Chapter 5 & 6 example #29823

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

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

When credit terms of 1/15, n/60 are offered, how long is the discount period? 60 days 45 days 1 day 15 days

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

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer? Accounts Receivable and Cost of Goods Sold Inventory and Cost of Goods Sold Sales Returns and Allowances and Accounts Receivable Sales Returns and Allowances and Inventory

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

Which of these accounts normally have a debit balance? Neither Sales Discount nor Sales Returns and Allowances Sales Discounts only Sales Returns and Allowances only Both Sales Discounts and Sales Returns and Allowances

Which one of the following statements is correct? A company which uses a perpetual inventory system needs only one journal entry when it sells merchandise. A company which uses a perpetual inventory system needs two journal entries when it sells merchandise. A company which uses a perpetual inventory system debits inventory and credits cost of goods sold when it sells merchandise. None of the answer choices are correct.

What type of accounts are Sales Returns and Allowances and Sales Discounts? Contra asset accounts Expense accounts Contra revenue accounts Contra expense accounts

Which of the following would appear on both a single-step and a multiple-step income statement? Cost of goods sold Income from operations Gross profit Other expenses and losses

Which one of the following will result in gross profit? Operating expenses less net income Sales revenue less cost of goods sold Sales revenue less operating expenses Operating expenses less cost of goods sold

Which of the following will be shown on the income statement for a merchandising company? Gross profit Cost of goods sold All of the answer choices are correct A sales revenue section

Under what system is cost of goods sold determined at the end of an accounting period? Periodic inventory system Double entry inventory system Perpetual inventory system Single entry inventory system

To what is the gross profit rate equal? Net sales minus cost of goods sold, divided by net sales Cost of goods sold divided by net sales Sales minus cost of goods sold, divided by cost of goods sold Net income divided by net sales

When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited? Freight-In Inventory Purchases Freight-out

In a periodic inventory system, when is the cost of the merchandise sold determined? Periodically during the period Either at time of sale, end of period or periodically during the period At the time of the sale At the end of the period

Two categories of expenses in merchandising companies are operating expenses and financing expenses. other expenses and cost of goods sold. cost of goods sold and operating expenses. cost of goods sold and financing expenses.

Sales revenue less cost of goods sold is called net income. net profit. marginal income. gross profit.

After gross profit is calculated, operating expenses are deducted to determine gross margin. net income. net margin. gross profit on sales.

The primary difference between a periodic and perpetual inventory system is that a periodic system determines the inventory on hand only at the end of the accounting period. provides better control over inventories. records the cost of the sale on the date the sale is made. keeps a record showing the inventory on hand at all time.

When using the periodic system the physical inventory count is used to determine only the sales value of goods in the ending inventory. only the cost of merchandise sold during the period. both the cost of the goods in ending inventory and the sales value of goods sold during the period. both the cost of the goods sold and the cost of ending inventory.

Inventory becomes part of cost of goods sold when a company pays for the inventory. purchases the inventory. sells the inventory. receives payment from the customer.

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in which account? Inventory Freight-Out Freight-In Freight Expense

Under the perpetual inventory system, in addition to making the entry to record a sale, a company would make no additional entry until the end of the period. debit Inventory and credit Cost of Goods Sold. debit Cost of Goods Sold and credit Purchases. debit Cost of Goods sold and credit Inventory.

The amount of cost of good available for sale during the year depends on the amounts of beginning merchandise inventory, cost of goods sold, and ending merchandise inventory. beginning merchandise inventory and net costs of purchases. beginning merchandise inventory and cost of goods sold. beginning merchandise inventory, net cost of purchases, and ending merchandise inventory.

When is a physical inventory usually taken? When a company has its greatest amount of inventory and when goods are not being sold or received. When the company has its greatest amount of inventory At the end of the company's fiscal year When goods are not being sold or received

Which of the following should not be included in the physical inventory of a company? All of the answer choices are correct. Goods held on consignment from another company Goods in transit from another company shipped FOB shipping point Goods shipped on consignment to another company

Which of the following is not an inventory account? Raw materials Work in process Equipment Finished goods

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped FOB buyer. FOB shipper. FOB destination. FOB shipping point.

Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped FOB buyer. FOB destination. FOB shipper. FOB shipping point.

Inventory costing methods place primary reliance on assumptions about the flow of costs. resale prices. values. goods.

Which of the following is not an acceptable inventory costing method? Last-in, first-out Average cost First-in, first-out Last-in, last-out

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

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

In periods of rising prices, what will LIFO produce? Higher net income than average costing Higher net income than FIFO The same net income as FIFO Lower net income than FIFO

Which situation requires a departure from the cost basis of accounting to the lower-of-cost-or-market basis in valuing inventory? A desire for more profit A decline in the value of the inventory An increase in selling price An increase in the value of the inventory

What is the underlying rationale for the lower-of-cost-or-market rule? The historical cost principle The materiality constraint The economic entity assumption The conservatism constraint

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

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

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

If goods in transit are shipped FOB destination the seller has legal title to the goods until they are delivered. no one has legal title to the goods until they are delivered. the buyer has legal title to the goods until they are delivered. the transportation company has legal title to the goods while the goods are in transit.

Which of the following should not be included in the physical inventory of a company? Goods in transit from another company shipped FOB shipping point. Goods shipped on consignment to another company. All of these answer choices should be included. Goods held on consignment from another company.

Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31? Sales made FOB shipping point and purchase made FOB destination (1) and (3) (1) and (4) (2) and (4)

The term "FOB" denotes free only (to) buyer. free on board. freight charge on buyer. freight on board.

When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory? All are a purpose of taking a physical inventory when a perpetual inventory system is used. To determine cost of goods sold for the accounting period To check the accuracy of the perpetual inventory records To compute inventory ratios

The LIFO inventory method assumes that the cost of the latest units purchased are the last to be allocated to cost of goods sold. the first to be allocated to cost of goods sold. the first to be allocated to ending inventory. not allocated to cost of goods sold or ending inventory.

An assumption about cost flow is necessary because it is required by the income tax regulation. because prices usually change, and tracking which units have been sold is difficult. even when there is no change in the purchase price on inventory. only when the flow of goods cannot be determined.

In periods of rising prices, which is an advantage of using the LIFO inventory costing method? Ending inventory will include latest (most recent) costs and thus be more realistic. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. Net income will be the highest and thus reflect the prosperity of the company. Phantom profits are reported.

The consistent application of an inventory costing method enhances comparability. efficiency. conservatism. accuracy.

When applying the lower of cost or market rule to inventory valuation, market generally means resale value. original cost, less physical deterioration. current replacement cost. original cost.