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| 1 | |
When the moving average method of perpetual inventory tracking is used, at what point is the new average cost calculated? |
| | A) | Only at the end of the year |
| | B) | After each sale of the given inventory item |
| | C) | After each new purchase of the same inventory item |
| | D) | Both B and C |
| | E) | None of the above |
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| 2 | |
Even though the amount of Cost of Goods Sold and the amount of ending Inventory can vary dramatically depending on which inventory cost flow assumption is used, which one of the following numbers will always be the same regardless of which inventory cost flow assumption is used? |
| | A) | The amount of the beginning inventory. |
| | B) | The amount of the ending inventory. |
| | C) | The amount of computed gross profit. |
| | D) | The Cost of Goods Available for Sale amount. |
| | E) | None of the above |
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| 3 | |
When the cost of buying an item of inventory from a supplier is steadily increasing or steadily decreasing, it is possible to make some generalizations as to what will be the effects on Cost of Goods Sold given the use of any particular cost flow assumption. In periods of rising purchase prices which of the following statements is true? |
| | A) | LIFO will assign lower inventory costs to cost of goods sold than will FIFO and LIFO will assign lower inventory costs to the ending inventory than will FIFO. |
| | B) | LIFO will assign lower inventory costs to cost of goods sold than will FIFO and LIFO will assign higher inventory costs to the ending inventory than will FIFO. |
| | C) | LIFO will assign higher inventory costs to cost of goods sold than will FIFO and LIFO will assign lower inventory costs to the ending inventory than will FIFO. |
| | D) | LIFO will assign higher inventory costs to cost of goods sold than will FIFO and LIFO will assign higher inventory costs to the ending inventory than will FIFO. |
| | E) | None of the above is true. |
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| 4 | |
When a firm uses the LIFO method on its GAAP financial statements because it wants to use the LIFO method on its annual tax returns, such a procedure is an application of the: |
| | A) | Cost principle. |
| | B) | LIFO conformity rule. |
| | C) | Materiality principle |
| | D) | Going-concern principle |
| | E) | None of the above |
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| 5 | |
A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first month of the new accounting period, the company has the following purchases and sales of aspirin bottles. The sales price for each bottle is $3.00 for the entire period.
Beginning inventory of aspirin bottles on January 1st: 20 units at $1.00 each
| First purchase | 10 units at $1.10 each | | First sale: | 11 units | | Second sale: | 7 units | | Second purchase | 14 units at $1.25 each | | Third purchase | 10 units at $1.35 each |
The company uses the specific identification method and identifies 7 units from the beginning inventory and 11 units from the second purchase as those that were sold during the month. What is the cost of goods sold for the month? |
| | A) | $18.00 |
| | B) | $21.80 |
| | C) | $20.75 |
| | D) | $19.00 |
| | E) | None of the above |
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| 6 | |
A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first month of the new accounting period, the company has the following purchases and sales of aspirin bottles. The sales price for each bottle is $3.00 for the entire period.
Beginning inventory of aspirin bottles on January 1st: 20 units at $1.00 each
| First purchase | 10 units at $1.10 each | | First sale: | 11 units | | Second sale: | 12 units | | Second purchase | 14 units at $1.25 each | | Third purchase | 10 units at $1.35 each |
The company uses the LIFO periodic method. What is the amount of the Cost of Goods Available for Sale for the month of January? |
| | A) | $20.00 |
| | B) | $69.00 |
| | C) | $42.00 |
| | D) | $62.00 |
| | E) | None of the above |
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| 7 | |
A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first month of the new accounting period, the company has the following purchases and sales of aspirin bottles. The sales price for each bottle is $3.00 for the entire period.
Beginning inventory of aspirin bottles on January 1st: 20 units at $1.00 each
| First purchase | 10 units at $1.10 each | | First sale: | 11 units | | Second sale: | 12 units | | Second purchase | 14 units at $1.25 each | | Third purchase | 10 units at $1.35 each |
The company uses the FIFO periodic method. What is the gross profit for the month of January? |
| | A) | $69.00 |
| | B) | $39.25 |
| | C) | $41.75 |
| | D) | $45.70 |
| | E) | None pf the above |
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| 8 | |
A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first month of the new accounting period, the company has the following purchases and sales of aspirin bottles. The sales price for each bottle is $3.00 for the entire period.
