CHAPTER 5/6

During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold? A. Any method in which the company uses a periodic inventory system B. FIFO C. LIFO D. Weighted Average Cost

FIFO

Which inventory costing method results in the highest inventory balance during a period of rising prices? A. Weighted average cost B. FIFO C. LIFO D. Both FIFO and LIFO result in the same inventory balance

FIFO

Which inventory costing method results in the lowest income tax expense during a period of decreasing prices? A. FIFO B. LIFO C. Specific Identification D. Weighted Average Cost

FIFO

Which method assigns the cost of the most recent items purchased to ending inventory? A. Specific identification B. Weighted average cost C. FIFO D. LIFO

FIFO

The inventory account a manufacturer uses to record the cost of products completed and available for sale is called A. Raw materials inventory B. Work in process inventory C. Finished goods inventory D. Merchandise inventory

FINISHED GOODS INVENTORY

Texas Inc. sold merchandise to Flange Corp. on December 28, 2013, with shipping terms of FOB destination. Flange Corp. received the merchandise on January 3, 2014. Which one of the following statements is true? A. Texas should record sales revenue on December 28, 2013. B. Flange Corp. should pay the transportation costs. C. Flange Corp. should include the merchandise in its inventory at December 31, 2013. D. Flange Corp. should record a liability for the purchase on January 3, 2014.

FLANGE CORP SHOULD RECORD A LIABILITY FOR THE PURCHASE ON JANUARY 3, 2014

Grout, Inc. offers terms of 2/10, n/30 to credit customers. Tile Mart Corp. purchased 100 tile cutters with a list price of $20 each on March 5, 2014, on account. Tile Mart Corp. paid the invoice on March 31, 2014. How much sales discount will Grout recognize? A.$ -0- B.$ 40 C. $ 200 D. $ 236

$0

Asago Co. sold merchandise to Health Co. on account, $18,000, terms 2/15, net 45. The cost of the merchandise sold is $15,500. Asago Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The Health Co. paid the invoice within the discount period. What is amount of net sales from the above transactions? A. $16,250 B. $14,100 C. $15,925 D. $13,818

$15,925

Grout, Inc. offers terms of 2/10, n/30 to credit customers. Tile Mart Corp. purchased 100 tile cutters with a list price of $20 each on March 5, 2014, on account. If Tile Mart Corp. pays the amount of the invoice for its purchase on March 14, 2014, how much cash will Grout receive from Tile Mart Corp.? A. $1,764 B. $1,800 C. $1,960 D. $2,000

$1960

Klein's Shoe Company uses a perpetual inventory system. The beginning balance in its inventory account is $1,500 and the ending balance is $1,000. Cost of goods sold is $6,500. What was the amount of inventory purchased during the year? A.$ 500 B. $6,000 C. $7,000 D. $7,500

$6000

If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO? A. There would be no tax savings. B.$ 800 C. $ 1,200 D. $ 2,000

$800

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to A. $12,670 B. $9,070 C. $8,420 D. $17,230

$9070

Which one of the following is not a cash equivalent? A. 30-day certificate of deposit B. 60-day commercial paper C. 90-day U. S. treasury bill D. 180-day note issued by a local or state government

180 DAY NOTE ISSUED BY A LOCAL OR STATE GOVERNMENT

A company began the year with $150,000 in inventory and ended the year with $170,000 in inventory. Cost of goods sold for the year amounted to $960,000. Assuming 360 days in a year, how long, on average, does it take the company to sell its inventory (to the nearest day)? A. 6 days B. 60 days C. 120 days D. 3 days

60 DAYS

Which one of the following items is not included in cash? A. A bank certificate of deposit for one year B. A savings account at the bank C. A checking account at the bank D. All of the above are included in cash

A BANK CERTIFICATE OF DEPOSIT FOR ONE YEAR

Which one of the following statements best describes the term "outstanding check?" A. A check written by the company and presented to the bank for payment. B. A check written by the company but not yet presented to the bank for payment. C. A check written by a customer that has been presented to the bank for payment. D. A check written by a customer that has not yet been presented to the bank for payment.

