. owner's equity.

b. cost of goods sold.

The factor which determines whether or not goods should be included in a physical count of inventory is a. physical possession. b. legal title. c. management's judgment. d. whether or not the purchase price has been paid.

b. legal title.

Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system? a. $113,000 b. $99,000 c. $100,000 d. $108,000

c. $100,000

Grape Gratuities Company has the following inventory data: July 1 Beginning inventory 4 units at $20 $80 July 7 Purchases 14 units at $21 $294 July 22 Purchases 2 units at $22 $44 A physical count of merchandise inventory on July 30 reveals that there are 5 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is: a. $117. b. $101. c. $107. d. $110.

c. $107.

A company just starting business made the following inventory transactions in August: Purchase on August 1 300 units $1,560 Sale on August 8 200 units 3,400 Purchase on August 12 400 units 1,340 Sale on August 24 350 units 5,950 Using the LIFO inventory method, how much is cost of goods sold for August using a perpetual inventory system? a. $2,120 b. $9,350 c. $2,212.50 d. $6,450

c. $2,212.50

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2017. This count did not take into consideration the following transactions: • Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. • Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report. a. $230,00 b. $193,000 c. $215,000 d. $228,000

c. $215,000

Yang Company purchased 2,000 phones and has 400 phones in its ending inventory at a cost of $90 each and a current replacement cost of $80 each. The net realizable value of each phone in the ending inventory is $70. The ending inventory under lower-of-cost-or-net realizable value is: a. none of these. b. $36,000. c. $28,000. d. $32,000.

c. $28,000.

A company just starting business made the following purchases in August: August 1 300 units $1,560 August 12 400 units 2,340 August 24 400 units 2,520 August 30 300 units 1,980 1,400 units $8,400 A physical count of the inventory on August 31 reveals that there are 500 units on hand. Using the FIFO inventory method in a perpetual inventory system, how much is the value of the ending inventory on August 31? a. $2,730 b. $5,160 c. $3,240 d. $5,670

c. $3,240

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23? a. $735 b. $700 c. $686 d. $650

c. $686

Units Unit Cost Inventory, Jan. 1 5,000 $8 Purchase, April 15,000 10 Purchase, Aug. 28 20,000 12 If Davidson has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system? a. $56,000 b. $70,000 c. $75,250 d. $84,000

c. $75,250

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment? a. Cash 1,800 Sales Returns and Allowances 500 Accounts Receivable 1,300 b. Cash 1,764 Accounts Receivable 1,764 c. Cash 1,274 Sales Discount 26 Accounts Receivable 1,300 d. Cash 1,800 Sales Discount 36 Accounts Receivable 1,764

c. Cash 1,274 Sales Discount 26 Accounts Receivable 1,300

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system? a. Cost of goods sold account b. Freight-in account c. Freight-out account d. Inventory

c. Freight-out account

What is true about who owns goods in transit and consigned goods under GAAP and IFRS? a. GAAP allows goods in transit to be included in inventory, while IFRS does not. b. IFRS does not allow work in process to be considered as part of inventory. c. GAAP and IFRS agree on this issue. d. GAAP allows consigned goods to be included in inventory, while IFRS does not.

c. GAAP and IFRS agree on this issue.

Which of the following should not be included in the inventory of a company using IFRS? a. Goods in transit from another company shipped FOB shipping point. b. None of the these. c. Goods held on consignment from another company. d. Goods shipped on consignment to another company.

c. Goods held on consignment from another company.

Which of the following is true of the FIFO inventory method? a. It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold. b. It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. c. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold. d. It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory.

c. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Which method of inventory costing is prohibited under IFRS? a. Specific identification. b. FIFO. c. LIFO. d. Average-cost.

c. LIFO.

Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? a. A purchase of merchandise. b. A return of merchandise inventory to the supplier. c. Payment of freight costs for goods shipped. d. Payment of freight costs for goods received from a supplier.

c. Payment of freight costs for goods shipped.

The entry to record the receipt of payment within the discount period on a sale of $900 with terms of 2/10, n/30 will include a a. credit to Sales Discounts for $18. b. debit to Sales Revenue for $882. c. credit to Accounts Receivable for $900. d. credit to Sales Revenue for $900.

c. credit to Accounts Receivable for $900.

Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system? a. $117,000 b. $108,000 c. $99,000 d. $113,000

d. $113,000

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold? a. $15,000 b. $35,000 c. $60,000 d. $40,000

d. $40,000

A company has the following balances: Sales revenue $312,000: Sales Returns and Allowances $2,000: Sales Discounts $4,000: Cost of Goods Sold $184,000: Operating Expenses $84,000. How much is the profit margin? a. 12.2% b. 16.0% c. 41.0% d. 12.4%

d. 12.4%

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin? a. 79% b. 75% c. 16% d. 20%

d. 20%

During the year ended December 31, 2017, State Street Corporation had the following results: Sales revenue $267,000: cost of goods sold $107,000: net income $92,400: operating expenses $55,400: net cash provided by operating activities $108,950. How much is the company's profit margin? a. 60.0% b. 20.5% c. 40.0% d. 34.6%

d. 34.6%

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate? a. 75.0% b. 20.0% c. 26.7% d. 46.7%

d. 46.7%

The following information came from the income statement of the Wilkens Company at December 31, 2017: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. Inventory turnover is 6 times per year. What is Wilkens' days in inventory for 2017? a. 121.7 days b. 146 days c. 97.3 days d. 60.8 days

d. 60.8 days

Which of the following statements is correct? a. A periodic inventory system computes cost of goods sold each time a sale occurs. b. A periodic inventory system provides better control over inventories than does a perpetual inventory system. c. A perpetual inventory system computes cost of goods sold only at the end of the accounting period. d. A perpetual inventory system provides better control over inventories than does a periodic inventory system.

d. A perpetual inventory system provides better control over inventories than does a periodic inventory system.

The journal entry to record a credit sale ignoring cost of goods sold is a. Cash Sales Revenue b. Cash Service Revenue c. Accounts Receivable Sales Returns and Allowances d. Accounts Receivable Sales Revenue

d. Accounts Receivable Sales Revenue

Which factor would not affect the gross profit rate? a. An increase in the sale of luxury items b. An increase in the use of "discount pricing" to sell merchandise c. An increase in the price of inventory items d. An increase in the cost of heating the store

d. An increase in the cost of heating the store

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system? a. Accounts Payable 80.00 Cash 78.40 Purchase Discounts 1.60 b. Cash 78.40 Purchase Discounts 1.60 Accounts Payable 80.00 c. Cash 98.00 Sales Discounts 2.00 Accounts Receivable 100.00 d. Cash 78.40 Sales Discounts 1.60 Accounts Receivable 80.00

d. Cash 78.40 Sales Discounts 1.60 Accounts Receivable 80.00

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21? a. Debit to Accounts Payable for $2,000 b. Debit to Cash for $1,600 c. Credit to Accounts Payable for $1,600 d. Credit to Cash for $1,600

d. Credit to Cash for $1,600

Which of the following companies would be most likely to use a perpetual inventory system? a. Grain company b. Beauty salon c. Clothing store d. Fur dealer

d. Fur dealer

Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count? a. Goods in transit to Reeves, FOB destination b. Goods that Reeves is holding on consignment for Parker Company c. Goods in transit that Reeves has sold to Smith Company, FOB shipping point d. Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due

d. Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting: a. Purchases b. Purchase Returns c. Purchase Allowance d. Inventory

d. Inventory

Which statement is true for the seller? a. The Sales Discounts account is credited for defective merchandise returned by a customer. b. The Sales Discounts account is debited for defective merchandise returned by a customer. c. The Sales Returns and Allowances account is credited for defective merchandise returned by a customer. d. The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

d. The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

Which statement is true when recording the sale of goods for cash in a perpetual inventory system? a. Only one journal entry is necessary. It will record cost of goods sold and reduce of inventory. b. Two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the the cost of goods sold and sales revenue. c. Only one journal entry is necessary. It will record the receipt of cash and sales revenue. d. Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

d. Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

The entry to record a sale of $1,800 with terms of 2/10, n/30 will include a a. debit to Sales Discounts for $36. b. debit to Sales Revenue for $1,764. c. credit to Accounts Receivable for $1,800. d. credit to Sales Revenue for $1,800.

d. credit to Sales Revenue for $1,800.

A merchandiser will earn an operating income of exactly $0 when a. net sales equals cost of goods sold. b. cost of goods sold equals gross margin. c. operating expenses equal net sales. d. gross profit equals operating expenses.

d. gross profit equals operating expenses.