Question 1

Ending inventory equals the cost of goods available for sale less beginning inventory.

Accepted Answer

A) True 
 B)False

Question 2

The periodic inventory system works well for small businesses in which the inventory is not large in size or dollar amounts.

Accepted Answer

A) True 
 B)False

Question 3

An inventory error cancels out after two periods.

Accepted Answer

A) True 
 B)False

Question 4

Better Deals Company has 6 units in inventory on December 31.The units were purchased in November for $155 each.The price lists from the suppliers indicate that the same items would now cost the company a total of $960.What would be the amount reported as ending Merchandise Inventory on the balance sheet?

Accepted Answer

A)  $1,890 
B)  $315 
C)  $930 
D)  $960 
A)  $1,890 
B)  $315 
C)  $930 
D)  $960

Question 5

A company is uncertain whether a complex transaction should be recorded as an asset or an expense.Under the conservatism principle,it should choose to treat it as an asset.

Accepted Answer

A) True 
 B)False

Question 6

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.

Accepted Answer

A) True 
 B)False

Question 7

In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.

Accepted Answer

A) True 
 B)False

Question 8

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

Accepted Answer

A)  The net income will be overstated by $50,000. 
B)  The net income will be overstated by $25,000. 
C)  The net income will be understated by $25,000. 
D)  The net income will be understated by $50,000. 
A)  The net income will be overstated by $50,000. 
B)  The net income will be overstated by $25,000. 
C)  The net income will be understated by $25,000. 
D)  The net income will be understated by $50,000.

Question 9

The lower-of-cost-or-market value (LCM)rule ________.

Accepted Answer

A)  replaces the use of specific identification, FIFO, LIFO, or weighted-average inventory costing methods. 
B)  violates the conservatism principle 
C)  requires that merchandise inventory be reported in the financial statements at the lower of the historical cost or the selling price of the inventory 
D)  is an accounting issue separate from applying an inventory costing method 
A)  replaces the use of specific identification, FIFO, LIFO, or weighted-average inventory costing methods. 
B)  violates the conservatism principle 
C)  requires that merchandise inventory be reported in the financial statements at the lower of the historical cost or the selling price of the inventory 
D)  is an accounting issue separate from applying an inventory costing method

Question 10

Michigan Motors is considering which inventory costing method it should use.The business wants to show the highest Merchandise Inventory balance during a period of declining costs.Which inventory method should Michigan Motors select? Discuss your selection.

Accepted Answer

Michigan should select the last-in,first

Question 11

The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.

Accepted Answer

\[\begin{array} { | c | r | r | } 
\hlin

Question 12

If the historical cost of inventory is less than its current replacement cost,the business must adjust the inventory value.

Accepted Answer

A) True 
 B)False

Question 13

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline \text { Cost of Goods Sold } & 7,800 & \
\hline \text { Merchandise Inventory } & & 7,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | l | } 
\hline \text { Merchandise Inventory } & 15,000 & \
\hline \text { Cost of Goods Sold } & & 15,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | l | } 
\hline \text { Cost of Goods Sold } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline \text { Cost of Goods Sold } & 7,000 & \
\hline \text { Merchandise Inventory } & & 7,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline \text { Cost of Goods Sold } & 7,800 & \
\hline \text { Merchandise Inventory } & & 7,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | l | } 
\hline \text { Merchandise Inventory } & 15,000 & \
\hline \text { Cost of Goods Sold } & & 15,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | l | } 
\hline \text { Cost of Goods Sold } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 15,000 & \
\hline \text { Sales Revenue } & & 15,000 \
\hline \text { Cost of Goods Sold } & 7,000 & \
\hline \text { Merchandise Inventory } & & 7,000 \
\hline
\end{array}$$

Question 14

Provide a definition for each of the following accounting principles.
 $$\begin{array} { | l | l | } 
\hline \text { Accounting Principle } & \text { Definition } \
\hline \text { Disclosure } & \
\hline \text { Materiality Concept } & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline \t