A CHECK WRITTEN BY THE COMPANY BUT NOT YET PRESENTED TO THE BANK FOR PAYMENT

Sales Discounts is classified as what type of account? A. an expense B. a revenue C. a contra-asset D. a contra-revenue

A CONTRA-REVENUE

Which one of the following statements is false? A. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system. B. The inventory account is updated only at the end of the accounting period under the periodic inventory system. C. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system. D. A purchases account is used only under the periodic inventory system.

A COST OF GOODS SOLD ACCOUNT IS UPDATED AFTER EACH SALE OF MERCHANDISE UNDER THE PERIODIC INVENTORY SYSTEM

Sunset, Inc. purchased merchandise from Rumble Music Company on June 5, 2014. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due on June 13, 2014. If Sunset uses the periodic inventory system, the effect of recording the payment on June 13, 2014, will include A. A decrease to Purchases for $15,000. B. An increase to Inventory for $14,850. C. A decrease to Cash for $15,000. D. A decrease to Accounts Payable for $15,000.

A DECREASE TO ACCOUNTS PAYABLE FOR $15,000

When an inventory system updates the Inventory account at the time of each sale, this is known as: A. a periodic system B. a contra-purchase system C. a perpetual system D. an accrual system

A PERPETUAL SYSTEM

Which one of the following statements is true? A. The flow of inventory costs should match the physical flow of the merchandise. B. Accounting standards require that merchandise costs be specifically traced to units left in inventory and to units that have been sold C. Accountants have developed methods which make assumptions concerning how costs should be assigned to inventory and cost of goods sold. D. Alternative inventory cost flow assumptions have the same effect on the amount of net income reported.

ACCOUNTANTS HAVE DEVELOPED METHODS WHICH MAKE ASSUMPTIONS CONCERNING HOW COSTS SHOULD BE ASSIGNED TO INVENTORY AND COST OF GOODS SOLD

A customer returned damaged goods for credit. Which of the seller's accounts decreases? A. Purchase Returns B. Accounts Receivable C. Sales Returns D. Sales Revenue

ACCOUNTS RECEIVABLE

Accountants should be aware that LIFO liquidations can potentially result in which of the following? A. If older less costly layers are liquidated, a correspondingly lower cost of goods sold will result. B. If older less costly layers are liquidated, a correspondingly higher gross profit will result. C. If older less costly layers are liquidated, the company may be faced with higher taxes for those deferred in previous periods. D. All of these could result.

ALL OF THESE COULD RESULT.

In a periodic inventory system, the cost of purchases is recognized as A. An integral part of the calculation of cost of goods sold B. The only part of the calculation of cost of goods sold C. An increase in the inventory account D. An increase in an asset account

AN INTEGRAL PART OF THE CALCULATION OF COST OF GOODS SOLD

Payment for the acquisition of inventories is shown on the statement of cash flows as A. An operating activity B. An investing activity C. A financing activity D. Either an operating activity or a financing activity

AN OPERATING ACTIVITY

A company fails to record one storeroom full of inventory in its year-end inventory records. As a result, this will cause: A. an overstatement of inventory on the year-end balance sheet. B. an understatement of gross profit in the following year. C. an overstatement of retained earnings at the end of the year. D. an overstatement of cost of goods sold for the current year.

AN OVERSTATEMENT OF COST OF GOODS SOLD FOR THE CURRENT YEAR

When would LIFO liquidation occur? A. As a result of selling more units than are purchased during the period. B. As a result of selling less units than are purchased during the period. C. As a result of selling the same number of units that are purchased during the period. D. Not enough information.

AS A RESULT OF SELLING MORE UNITS THAN ARE PURCHASED DURING THE PERIOD

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the effect of the payment on Blenham's accounting equation? A. Assets and stockholders' equity decrease B. Assets and stockholders' equity increase C. Assets decrease and liabilities increase D. Stockholders' equity decreases and liabilities increase

ASSETS AND STOCKHOLDERS EQUITY DECREASE

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded? A. Assets and stockholders' equity decrease. B. Assets and stockholders' equity increase. C. Assets decrease and liabilities increase. D. Stockholders' equity decreases and liabilities increase.

