ACC Exam #3

1 February 2023
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question
Gross profit is calculated as the difference between net sales revenue and‚Äč ________.
answer
cost of goods sold
question
Which of the following entries would be made to record the purchase of inventory on‚Äč account, if a company uses the perpetual inventory‚Äč system?
answer
a debit to Merchandise Inventory and a credit to Accounts Payable
question
The terms of an invoice are‚Äč 3/10, n/25. This means that a‚Äč ________.
answer
discount of 3 percent is allowed if the invoice is paid within 10 days
question
A reduction in the amount of cash received from a customer for early payment is known as a sales discount.
answer
True
question
When a seller grants a sales‚Äč allowance, the customer does not return any goods to the seller.
answer
True
question
When a company uses the perpetual inventory‚Äč system, there is no need to conduct a physical count of inventory.
answer
False
question
A merchandiser uses a perpetual inventory system. The beginning‚Äč Owner, Capital balance of the merchandiser was‚Äč $95,000. During the‚Äč year, Sales Revenue amounted to‚Äč $80,000, Sales Returns and Allowances were‚Äč $1,300, Sales Discounts were‚Äč $2,700, Cost of Goods Sold was‚Äč $40,000, and all other expenses totaled‚Äč $13,000. The company paid‚Äč $24,000 in withdrawals to the owner. The last step in the closing process would include‚Äč ________.
answer
Debit to the owner cap, for 24,000
question
Operating income is gross profit minus operating expenses.
answer
True
question
Which of the following is the correct formula for calculating gross profit‚Äč percentage?
answer
Gross profit/ net sales revenue
question
A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the conservatism‚Äč principle, it should choose to treat it as an asset.
answer
False
question
A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the materiality concept.
answer
True
question
Changing from the LIFO‚Äč (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of‚Äč ________.
answer
consistency
question
Which of the following is an application of‚Äč conservatism?
answer
reporting inventory at the lower of cost or market
question
The specific identification method of inventory costing is recommended when a business deals in unique and‚Äč high-priced inventory items.
answer
true
question
‚ÄčMalcom, Inc. had the following balances and transactions during‚Äč 2017: Beginning Merchandise Inventory as of January‚Äč 1, 2017 175 units at‚Äč $82 March 10 Sold 60 units June 10 Purchased 200 units at‚Äč $86 October 30 Sold 235 units What would be reported as Cost of Goods Sold on the income statement for the year ending December‚Äč 31, 2017 if the perpetual inventory system and the‚Äč first-in, first-out inventory costing method are‚Äč used?
answer
$24,670
question
A company that uses the perpetual inventory system sold goods to a customer for cash for‚Äč $3,000. The cost of the goods sold was‚Äč $600. Which of the following journal entries correctly records this‚Äč transaction?
answer
Dr Cash 3000 Cr Sales Rev 3000 Dr COGS 600 Cr Merch inven. 600
question
Metro‚Äč Computer, Inc. had the following balances and transactions during‚Äč 2017: Beginning Merchandise Inventory as of January‚Äč 1, 2017 240 units at‚Äč $70 March 10 Sold 80 units June 10 Purchased 720 units at‚Äč $80 October 30 Sold 125 units What would the‚Äč company's ending merchandise inventory amount be on December‚Äč 31, 2017 if the perpetual inventory system and the‚Äč last-in, first-out inventory costing method are‚Äč used?
answer
58,800
question
Given the same purchase and sales‚Äč data, and assuming the cost of inventory is‚Äč rising, the costing methods for inventory will result in different amounts for cost of goods sold.
answer
True
question
During a period of declining inventory‚Äč costs, which of the following inventory costing methods should be used by a company that intends to minimize its income tax‚Äč expenses?
answer
FIFO
question
Best‚Äč Deals, Inc. has 10 units in ending merchandise inventory on December 31. The units were purchased in November for‚Äč $160 each. The price lists from suppliers indicate the current replacement cost of the item to be‚Äč $162 each. What would be the amount reported as Merchandise Inventory on the balance‚Äč sheet?
answer
1,600
question
If the current replacement cost of inventory is less than its historical‚Äč cost, the business must adjust the inventory value.
answer
True
question
‚ÄčMurphy, Inc. had the following balances and transactions during 2017. Beginning Inventory 10 units at‚Äč $72 June 10 Purchased 20 units at‚Äč $85 December 30 Sold 15 units December 31 Replacement cost‚Äč $67 The company maintains its records of inventory on a perpetual basis using the‚Äč last-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory at December‚Äč 31, 2017 using the‚Äč lower-of-cost-or-market rule.
answer
1,005
question
‚ÄčShipman, Inc. has 6 units in inventory on December 31. The units were purchased in November for‚Äč $200 each. The price lists from suppliers indicate the current replacement cost of the item to be‚Äč $198 each. What is the effect on gross profit if Shipman values its ending merchandise inventory using the‚Äč lower-of-cost-or-market rule?
