Intermediate Accounting 1 Chapter 8

he Constance Corporation's inventory at December 31, 2018, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following: Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2019, was received by Constance on January 5, 2019. Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2018, arrived at the customer's location on January 6, 2019. Merchandise costing $21,000 was being held on hand for Jess Company on consignment. Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%. What amount should Constance Corporation report as inventory in its December 31, 2018, balance sheet? a. $160,250. b. $145,250. c. $187,250. d. $190,250.

a. $160,250.

Using the gross method, purchase discounts lost are: a. Included in purchases. b. Added to accounts payable. c. Included in interest expense. d. Deducted from discount income.

a. Included in purchases.

In a periodic inventory system, the cost of purchases is debited to: a. Purchases. b. Cost of goods sold. c. Inventory. d. Accounts payable.

a. Purchases.

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at: a. $5,940. b. $5,880. c. $6,000. d. $6,120.

b. $5,880

In a perpetual inventory system, which of the following is recorded at the time of the sale? a. Sales revenue only. b. Both sales revenue and cost of goods sold. c. Cost of goods sold only. d. Neither sales revenue or cost of goods sold.

b. Both sales revenue and cost of goods sold.

One difference between periodic and perpetual inventory systems is: a. Cost of goods sold is not recorded under a perpetual system until the end of the period. b. Cost of goods sold is not recorded under a periodic system until the end of the period. c. Cost of goods sold is always significantly higher under a perpetual system. d. Cost of goods sold is always significantly higher under a periodic system.

b. Cost of goods sold is not recorded under a periodic system until the end of the period.

The Mateo Corporation's inventory at December 31, 2018, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following: Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2018, was received on January 5, 2019. Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2018, was received on January 3, 2019. Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer's location on January 6, 2019. Merchandise costing $12,000 was being held on consignment by Traynor Company. What amount should Mateo Corporation report as inventory in its December 31, 2018, balance sheet? a. $367,000. b. $427,000. c. $405,000. d. $325,000.

c. $405,000.

In a perpetual inventory system, the cost of inventory sold is: a. Debited to accounts receivable. b. Credited to cost of goods sold. c. Debited to cost of goods sold. d. Not recorded at the time goods are sold.

c. Debited to cost of goods sold.

Under the net method, purchase discounts lost are: a. Included in purchases. b. Added to accounts payable. c. Included in interest expense. d. Deducted from discount income.

c. Included in interest expense.

In a perpetual inventory system, the cost of purchases is debited to: a. Purchases. b. Cost of goods sold. c. Inventory. d. Accounts payable.

c. Inventory.

Ending inventory is equal to the cost of items on hand plus: a. Items in transit sold f.o.b. shipping point. b. Purchases in transit f.o.b. destination. c. Items in transit sold f.o.b. destination. d. None of these answer choices is correct.

c. Items in transit sold f.o.b. destination.

Which of the following is false regarding the FIFO inventory method? a. FIFO under a perpetual inventory system results in the same cost of goods sold as FIFO under a periodic inventory system. b. A company can choose to account for the flow of inventory using the FIFO method even if this doesn't match the actual flow of its inventory. c. Perishable goods often follow an actual physical flow that is consistent with the FIFO method assumptions. d. All of the other answer choices are true.

d. All of the other answer choices are true.

Under the gross method, purchase discounts taken are: a. Deducted from interest expense. b. Added to net purchases. c. Added to interest income. d. Deducted from purchases.

d. Deducted from purchases.

Discounts for quick-payments

represent reductions in the amount to be paid by the buyer in the event payment is made within a specified period of time

If the goods are shipped f.o.b. destination

the seller is responsible for shipping, and legal title does not pass until the goods arrive at their destination (the customer's location).

If the goods are shipped f.o.b. (free on board) shipping point,

then legal title to the goods changes hands at the point of shipment when the seller delivers the goods to the common carrier (for example, a trucking company)