ASSETS AND STOCKHOLDERS EQUITY DECREASE

If the amount assigned to ending inventory is incorrect, A. The balance sheet is affected, but the income statement is not B. The income statement is affected, but the balance sheet is not C. The balance sheet is affected, but cost of goods sold is not D. Both the balance sheet and the income statement are affected

BOTH THE BALANCE SHEET AND THE INCOME STATEMENT ARE AFFECTED

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for A. The periodic inventory system B. The perpetual inventory system C. Both the periodic and perpetual inventory systems D. Neither the periodic nor perpetual inventory systems

BOTH THE PERIODIC AND PERPETUAL INVENTORY SYSTEM

For what reason would retailers like The Gap select an accounting period that ends on or near the end of January? A. The company originally started business operations on that date. B. Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year. C. The company's CPAs are attempting to spread out the workload. D. The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.

BUSINESS ACTIVITY HAS REACHED A SLOW PERIOD THAT IS SUITED TO THE PREPARATION OF ITS FINANCIAL STATEMENT AT THE END OF THE YEAR

Checks presented for payment and paid by the bank are known as A. Canceled checks B. Certified checks C. NSF checks D. Outstanding checks

CANCELLED CHECKS

Which of the following items would not be a reconciling item? A. Canceled checks B. NSF checks C. Outstanding checks D. Deposits in transit

CANCELLED CHECKS

Among the assets listed below, which one is considered the most liquid? A. Cash B. Accounts receivable C. Merchandise inventory D. Prepaid expenses

CASH

Which one of the following statements regarding changing inventory methods is true? A. A change in inventory methods can be justified if the change is made to better match profits with revenue. B. Changing inventory methods affects consistency. C. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the statement of stockholders' equity. D. Tax advantages are valid justification for changing inventory methods.

CHANGING INVENTORY METHODS AFFECTS CONSISTENCY

Which one of the following could never be considered to be cash equivalents? A. Common stock issued by a corporation B. Money market funds C. Corporate commercial paper D. U. S. Treasury bills

COMMON STOCK ISSUED BY A CORPORATION

Hawk Store counted some of its inventory twice. As a result, its operating expenses will be A. Correct only if Hawk Store calculates it cost of goods sold correctly. B. Correct since operating expenses are not affected by inventory costs. C. Overstated. D. Understated.

CORRECT SINCE OPERATING EXPENSES ARE NOT AFFECTED BY INVENTORY COSTS.

Which of the following terms best describes "Cost of goods available for sale"? A. Cost of goods available for sale is an expense account. B. Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period. C. Cost of goods available for sale is subtracted from net sales to arrive at the gross margin D. Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year

COST OF GOODS AVAILABLE FOR SALE IS ALLOCATED INTO COST OF GOODS ON HAND AND COST OF GOODS SOLD AT THE END OF THE FISCAL YEAR

Which one of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of a service company? A. Cost of Goods Sold B. Selling Expenses C. Administrative Expenses D. Income Tax Expense

COST OF GOODS SOLD

The Ramien Store held inventory items at the end of 2014. Which items should Ramien include as part of its total inventory cost? A. Freight incurred in shipping goods to customers. B. Annual income taxes paid for operations. C. Cost of storing inventory before it is sold. D. Cost of salaries of clerks that sell the inventory items.

COST OF STORING INVENTORY BEFORE IT IS SOLD

Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incurred. Which accounting principle or concept is applied in this example? A. Historical cost B. Matching C. Cost/Benefit D. Conservatism

COST/BENEFIT

For which type of inventory would a company most likely use the specific identification method? A. Barbie dolls B. Cartons of milk C. Custom designed diamond rings D. Gasoline in storage tanks at a gasoline station

CUSTOM DESIGNED DIAMOND RINGS

Deposits made by a company but not yet reflected in a bank statement are called A. Debit memoranda B. Deposits in transit C. Credit memoranda D. None of the above

DEPOSITS IN TRANSIT

Which one of the following items would be added to the balance per bank statement in a bank reconciliation? A. Outstanding checks B. Deposits in transit C. Service charge D. Interest on customer note

DEPOSITS IN TRANSIT

Which one of the following statements is false? A. Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in the purchases B. Differences in cash flows between LIFO and FIFO inventory methods are caused by differences in taxes. C. The amount of cash to acquire inventory is the same for companies that use LIFO as for those companies that use FIFO. D. The primary determinant in selecting an inventory costing method should be the ability of the method to accurately reflect the net income of the period.