answer
the gross profit would decrease by $12
question
An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.
answer
False
question
Inventory turnover measures‚Äč ________.
answer
how rapidly merchandise inventory is sold
question
Gross profit is calculated as the difference between net sales revenue and‚Äč ________.
answer
cost of goods sold
question
Which of the following entries would be made to record the purchase of inventory on‚Äč account, if a company uses the perpetual inventory‚Äč system?
answer
a debit to Merchandise Inventory and a credit to Accounts Payable
question
The terms of an invoice are‚Äč 3/10, n/25. This means that a‚Äč ________.
answer
discount of 3 percent is allowed if the invoice is paid within 10 days
question
Owens Jewelers uses the perpetual inventory system. On April‚Äč 2, Owens sold merchandise with a cost of‚Äč $5,500 for‚Äč $7,000 to a customer on account with terms of‚Äč 1/15, n/30. Which of the following journal entries correctly records the sales‚Äč revenue?
answer
Accounts Receivable ‚Äč7,000 Sales Revenue ‚Äč7,000
question
A merchandiser sold merchandise inventory on account. The journal entry to record sales allowances in the books of the‚Äč merchandiser, using the perpetual inventory system would‚Äč be:
answer
Sales Returns and Allowances XX Accounts Receivable
question
If a physical count of inventory indicates that the Merchandise Inventory account is‚Äč overstated, an adjusting entry is required to record the difference.
answer
true
question
The sales revenue of a merchandiser amounted to‚Äč $22,000, sales returns and allowances amounted to‚Äč $2,500, and sales discounts amounted to‚Äč $800. The merchandiser uses a perpetual inventory system. The first entry in the closing process would include‚Äč ________.
answer
a credit to Income Summary for‚Äč $22,000
question
Operating income is gross profit minus operating expenses.
answer
true
question
The gross profit percentage is one of the most carefully watched measures of‚Äč ________.
answer
profitability
question
A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism‚Äč principle, it should choose to treat it a loss.
answer
true
question
A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the conservatism principle. *****
answer
false
question
Which of the following principles states that a‚Äč business's financial statements must report enough information for outsiders to make knowledgeable decisions about the‚Äč company?
answer
disclosure principle
question
The materiality concept states that a company must‚Äč ________.
answer
perform strictly proper accounting only for significant items
question
A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for‚Äč $10,000 and paid‚Äč $750 for the‚Äč freight-in. The company sold the whole lot to a supermarket chain for‚Äč $14,000 on account. The company uses the‚Äč specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods‚Äč sold?***
answer
D. Cost of Goods Sold ‚Äč10,750 Merchandise Inventory ‚Äč10,750
question
A company purchased 400 units for‚Äč $20 each on January 31. It purchased 520 units for‚Äč $26 each on February 28. It sold a total of 560 units for‚Äč $40 each from March 1 through December 31. What is the amount of ending inventory on December 31 if the company uses the‚Äč first-in, first-out‚Äč (FIFO) inventory costing‚Äč method? (Assume that the company uses a perpetual inventory‚Äč system.)
answer
‚Äč$9,360
question
A company that uses the perpetual inventory system sold goods for‚Äč $2,500 to a customer on account. The company had purchased the inventory for‚Äč $500. Which of the following journal entries correctly records the cost of goods‚Äč sold?
answer
. Cost of Goods Sold 500 Merchandise Inventory 500
question
Under the‚Äč last-in, first-out‚Äč (LIFO) method, the cost of goods sold is based on the oldest purchases.
answer
False
question
In a period of rising‚Äč costs, the‚Äč last-in, first-out‚Äč (LIFO) method results in higher cost of goods sold and lower net income than the‚Äč first-in, first-out‚Äč (FIFO) method.****
answer
True
question
When inventory costs are‚Äč declining, which of the following inventory costing methods will result in the highest cost of goods‚Äč sold?****
answer
‚Äčfirst-in, first-out
question
Which of the following amounts would be reported as Merchandise Inventory on the balance sheet of a company if the cost of an item is‚Äč $120 and the current replacement cost is‚Äč $100?
answer
100
question
If the current replacement cost of inventory is less than its historical‚Äč cost, the business must adjust the inventory value.
answer
true
question
The Cost of Goods Sold account is credited to write down the inventory as per the‚Äč lower-of-cost-or-market rule.
answer
false
question
When a company uses the perpetual inventory‚Äč method, which of the following would be the entry to adjust inventory to‚Äč lower-of-cost-or-market?
answer
debit Cost of Goods Sold and credit Merchandise Inventory
question
The ending merchandise inventory for the current accounting period is overstated by‚Äč $3,500. What will be the effect of this‚Äč error?****
answer
The net income for the current accounting period will be overstated by‚Äč $3,500.
question
A high rate of inventory turnover indicates ease in selling inventory.
answer
true