Beginning inventory of aspirin bottles on January 1st: 20 units at $1.00 each
| First purchase | 10 units at $1.10 each | | First sale: | 11 units | | Second sale: | 12 units | | Second purchase | 14 units at $1.25 each | | Third purchase | 10 units at $1.35 each |
If the company uses the average method (also called the weighted average method), what is the value of the ending inventory (rounded to the nearest cent)? |
| | A) | $35.59 |
| | B) | $26.41 |
| | C) | $31.00 |
| | D) | $34.44 |
| | E) | None of the above |
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| 9 | |
A drug store sells bottles of aspirin over-the-counter. For the month of January, which is the first month of the new accounting period, the company has the following purchases and sales of aspirin bottles. The sales price for each bottle is $3.00 for the entire period. Beginning inventory of aspirin bottles on January 1st: 20 units at $1.00 each
| First purchase | 10 units at $1.10 each | | First sale: | 11 units | | Second sale: | 12 units | | Second purchase | 14 units at $1.25 each | | Third purchase | 10 units at $1.35 each |
The company calculates its inventory cost by using the moving average method which is an application of the perpetual inventory system. What is the inventory cost per bottle of aspirin immediately after the first purchase of aspirin bottles and the second purchase of aspirin bottles (carry your answers to five decimal places such as $1.23452? |
| | A) | $1.00000 and $1.03333 |
| | B) | $1.03333 and $1.17777 |
| | C) | $1.25000 and 1.03333 |
| | D) | $1.17777 and 1.03333 |
| | E) | None of the above |
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| 10 | |
A company's ending inventory amount is overstated by $10,000. What will be the effect of this overstatement on Cost of Goods Sold and Net Income? |
| | A) | Cost of Goods Sold and Net Income are overstated by $10,000. |
| | B) | Costs of Goods Sold and Net Income are understated by $10,000. |
| | C) | Cost of Goods Sold is overstated by $10,000 and Net Income is understated by $10,000. |
| | D) | Cost of Goods Sold is understated by $10,000 and Net Income is overstated by $10,000. |
| | E) | None of the above |
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| 11 | |
A company understates its ending inventory by $5,000. It never discovers this error. The company is a sole proprietorship. Which statement accurately describes the company's permanent situation? |
| | A) | Net Income for the current year is overstated and the Owner's Equity account will permanently remain overstated since the error is never discovered. |
| | B) | Net Income for the current year is understated and the Owner's equity account will permanently remain understated since the error is never discovered. |
| | C) | Net Income for the current year is understated. Net Income for the next year will be overstated by $5,000 and Owner's Equity will be correct at the beginning of year 3. |
| | D) | Net Income for the current year is overstated. Net Income for the next year will also be overstated by $5,000 and Owner's Equity will never be correct since the error was not discovered. |
| | E) | None of the above. |
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| 12 | |
A merchandising business discovers that its ending inventory is overstated by $5,000. If the company does not correct this error, what will the effect be on the company's Net Income, ending Inventory, and Cost of Goods Sold expense? |
| | A) | Net Income is understated, ending Inventory is understated, and Cost of Goods Sold is understated |
| | B) | Net Income is understated, ending Inventory is overstated, and Cost of Goods Sold is overstated |
| | C) | Net Income is overstated, ending Inventory is overstated, and Cost of Goods Sold is understated |
| | D) | Net Income is overstated, ending Income is understated, and Cost of Goods Sold is overstated |
| | E) | None of the above |
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| 13 | |
A merchandising business discovers that its ending inventory is understated by $6,000. If the company does not correct this error, what will the effect be on the company's Total Expenses and Net Income? |
| | A) | Total Expenses are overstated and Net Income is understated |
| | B) | Total Expenses and Net Income are both overstated |
| | C) | Total Expenses and Net Income are both understated |
| | D) | Total Expenses are understated and Net Income is understated |
| | E) | None of the above |
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| 14 | |
Which of the following objectives are legitimate reasons for taking a physical inventory count? |
| | A) | To check the accuracy of the perpetual inventory records |
| | B) | To determine cost of goods sold |
| | C) | To keep employees busy during a slow time in the business |
| | D) | Both A and C |
| | E) | Both A and B |
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| 15 | |
When inventory purchase prices are decreasing, which of the following will result in the highest amount of income tax expense? |
| | A) | LIFO |
| | B) | Weighted average |
| | C) | FIFO |
| | D) | None of the above |
| | E) | Not enough information is given |
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| 16 | |
Which of the following is true about errors in the ending inventory?