DIFFERENCES IN CASH FLOWS BETWEEN LIFO AND FIFO INVENTORY METHODS ARE A DIRECT RESULT OF THE DIFFERENCES IN THE PURCHASES

Cost of goods sold represents A. Expired costs during a period and is reported on the income statement. B. Unexpired costs and is reported on the balance sheet as an asset. C. The cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an asset. D. Expired costs and is reported on the balance sheet as an expense.

EXPIRED COSTS DURING A PERIOD AND IS REPORTED ON THE INCOME STATEMENT

The cost of goods sold is A. Purchases less beginning inventory plus ending inventory B. Reported on the balance sheet in the inventory account C. Goods available for sale less ending inventory D. Equal to the amount of inventory on hand at the end of the accounting period

GOODS AVAILABLE FOR SALE LESS ENDING INVENTORY

Which one of the following ratios is a common analytical tool used by merchandise corporations, but not by service corporations? A. Gross profit ratio B. Earnings per share C. Current ratio D. Profit margin

GROSS PROFIT RATIO

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system? A. As a direct reduction to the Purchases account. B. In contra accounts to the Purchases account. C. As operating expenses. D. As miscellaneous expenses.

IN A CONTRA ACCOUNTS TO THE PURCHASES ACCOUNT

Ling Corp. started business at the beginning of 2013. Ling selected the FIFO method for its inventory. In order to maximize its profits for 2013 under this method, prices must be A. Increasing B. Decreasing C. Stable D. Fluctuating up and down at the same amount consistently over the year

INCREASING

Which one of the following items would be added to the balance per books in a bank reconciliation? A. Outstanding checks B. Deposit in transit C. Service charges D. Interest on customer note

INTEREST ON CUSTOMER NOTE

Which of the following statements is true when using the indirect method of preparing the operating activities section of the statement of cash flows? A. Inventory decreases are subtracted from net income. B. Inventory increases are subtracted from net income C. Inventory increases are added to net income. D. None of the above.

INVENTORY INCREASES ARE SUBTRACTED FROM NET INCOME

Which one of the following is correct? A. Inventory losses can be identified and controlled better under the perpetual system. B. Inventory can only be sold at the end of an accounting period under the periodic system. C. There is no difference in cost to implement a perpetual as compared to a periodic system. D. The perpetual system eliminates the need for an annual inventory count

INVENTORY LOSSES CAN BE IDENTIFIED AND CONTROLLED BETTER UNDER THE PERPETUAL SYSTEM

A major advantage of the weighted average method of inventory costing is that A. Cost flows correspond with the physical flow of merchandise B. It is relatively easy to apply C. It matches current costs with revenues D. Recent costs are assigned to the ending inventory balance

IT IS RELATIVELY EASY TO APPLY

Sunset Band, Inc. purchased merchandise from Rumble Music Company on June 5, 2014. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due on June 13, 2014. When did title to the merchandise transfer from Rumble Music Company to Sunset? A. June 5, 2014 B. June 10, 2014 C. June 13, 2014 D. Cannot be determined from the information provided

JUNE 5, 2014

Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2014. On November 21, 2014, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the periodic inventory system. What effect does the merchandise return have on Herndon's accounting equation? A. Assets and stockholders' equity decrease. B. Assets and liabilities decrease. C. Liabilities decrease and stockholders' equity increases. D. Liabilities and stockholders' equity decrease.

LIABILITIES DECREASE AND STOCKHOLDERS' EQUITY INCREASES

Sunset, Inc. purchased merchandise from Rumble Music Company on June 5, 2014. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due on June 13, 2014. Sunset uses the periodic inventory system. What effect does recording the purchase of merchandise on June 5, 2014 have on Sunset's accounting equation? A. Assets and liabilities increase. B. Liabilities increase and stockholders' equity decreases. C. Assets and stockholders' equity increase. D. Liabilities and stockholders' equity decrease.

