137) Using a perpetual inventory system, how should a company record the sale of inventory
costing $620 for $960 on account?
1.
Inventory
620
Cost of Goods Sold
620
Sales Revenue
960
Accounts Receivable
960
2.
Accounts Receivable
960
Sales Revenue
960
Cost of Goods Sold
620
Inventory
620
3.
Inventory
620
Gain
340
Sales Revenue
960
4.
Accounts Receivable
960
Sales Revenues
620
Gain
340
A) Option 1
B) Option 2
C) Option 3
D) Option 4
138) A company purchased inventory on account. The inventory costs $2,000 and is expected to
sell for $3,000. How should the company record the purchase using a perpetual inventory system?
1.
Inventory
2,000
Accounts Payable
2,000
2.
Cost of Goods Sold
2,000
Deferred Revenue
1,000
Sales Revenue
3,000
3.
Cost of Goods Sold
2,000
Accounts Payable
2,000
4.
Cost of Goods Sold
2,000
Gain
1,000
Accounts Payable
3,000
A) Option 1
B) Option 2
C) Option 3
D) Option 4
139) Merchandise sold FOB destination indicates that:
A) The seller holds title until the merchandise is received at the buyer’s location.
B) The merchandise has not yet been shipped.
C) The merchandise will not be shipped until payment has been received.
D) The seller transfers title to the buyer once the merchandise is shipped.
140) Merchandise sold FOB shipping point indicates that:
A) The seller holds title until the merchandise is received at the buyer’s location.
B) The merchandise has not yet been shipped.
C) The merchandise will not be shipped until payment has been received.
D) The seller transfers title to the buyer once the merchandise is shipped.
141) If A sells to B, and B obtains title while goods are in transit, the goods were shipped
________. If C sells to D, and C maintains title until the goods arrive at D’s door, then the goods
were shipped ________.
A) FOB shipping point; FOB destination
B) FOB destination; FOB shipping point
C) FOB destination; FOB destination
D) FOB shipping point; FOB shipping point
142) From the seller’s perspective, ending inventory is equal to the cost of items on hand plus:
A) Items in transit sold FOB shipping point.
B) Sales discounts.
C) Items in transit sold FOB destination.
D) Advertising expense.
143) Suppose Company A places an order with Company B on May 12. On May 14, Company B
ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company
A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B
on May 20. When would Company B record the sale of goods to Company A?
A) May 12.
B) May 14.
C) May 19.
D) May 17.
144) Kelton Inc. purchases inventory for $2,000 and incurs shipping costs of $100. To record this
transaction, the company debits Inventory for $2,000, debits Selling Expenses for $100, and
credits Cash for $2,100. Which of the following statements is correct?
A) All accounts are accurately stated.
B) Assets are understated.
C) Net income is overstated.
D) Revenues are understated.
145) A company had sales revenue of $900,000 for the year. In addition, the following information
is available related to the cost of the units sold:
Total purchase cost
$
Freight charges
Purchase discounts
Purchase returns
Operating expenses
For what amount would the company report gross profit?
A) $285,000.
B) $485,000.
C) $420,000.
D) $410,000.
146) A company had sales revenue of $800,000 for the year. In addition, the following information
is available related to the cost of the units sold:
Gross profit
$
Total purchase cost
Freight charges
Purchase returns
Operating expenses
Purchase discounts
What was the total purchase cost of the units sold?
A) $310,000.
B) $460,000.
C) $410,000.
D) $560,000.
147) The inventory method that will always produce the same amount for cost of goods sold in a
periodic inventory system as in a perpetual inventory system would be:
A) FIFO.
B) LIFO.
C) Weighted-average.
D) Each method always produces a different amount.
148) The primary difference between the periodic and perpetual inventory systems is:
A) The reported amount of ending inventory is higher under the periodic system.
B) The perpetual system maintains a continual record of inventory transactions, whereas the
periodic system records these transactions only at the end of the period.
C) The reported amount of sales revenue is higher under the periodic inventory system.
D) The reported amount of cost of goods sold is higher under the perpetual inventory system.
149) In accounting for inventory, net realizable value equals:
A) Estimated selling price less expected returns by customers.
B) Original purchase cost minus the estimated profit on the sale of inventory.
C) Estimated selling price less any costs of completion, disposal, and transportation.
D) Estimated cost to replace the inventory.
150) The lower of cost and net realizable value rule causes losses in the value of inventory to be
recognized in the period when:
A) The inventory is purchased.
B) Cash collection from the customer fails to occur.
C) The inventory is sold.
D) The value of inventory declines below cost.
151) The lower of cost and net realizable value method for inventory was developed to:
A) Avoid reporting inventory at an amount that exceeds the benefits it provides.
B) Provide an alternative to the FIFO, LIFO, and weighted-average methods.
C) Prevent the company from selling the inventory below its original cost.
D) Prevent the company from selling inventory to customers who are not likely to pay.
152) A company has the following information for its inventories A, B, C, and D:
Quantity
Historical Cost
Net Realizable Value
A
15
$20
$25
B
20
35
30
C
40
25
40
D
25
50
35
The necessary adjustment associated with the lower of cost and net realizable value would be:
1.
Inventory
675
Cost of Goods Sold
675
2.
Cost of Goods Sold
675
Inventory
675
3.
Inventory
475
Cost of Goods Sold
475
4.
Cost of Goods Sold
475
Inventory
475
A) Option 1
B) Option 2
C) Option 3
D) Option 4
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153) On April 1, a company purchased two units of inventory, A and B. The cost of unit A was
$650, and the cost of unit B was $625. On April 30, the company had not sold the inventory. The
net realizable value of unit A was now $685 while the net realizable value of unit B was $550. The
adjustment associated with the lower of cost and net realizable value on April 30 will be:
1.