| | Ending Inventory | Cost of Goods Sold | Net Income | | A. | Overstated | Understated | Correctly stated | | B. | Understated | Overstated | Understated | | C. | Overstated | Understated | Understated | | D. | Understated | Understated | Overstated | | E. | Understated | Overstated | Overstated |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 17 | |
When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin? |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted Average |
| | D) | Cannot be determined |
| | E) | None of the above |
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| 18 | |
Which of the following is true about errors in the ending inventory?
| | Ending Inventory | Net Income | Capital | | A. | Overstated | Understated | Overstated | | B. | Understated | Understated | Overstated | | C. | Overstated | Understated | Understated | | D. | Overstated | Overstated | Understated | | E. | Understated | Understated | Understated |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 19 | |
Lipton Hardware prepared the following schedule of unit costs and market prices for three items of merchandise inventory.
Item Units Cost per unit Market price per unit
| Item | Units | Cost per unit | Market price per unit | | A | 1,500 | $.30 | $.25 | | B | 4,000 | .75 | .80 | | C | 2,500 | .55 | .45 |
Applying the lower-of-cost-or-market price rule, the total value of the entire inventory of the units would be reported as which of the following? |
| | A) | $5,025 |
| | B) | $4,500 |
| | C) | $4,825 |
| | D) | $4,700 |
| | E) | None of the above |
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| 20 | |
Beginning inventory totals $50,000 and ending inventory totals $70,000. Net sales totals $600,000 and cost of goods sold is $360,000. What is the inventory turnover ratio? |
| | A) | 10.0 |
| | B) | 7.5 |
| | C) | 6.0 |
| | D) | 4.5 |
| | E) | None of the above |
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| 21 | |
Harrison Hardware prepared the following schedule:
| | Cost | Retail | | Beginning merchandise inventory | $ 50,000 | $120,000 | | Purchases for November | 190,000 | 280,000 | | Sales in November | | 360,000 |
Using the retail method for estimating the value of ending inventory, the estimated ending merchandise inventory at cost is which of the following? |
| | A) | $ 30,000 |
| | B) | $180,000 |
| | C) | $ 24,000 |
| | D) | $ 20,000 |
| | E) | None of the above |
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| 22 | |
Heavenly Interiors had beginning merchandise inventory of $75,000. It made purchases of $160,000 and recorded sales of $220,000 during November. Its estimated gross profit on sales was 30%. On November 30, the store was destroyed by fire. What was the value of the merchandise inventory loss? |
| | A) | $154,000 |
| | B) | $160,000 |
| | C) | $235,000 |
| | D) | $ 81,000 |
| | E) | None of the above |
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| 23 | |
Under the periodic inventory system, which of the following is the Purchases account not used to record? |
| | A) | Cash purchases of merchandise inventory |
| | B) | Purchases of any asset on account or note payable |
| | C) | Purchases of merchandise inventory on account |
| | D) | A and C |
| | E) | None of the above |
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| 24 | |
Under the periodic inventory system, which of the following is a correct closing entry? |
| | A) | Income Summary, debit; Sales, credit |
| | B) | Income Summary, credit; Purchase Returns and Allowances, debit |
| | C) | Income Summary, debit; Merchandise Inventory (ending balance), credit |
| | D) | Purchases, debit; Income Summary, credit |
| | E) | All of the entries shown are correct closing entries |
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| 25 | |
In theory which inventory cost flow assumption could assign inventory cost to cost of goods sold even though the inventory has not yet been purchased by the merchandiser? |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Specific identification |
| | D) | Both A and C |
| | E) | None of the above |
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