Question 15

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Accepted Answer

A) True 
 B)False

Question 16

Samson Company had the following balances and transactions during 2019: $$\begin{array} { | l | l | } 
\hline\begin{array} { l }  
\text { Beginning Merchandise } \
\text { Inventory }
\end{array} & 20 \text { units at } \$ 94 \
\hline \text { March 10 } & \text { Sold 17 units } \
\hline & \text { Purchased 60 units at } \
\text { June 10 } & \$ 100 \
\hline \text { October 30 } & \text { Sold 54 units } \
\hline
\end{array}$$ What is the balance of the company's Merchandise Inventory,as disclosed in the December 31,2019 balance sheet as per the periodic FIFO inventory costing method?

Accepted Answer

A)  $564 
B)  $600 
C)  $1,880 
D)  $900 
A)  $564 
B)  $600 
C)  $1,880 
D)  $900

Question 17

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Accepted Answer

A) True 
 B)False

Question 18

A company purchased 200 units for $30 each on January 31.It purchased 220 units for $33 each on February 28.It sold a total of 350 units for $45 each from March 1 through December 31.What is the cost of ending inventory on December 31 if the company uses the first-in,first-out (FIFO)inventory costing method? (Assume that the company uses a perpetual inventory system.)

Accepted Answer

A)  $2,310 
B)  $300 
C)  $2,100 
D)  $1,800 
A)  $2,310 
B)  $300 
C)  $2,100 
D)  $1,800

Question 19

Which of the following is the correct formula to calculate days' sales in inventory?

Accepted Answer

A)  Days' sales in inventory = 365 days × Inventory turnover 
B)  Days' sales in inventory = 365 days + Inventory turnover 
C)  Days' sales in inventory = 365 days / Inventory turnover 
D)  Days' sales in inventory = 365 days - Inventory turnover 
A)  Days' sales in inventory = 365 days × Inventory turnover 
B)  Days' sales in inventory = 365 days + Inventory turnover 
C)  Days' sales in inventory = 365 days / Inventory turnover 
D)  Days' sales in inventory = 365 days - Inventory turnover

Question 20

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,600.The cost of the goods sold was $1,000.Which of the following journal entries correctly records this transaction?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Cost of Goods Sold } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline \text { Cost of Goods Sold } & 1,000 & \
\hline \text { Merchandise Inventory } & & 1,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 4,600 & \
\hline \text { Cash } & & 4,600 \
\hline \text { Cost of Goods Sold } & 1,000 & \
\hline \text { Merchandise Inventory } & & 1,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Merchandise Inventory } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Cost of Goods Sold } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline \text { Cost of Goods Sold } & 1,000 & \
\hline \text { Merchandise Inventory } & & 1,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable } & 4,600 & \
\hline \text { Cash } & & 4,600 \
\hline \text { Cost of Goods Sold } & 1,000 & \
\hline \text { Merchandise Inventory } & & 1,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Merchandise Inventory } & 4,600 & \
\hline \text { Sales Revenue } & & 4,600 \
\hline
\end{array}$$

Exam 6: Merchandise Inventory

Ending inventory equals the cost of goods available for sale less beginning inventory.

The periodic inventory system works well for small businesses in which the inventory is not large in size or dollar amounts.

An inventory error cancels out after two periods.

A company is uncertain whether a complex transaction should be recorded as an asset or an expense.Under the conservatism principle,it should choose to treat it as an asset.

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.

In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

The lower-of-cost-or-market value (LCM)rule ________.

Michigan Motors is considering which inventory costing method it should use.The business wants to show the highest Merchandise Inventory balance during a period of declining costs.Which inventory method should Michigan Motors select? Discuss your selection.

The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.

If the historical cost of inventory is less than its current replacement cost,the business must adjust the inventory value.

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

Provide a definition for each of the following accounting principles. Accounting Principle Definition Disclosure Materiality Concept

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Which of the following is the correct formula to calculate days' sales in inventory?

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,600.The cost of the goods sold was $1,000.Which of the following journal entries correctly records this transaction?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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