Chapter 7 MC

26 January 2023
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Too much inventory on hand Question options: reduces solvency increases the cost to safeguard the assets increases the losses due to price declines all of the above
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all of the above
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The method of computing inventory that uses records of the selling prices of the merchandise is called Question options: retail method last-in, first-out first-in, first-out average cost
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retail method
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KoKo Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of $35,000. During the year they purchased an inventory with a retail cost of $300,000. After performing a physical inventory, they calculated their inventory at $60,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost. Question options: $120,000 $60,000 $30,000 $35,000
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$30,000
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Inventory turnover Question options: is computed by dividing average inventory by cost of merchandise sold measures the relationship between the volume of goods sold and amount of inventory carried increases the risk of loss from damaged merchandise is computed by dividing the beginning inventory plus the ending inventory by two
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measures the relationship between the volume of goods sold and amount of inventory carried
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A company will most likely use an estimated method of estimating inventory when Question options: the company decides not to do a physical inventory. a natural disaster has destroyed most of their inventory. the company has not kept up with their inventory records. trying to determine the amount of theft that has taken place.
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a natural disaster has destroyed most of their inventory.
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The number of days' sales in inventory Question options: measures the length of time it takes to acquire, sell, and replace the inventory is computed by dividing the cost of merchandise sold by 365 measures the length of time it takes to sell the merchandise on credit and collect the account receivable is about the same for all industries
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measures the length of time it takes to acquire, sell, and replace the inventory
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Taking a physical count of inventory Question options: is not necessary when a periodic inventory system is used is a detective control has no internal control relevance is not necessary when a perpetual inventory system is used
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is a detective control
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Which of the following is not an example for safeguarding inventory? Question options: Storing inventory in restricted areas. Physical devices such as two-way mirrors, cameras, and alarms. Matching receiving documents, purchase orders, and vendor's invoice. Returning inventory that is defective or broken.
answer
Returning inventory that is defective or broken
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Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal? Question options: check the invoice to the receiving report check the invoice to the purchase order check the invoice with the person who specifically purchased the item check the invoice extensions and totals
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check the invoice with the person who specifically purchased the item
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Which of the following is not true about taking physical inventories? Question options: Large variances may require investigations and implementation of corrective actions. Physical inventories are taken when inventory levels are at their lowest. Physical inventories deter employee thefts and inventory misuses. Physical inventories are taken when inventory levels are at their highest.
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Physical inventories are taken when inventory levels are at their highest.
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When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called Question options: first-in, last-out last-in, first-out first-in, first-out average cost
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first-in, first-out
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Under which method of cost flows is the inventory assumed to be composed of the most recent costs? Question options: average cost last-in, first-out first-in, first-out weighted average
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first-in, first-out
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The inventory method that considers the inventory to be composed of the units of merchandise acquired earliest is called Question options: first-in, first-out last-in, first-out average cost retail method
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last-in, first-out
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The two most widely used methods for determining the cost of inventory are Question options: FIFO and LIFO FIFO and average LIFO and average gross profit and average
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FIFO and LIFO
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Which of the following inventory cost methods is appropriate for a business who has inventory with a relatively small number of unique items and a high cost per item? Question options: FIFO LIFO average specific identification
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specific identification????
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The inventory method that assigns the most recent costs to cost of good sold is Question options: FIFO LIFO average specific identification
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LIFO
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Which of the following companies would be more likely to use the specific identification inventory costing method? Question options: Gordon's Jewelers Lowe's Best Buy Wal-Mart
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Gordon's Jewelers
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The inventory costing method that reflects the cost flow in the reverse order and will report the earliest costs in ending inventory is Question options: First in first out Last in first out Average cost Specific identification
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Last in first out
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Inventory costing methods place primary emphasis on assumptions about Question options: flow of goods flow of costs flow of goods or costs depending on the method flow of values
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flow of costs????