LIABILITIES INCREASE AND STOCKHOLDERS' EQUITY DECREASES

Which method assigns the cost of the most recent items purchased to cost of goods sold? A. Specific identification B. Weighted average cost C. FIFO D. LIFO

LIFO

Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income? A. FIFO B. LIFO C. Specific Identification D. Weighted Average Cost

LIFO

Which of these is not an acceptable inventory costing method under IFRS? A. FIFO B. LIFO C. Specific Identification D. Average cost

LIFO

Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial reporting with one exception. Which of the following situations is not allowed by federal income tax rules? Inventory Method for Tax Reporting A. LIFO - LIFO B. LIFO - FIFO C. Weighted Average - FIFO D. FIFO - LIFO

LIFO - FIFO

When inventories are written down due to the application of the lower of cost or market (LCM) rule, the account that is usually increased is A. Cost of Goods Sold B. Inventories C. Loss on Decline in Inventory Value D. Accumulated Depreciation - Inventory

LOSS ON DECLINE IN INVENTORY VALUE

When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP? A. Gross Profit B. LIFO C. Lower of Cost or market D. Retail

LOWER OF COST OR MARKET

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the A. matching principle B. full disclosure principle C. revenue realization principle D. historical cost principle

MATCHING PRINCIPLE

Ending inventory is equal to the cost of items on hand plus A. Merchandise in transit sold to customers FOB shipping point B. Merchandise in transit sold to customers FOB destination C. The cost of all inventory purchased during the period D. Merchandise purchased in transit with terms FOB destination

MERCHANDISE IN TRANSIT SOLD TO CUSTOMERS FOB DESTINATION

Which one of the following types of inventory accounts would be used by a wholesaler or retailer? A. Raw materials inventory B. Work in process inventory C. Finished goods inventory D. Merchandise inventory

MERCHANDISE INVENTORY

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after the discount period has passed, what is the effect of the payment on Blenham's accounting equation? A. Assets and stockholders' equity decrease B. Assets and stockholders' equity increase C. Assets decrease and liabilities increase D. No net effect

NO NET EFFECT

Checks returned by a bank because customers did not have sufficient funds in their account are called A. Canceled checks B. Certified checks C. NSF checks D. Outstanding checks

NSF CHECKS

Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? A. Outstanding checks B. Deposit in transit C. Service charges D. Interest on customer note

OUTSTANDING CHECKS

Which one of the following would not appear on a bank statement for a checking account? A. Service charges B. Interest earned C. Outstanding checks D. Deposits

OUTSTANDING CHECKS

If a company overstates its ending inventory balance for 2012 by $10,000, and understates its ending inventory balance for 2011 by $5,000 what are the effects on its net income for 2012 and 2011? Effect on 2012 Net Income A. Overstated by $15,000 - Understated by $10,000 B. Understated by $5,000 - Overstated by $10,000 C. Overstated by $15,000 - Understated by $5000 D. Overstated by $10,000 - Understated by $5000

OVERSTATED BY $15,000 - UNDERSTATED BY $5000

If a company overstates its ending inventory balance for 2012 by $10,000, and overstates its ending inventory balance for 2011 by $5,000 what are the effects on its net income for 2012 and 2011? Effect on 2012 Net Income A. Overstated by $15,000 - Overstated by $10,000 B. Understated by $5,000 - Overstated by $10,000 C. Overstated by $5,000 - Overstated by $5000 D. Overstated by $10,000 - overstated by $5000

Overstated by $5000 - overstated by $5000

Transportation-in is A. an operating expense B. part of purchases C. added to transportation-out as part of the calculation of cost of goods sold D. part of cost of goods purchased

PART OF COST OF GOODS PURCHASED

Which one of the following procedures is not part of preparing a bank reconciliation of a checking account A. Tracing deposits listed on the bank statement to the books to identify deposits in transit B. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks C. Identifying items added on the bank statement which have not been recorded as cash receipts by the company D. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding

PREPARING ADJUSTMENTS TO REVERSE THE TRANSACTIONS RECORDED FOR CHECKS THAT ARE STILL OUTSTANDING

Effective cash management and control includes all of the following except A. The use of a petty cash fund B. Bank reconciliations C. Short-term investments of excess cash D. Purchase of stocks and bonds

PURCHASE OF STOCKS AND BONDS

Items should be reported as part of the company's "inventory" if they are A. Purchased from a creditor, although not paid for by year end B. Held in anticipation of an increase in market value. C. Determined to be part of cost of goods sold. D. Sold during the period.

