Question 1

The following data was extracted from the records of Winsam Company:  Winsam's most recent balance sheet showed ending inventory of $800. Which method was used for valuing inventory?

Accepted Answer

A)  FIFO
B)  LIFO
C)  Average-cost
D)  Specific identification

Question 2

Given the following data, calculate the gross profit using the average-cost method, if the selling price was $20 per unit.

Accepted Answer

A)  $851.71
B)  $634.78
C)  $359.60
D)  $283.90

Question 3

Beginning inventory and ending inventory have opposite effects on cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 4

Under a perpetual inventory system, when a sale is made:

Accepted Answer

A)  the company makes a journal entry to record the sale only.
B)  the company makes a journal entry to record only the cost of goods sold.
C)  the company makes a journal entry to record the sale and the cost of goods sold.
D)  no journal entry needs to be made.

Question 5

Ending inventory for the year ended December 31, 2010, is overstated by $10,000. How will this affect net income for 2011?

Accepted Answer

A)  Net income for 2011 will be understated by $10,000.
B)  Net income for 2011 will be overstated by $10,000.
C)  Net income for 2011 will be understated by $20,000.
D)  Net income for 2011 will be overstated by $20,000.

Question 6

Companies may choose to determine the cost of goods sold using the lower-of-cost-or-market rule.

Accepted Answer

A) True 
 B)False

Question 7

The largest expense on the income statement for most merchandising companies is:

Accepted Answer

A)  administrative expenses.
B)  selling expenses.
C)  cost of goods sold.
D)  other expenses.

Question 8

The cost-of-goods-sold model is extremely powerful because it captures all the inventory information for an entire accounting period.

Accepted Answer

A) True 
 B)False

Question 9

Charles Scrab Inc has beginning inventory of $15,000, purchases of $25,000, and ending inventory of $10,000, sales of $75,000, operating expenses of $30,000, and a tax rate of 40% for 2010. An accounting clerk input the ending inventory as $12,000. What is the effect on 2011 net income?

Accepted Answer

A)  Net income for 2011 will be $1,200 higher than 2010.
B)  Net income for 2011 will be $1,200 lower than 2010.
C)  Net income for 2011 will be $10,200.
D)  Net income for 2011 cannot be calculated with the information given.

Question 10

In a merchandising business, gross profit is equal to sales revenue minus:

Accepted Answer

A)  cost of goods sold, operating expenses and prepaid expenses combined.
B)  cost of goods sold and operating expenses combined.
C)  cost of goods sold only.
D)  cost of goods sold and sales commissions combined.

Question 11

If the cost of goods sold is understated for the year, then:

Accepted Answer

A)  ending inventory is understated for the year.
B)  ending inventory is overstated for the year.
C)  there is no effect on ending inventory for the year.
D)  none of the above is true.

Question 12

Using the lower-of-cost-or-market rules to value ending inventory complies with the ongoing principles of accounting.

Accepted Answer

A) True 
 B)False

Question 13

When applying the lower-of-cost-or-market rules to beginning inventory valuation, market value generally refers to the cost at which the company can sell a unit of inventory.

Accepted Answer

A) True 
 B)False

Question 14

An indication of how quickly inventory is sold is the:

Accepted Answer

A)  gross profit percentage.
B)  cost-of-goods-sold model.
C)  inventory turnover.
D)  gross margin percentage.

Question 15

The cost-of-goods sold model is:

Accepted Answer

A)  beginning inventory, plus purchases, plus ending inventory equals cost of goods sold.
B)  beginning inventory, less purchases, less ending inventory equals cost of goods sold.
C)  beginning inventory, plus purchases, less ending inventory equals cost of goods sold.
D)  beginning inventory, less purchases, plus ending inventory equals cost of goods sold

Question 16

A company purchased inventory for $800 per unit. The inventory was marked up to sell for $1,000 per unit. The entries to record the sale for cash and the cost of a unit of inventory would include debits to which of the following accounts?