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The inventory costing method that reflects a cost flow that is in the order in which the costs were incurred and will report the most current prices in ending inventory is Question options: First in first out Specific identification Last in first out Average cost
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First in first out
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Under which method of inventory cost flows is the cost flow assumed to be in the reverse order in which the expenditures were made? Question options: weighted average last-in, first-out first-in, first-out average cost
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last-in, first-out
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In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is Question options: debit Cost of Merchandise Sold; credit Sales debit Cost of Merchandise Sold; credit Merchandise Inventory debit Merchandise Inventory; credit Cost of Merchandise Sold debit Accounts Receivable; credit Sales
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debit Cost of Merchandise Sold; credit Merchandise Inventory
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Under a perpetual inventory system, when a shortage is discovered Question options: Merchandise Inventory is debited Cost of Merchandise Sold is credited Inventory Shortages is credited Merchandise Inventory is credited
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Merchandise Inventory is credited
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The inventory system employing accounting records that continuously disclose the amount of inventory is called Question options: retail periodic physical perpetual
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perpetual
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Under a periodic inventory system Question options: accounting records continuously disclose the amount of inventory a separate account for each type of merchandise is maintained in a subsidiary ledger a physical inventory is taken at the end of the period merchandise inventory is debited when goods are returned to vendors
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a physical inventory is taken at the end of the period
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During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory. Question options: average method LIFO method FIFO method can not tell without more information
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FIFO method
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If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income? Question options: average cost LIFO FIFO weighted average
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LIFO
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During times of rising prices, which of the following is not an accurate statement? Question options: Average costing will yield results that are between those of fifo and lifo Lifo will result in a higher cost of goods sold than Fifo Fifo will result in a higher net income than Lifo Fifo will result in high income taxes than Lifo
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Fifo will result in high income taxes than Lifo???
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If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is Question options: periodic LIFO FIFO average
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FIFO
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During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is Question options: FIFO LIFO average cost weighted average
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LIFO
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f, while taking a physical inventory, the company counts their inventory figures less than the actual amount. How will the error affect the cost of merchandise sold? Question options: Understated Overstated Only inventory is affected. No change.
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Overstated
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Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error? Question options: net income is understated net income is overstated cost of merchandise sold is understated merchandise inventory reported on the balance sheet is overstated
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net income is understated
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If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is Question options: $5 $60 $65 $125
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$60
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Becky's Boutiques has identified the following items for possible inclusion in its December 31, 2008 inventory. Which of the following would not be included in the year end inventory? Question options: Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Becky's Boutique as of December 31, 2008. Becky's has in its warehouse merchandise on consignment from ABC Co. Becky has sent merchandise to various retailers on a consignment basis Becky has merchandise on hand which has been returned by customers because of wrong size.
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Becky's has in its warehouse merchandise on consignment from ABC Co.
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During the taking of its physical inventory on December 31, 2008, Albert's Bike Shop incorrectly counted its inventory as $210,000 instead of the correct amount of $180,000. The effect on the balance sheet and income statement would be as follows: Question options: assets overstated by $30,000;retained earnings understated by $30,000; net income statement understated by $30,000. assets overstated by $30,000;retained earnings understated by $30,000; no effect on the income statement. assets and retained earnings overstated by $30,000; net income overstated by $30,000;. assets and retained earnings overstated by $30,000; net income understated by $30,000.
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?not #1
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If, while taking a physical inventory, the company counts their inventory figures more than the actual amount. How will the error affect their bottom line? Question options: No change to net income. Net income will be overstated Net income will be understated. Only gross profit will be affected.
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Net income will be overstated
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If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the Question options: consignee retailer manufacturer shipper
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manufacturer
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Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? Question options: owner's equity is overstated cost of merchandise sold is overstated gross profit is understated net income is understated
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owner's equity is overstated
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Damaged merchandise that can be sold only at prices below cost should be valued at Question options: net realizable value LIFO FIFO average
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net realizable value