PURCHASED FROM A CREDITOR, ALTHOUGH NOT PAID FOR BY YEAR END

Which method of inventory costing is not acceptable for financial accounting purposes? A. Specific Identification B. FIFO C. LIFO D. Replacement Cost

REPLACEMENT COST

Which one of the following items would be subtracted from the balance per books in a bank reconciliation A. Outstanding checks B. Deposit in transit C. Service charges D. Interest on customer note

SERVICE CHARGES

Which one of the following statements is true? A. Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account. B. Sound internal control practice dictates that disbursements should be made by check. C. The person handling the cash should also prepare the bank reconciliation. D. Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

SOUND INTERNAL CONTROL PRACTICE DICTATES THAT DISBURSEMENTS SHOUDL BE MADE BY CHECK

Sunset Band, Inc. purchased merchandise from Rumble Music Company on June 5, 2014. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due on June 13, 2014. Who is responsible for payment of the transportation costs on the merchandise sold by Rumble Music to Sunset? A. Rumble Music Company B. Sunset, Inc. C. Split equally between the two companies. D. Cannot be determined from the information provided.

SUNSET, INC.

At the year end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of A. The seller B. The buyer C. Both the seller and the buyer D. Neither the seller no the buyer

THE BUYER

Caruso, Inc. has an inventory turnover rate of 8 times. If its cost of goods sold is $150,000, then A. The company will report sales of $1,200,000. B. The gross margin will be $1,200,000. C. The company's average inventory is $18,750. D. It sells its inventory 1,200 times per year.

THE COMPANY'S AVERAGE INVENTORY IS $18,750

Cost of goods sold is equal to A. the total amount of merchandise purchased during the year. B. the cost of merchandise purchased plus transportation-in costs less ending inventory. C. the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts minus ending inventory. D. the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts

THE COST OF MERCHANDISE PURCHASED PLUS TRANSPORTATION-IN COSTS PLUS BEGINNING INVENTORY MINUS PURCHASE

Zebra Company overstated its December 31, 2014 inventory by $5,200. Which statement is true concerning Zebra's financial statement amounts for 2014? A. Working capital is understated. B. The current ratio is overstated. C. Cost of goods sold is overstated. D. Net income is understated.

THE CURRENT RATIO IS OVERSTATED

Lalli Corp. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10; credit terms were 1/10, n/30. Which one of the following statements is true? A. The customer can take a $10 discount if the invoice is paid on June 30 B. The customer should pay $1,000 if the invoice is paid on July 9 C. The customer must pay a $10 penalty if payment is made after July 9. D. The customer must pay $1,010 if payment is made after June 20.

THE CUSTOMER SHOULD PAY $1000 IF THE INVOICE IS PAID ON JULY 9

Sunset, Inc. purchased merchandise from Rumble Music Company on June 5, 2014. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Sunset received the merchandise on June 10, 2014. Sunset paid the amount due on June 13, 2014. Sunset uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense? A. The date the merchandise was purchased. B. The date the merchandise is sold. C. The end of the accounting period D. Cannot be determined without further information.

THE DATE THE MERCHANDISE IS SOLD

Summer, Inc. has been in business for 20 years. During that time the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which one of the following statements is true? A. Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method B. Summer, Inc. will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method. C. Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules. D. The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

THE ENDING INVENTORY FIGURE REPORTED ON THE BALANCE SHEET MAY BE SIGNIFICANTLY LOWER THAN ITS CURRENT VALUE

All of the following statements regarding the gross profit ratio are true except: A. The gross profit ratio alone is sufficient to determine a company's profitability. B. Managers, investors, and creditors use the gross profit ratio to measure one aspect of profitability. C. The gross profit ratio explains how many cents on every dollar are available to cover expenses other than cost of goods sold and to earn a profit. D. If a company's net sales were $200,000 and cost of goods sold were $120,000, its gross profit ratio would be 40%.