Accepted Answer

A)  Sales, $1,000; Inventory, $800
B)  Cash, $1,000; Cost of Goods Sold, $800
C)  Cash, $800; Cost of Goods Sold, $1,000
D)  Sales, $800; Inventory, $800

Question 17

To record the cost of inventory sold under a perpetual inventory, a debit to Cost of Goods Sold and a credit to Inventory is required.

Accepted Answer

A) True 
 B)False

Question 18

Inventory turnover is calculated as:

Accepted Answer

A)  cost of goods sold minus ending inventory.
B)  cost of goods sold divided by average inventory.
C)  average inventory divided by cost of goods sold.
D)  average inventory multiplied by cost of goods sold.

Question 19

All of the following are reasons for choosing the FIFO versus the LIFO costing method EXCEPT that:

Accepted Answer

A)  FIFO reports the most up-to-date inventory values on the balance sheet.
B)  FIFO generally results in higher net income in period of rising prices.
C)  FIFO uses more current costs in calculating the value of ending inventory.
D)  FIFO results in lower income taxes.

Question 20

The principle that can be summarized as "anticipate no gains, but provide for all possible losses and if in doubt, record an asset at the lowest reasonable amount and report a liability at the highest reasonable amount" is the:

Accepted Answer

A)  revenue concept.
B)  accounting conservatism principle.
C)  the materiality principle.
D)  disclosure principle.

Exam 6: Inventory and Cost of Goods Sold

A company purchased inventory for $800 per unit. The inventory was marked up to sell for $1,000 per unit. The entries to record the sale for cash and the cost of a unit of inventory would include debits to which of the following accounts?

Correct AnswerverifiedShow Answer

To record the cost of inventory sold under a perpetual inventory, a debit to Cost of Goods Sold and a credit to Inventory is required.

Correct AnswerverifiedShow Answer

In a merchandising business, gross profit is equal to sales revenue minus:

Correct AnswerverifiedShow Answer

Beginning inventory and ending inventory have opposite effects on cost of goods sold.

Correct AnswerverifiedShow Answer

Given the following data, calculate the gross profit using the average-cost method, if the selling price was $20 per unit.

Correct AnswerverifiedShow Answer

Using the lower-of-cost-or-market rules to value ending inventory complies with the ongoing principles of accounting.

Correct AnswerverifiedShow Answer

The cost-of-goods sold model is:

Correct AnswerverifiedShow Answer

When applying the lower-of-cost-or-market rules to beginning inventory valuation, market value generally refers to the cost at which the company can sell a unit of inventory.

Correct AnswerverifiedShow Answer

Inventory turnover is calculated as:

Correct AnswerverifiedShow Answer

If the cost of goods sold is understated for the year, then:

Correct AnswerverifiedShow Answer

All of the following are reasons for choosing the FIFO versus the LIFO costing method EXCEPT that:

Correct AnswerverifiedShow Answer

The principle that can be summarized as "anticipate no gains, but provide for all possible losses and if in doubt, record an asset at the lowest reasonable amount and report a liability at the highest reasonable amount" is the:

Correct AnswerverifiedShow Answer

Ending inventory for the year ended December 31, 2010, is overstated by $10,000. How will this affect net income for 2011?

Correct AnswerverifiedShow Answer

The following data was extracted from the records of Winsam Company: Winsam's most recent balance sheet showed ending inventory of $800. Which method was used for valuing inventory?

Correct AnswerverifiedShow Answer

The largest expense on the income statement for most merchandising companies is:

Correct AnswerverifiedShow Answer

The cost-of-goods-sold model is extremely powerful because it captures all the inventory information for an entire accounting period.

Correct AnswerverifiedShow Answer

Charles Scrab Inc has beginning inventory of $15,000, purchases of $25,000, and ending inventory of $10,000, sales of $75,000, operating expenses of $30,000, and a tax rate of 40% for 2010. An accounting clerk input the ending inventory as $12,000. What is the effect on 2011 net income?

Correct AnswerverifiedShow Answer

Companies may choose to determine the cost of goods sold using the lower-of-cost-or-market rule.

Correct AnswerverifiedShow Answer

Under a perpetual inventory system, when a sale is made:

Correct AnswerverifiedShow Answer

An indication of how quickly inventory is sold is the:

Correct AnswerverifiedShow Answer

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