THE GROSS PROFIT RATIO ALONE IS SUFFICIENT TO DETERMINE A COMPANY'S PROFITABILITY

94. Which one of the following statements regarding the application of the lower of cost or market method is true? A. Generally, market value is greater than replacement cost. B. When the lower of cost or market method is used, inventories are valued at selling price C. The lower of cost or market method is most commonly applied on a total inventory basis because it is a more conservative approach D. The lower of cost or market method is an exception to the historical cost principle.

THE LOWER OF COST OR MARKET METHOD IS AN EXCEPTION TO THE HISTORICAL COST PRINCIPLE

In order to evaluate a company's gross profit ratio, A. the ratio should be compared with forecasted financial statements. B. the ratio should be compared with those of prior years. C. the ratio should be compared with other companies in the same industry. D. the ratio should be compared with those of both prior years and competitors.

THE RATIO SHOULD BE COMPARED WITH THOSE OF BOTH PRIOR YEARS AND COMPETITORS

At the year end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of A. The seller B. The buyer C. Neither the buyer nor the seller

THE SELLER

How are cash equivalents reported or disclosed in the financial statements? A. They appear only on the statement of cash flows B. They are included with short-term investments under current assets on the balance sheet. C. They are included with cash under current assets on the balance sheet. D. They are disclosed only in a footnote to the balance sheet.

THEY ARE INCLUDED WTIH CASH UNDER CURRENT ASSETS ON THE BALANCE SHEET

Which one of the following is not a contra account? A. Purchase Returns and Allowances B. Accumulated Depreciation C. Transportation-in D. Sales Discounts

TRANSPORTATION-IN

Feinstein Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from Dallas and Europe. Feinstein Company must pay freight charges to get the merchandise shipped in. Which statement is true? A. Transportation-in, paid by Feinstein Company, is added to the inventory account under the periodic system. B. Transportation-in, paid by Feinstein Company, is subtracted from purchases under the periodic system. C. Freight charges are only paid by a buyer in a periodic system. D. Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.

TRANSPORTATION-IN IS ADDED TO NET PURCHASES TO DETERMINE COST OF GOODS PURCHASED IN A PERIODIC SYSTEM

If a company overstates its ending inventory for the current year, what are the effects on cost of goods sold and net income for the current year? Effect on Cost of Goods Sold A. Understated - Overstated B. Overstated - No effect C. Understated - Understated D. Overstated - Overstated

UNDERSTATED - OVERSTATED

If a company understates its ending inventory balance for 2012 by $15,500, what are the effects on its net income for 2012 and 2011? Effect on 2012 Net Income A. Overstated by $15,500 - Understated by $15,500 B. Understated by $15,500 - Overstated by $15,500 C. Understated by $15,500 - No effect D. Overstated by $15,500 - No effect

UNDERSTATED BY $15,500 - NO EFFECT

The ending inventory balance represents A. Expired costs and is reported on the balance sheet as an asset. B. The cost of goods sold during the current period and is reported on the balance sheet as an asset. C. Expired costs and is reported on the income statement as an expense D. Unexpired costs and is reported on the balance sheet as an asset.

UNEXPIRED COSTS AND IS REPORTED ON THE BALANCE SHEET AS AN ASSET

Which one of the following is not considered to be a cash equivalent? A. Corporate commercial paper due in 90 days after purchase B. U.S. Treasury bills with an original maturity of six months C. A money market account with a stock brokerage firm D. A certificate of deposit with a term of 75 days when acquired

US TREASURY BILLS WITH AN ORIGINAL MATURITY OF SIX MONTHS

All of the following statements are true except: A. Both U.S. GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost-or-market rule to value inventories. B. U.S. GAAP defines market value as replacement cost. C. IFRS uses net realizable value with no upper or lower limits imposed. D. Write-downs of inventory can be reversed in later periods under U.S. GAAP.

WRITE-DOWNS OF INVENTORY CAN BE REVERSED IN LATER PERIODS UNDER US GAAP