Cost of Goods Sold
40
Inventory
40
2.
Inventory
40
Cost of Goods Sold
40
3.
Cost of Goods Sold
75
Inventory
75
4.
Inventory
75
Cost of Goods Sold
75
A) Option 1
B) Option 2
C) Option 3
D) Option 4
154) Consider the following information pertaining to OldWest’s inventory:
Product
Quantity
Cost
Net Realizable
Value
Revolvers
16
$
120
$
150
Spurs
23
27
22
Hats
12
56
40
At what amount should OldWest report its inventory?
A) $3,213.
B) $3,386.
C) $2,996.
D) $2,906.
155) Under the principle of lower of cost and net realizable value, when a company has 10 units of
inventory A with net realizable value of $50 and a cost of $60, what is the adjustment?
A) Debit Inventory $100; credit Cost of Goods Sold $100.
B) Debit Inventory $500; credit Cost of Goods Sold $500.
C) Debit Cost of Goods Sold $100; credit Inventory $100.
D) Debit Cost of Goods Sold $500; credit Inventory $500.
156) A company has four types of products in its inventory. The company applies the rules under
lower of cost and net realizable value to its inventory at the end of each year as shown below:
Product
Quantity
Cost
Net Realizable Value
A
15
$
7
$
8
B
10
15
14
C
20
8
6
D
15
11
10
The year-end adjustment based upon the information above would include a:
A) Debit to Cost of Goods Sold $65.
B) Credit to Inventory $50.
C) Debit to Inventory $65.
D) Debit to Cost of Goods Sold $50.
157) At the end of a reporting period, a company determines that its ending inventory has a cost of
$300,000 and a net realizable value of $230,000. What would be the effect(s) of the adjustment to
write down inventory to net realizable value?
A) Decrease total assets.
B) Decrease net income.
C) Increase retained earnings.
D) Decrease total assets and net income.
158) Using the information below, determine the ending inventory value applying the lower of
cost and net realizable value.
Inventory Item
Quantity
Cost
Net Realizable
Value
Cutlets
200
$
12
$
14
Chops
400
$
16
$
14
Shanks
300
$
15
$
12
A) $13,300.
B) $12,000.
C) $11,600.
D) $13,700.
159) What effect would an adjustment to record inventory at the lower of cost and net realizable
value have on the company’s financial statements?
A) An increase to assets.
B) An increase to stockholders’ equity.
C) A decrease to revenue.
D) An increase to expense.
160) The practice of using the lower of cost and net realizable value to evaluate inventory reflects
which of the following accounting principles?
A) Matching principle.
B) Revenue recognition.
C) Conservatism.
D) Materiality.
161) After evaluating the lower of cost and net realizable value of inventory, the accountant
prepares a year-end adjustment. That adjustment would:
A) Decrease the company’s cost of goods sold.
B) Reduce the company’s stockholders’ equity.
C) Increase the company’s inventory.
D) Increase the company’s total assets.
162) The inventory turnover ratio is measured as:
A) Cost of goods sold divided by average inventory.
B) Average inventory divided by gross profit.
C) Gross profit divided by net sales.
D) Net sales divided by average inventory.
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163) The inventory turnover ratio measures:
A) The portion of inventory that becomes obsolete each period.
B) How many times the company purchases inventory during the current reporting period.
C) The times per period the average inventory balance is sold.
D) How many days it takes to collect its sales of inventory sold on account.
164) A company’s sales equal $60,000 and cost of goods sold equals $20,000. Its beginning
inventory was $1,600 and its ending inventory is $2,400. The company’s inventory turnover ratio
equals:
A) 5 times.
B) 10 times.
C) 20 times.
D) 30 times.
165) A company’s beginning inventory is $2,000 and its ending inventory is $1,000. The inventory
turnover is 6 times. Cost of goods sold for the year must equal:
A) $9,000.
B) $6,000.
C) $12,000.
D) $18,000.
166) Truman Co. sells a large number of common household items, while Stapleton sells a small
number of expensive items. The two companies report the same dollar amount for ending
inventory and gross profit for the year. Which of the following is most likely true?
A) Truman has a higher inventory turnover ratio and higher gross profit ratio.
B) Truman has a higher inventory turnover ratio, and Stapleton has a higher gross profit ratio.
C) Truman has a higher inventory turnover ratio, and Stapleton has a lower gross profit ratio.
D) Stapleton has a higher inventory turnover ratio and higher gross profit ratio.
167) Consider the following inventory data for two companies:
Nichols Inc.
Winters Inc.
Beginning inventory
$
120,000
$
150,000
Ending inventory
80,000
100,000
Purchases
240,000
310,000
Which of these companies had the higher inventory turnover ratio?
A) Nichols.
B) Winters.
C) The ratios are the same for both companies.
D) Cannot determine with the information given.
168) The following balances come from the financial statements of a company:
Sales revenue
$
Accounts receivable
Beginning inventory
Ending inventory
Net purchases
Sales returns
Sales discount
Given this information, what is the company’s inventory turnover ratio and average days in
inventory?
A) 21.25 times; 17 days.
B) 28.33 times; 13 days.
C) 16.0 times; 23 days.
D) 12.0 times; 30 days.
169) Company A is identical to Company B in every regard except that Company A uses FIFO and
Company B uses LIFO. In an extended period of rising inventory costs, which of the following is
true of Company A compared to Company B?
A) Company A’s gross profit is lower and inventory turnover is lower.
B) Company A’s gross profit is higher and inventory turnover is higher.
C) Company A’s gross profit is higher and inventory turnover is lower.
D) Company A’s gross profit is lower and inventory turnover is higher.
170) Anthony Corporation reported the following amounts for the year:
Net sales
$
Cost of goods sold
Average inventory
Anthony’s inventory turnover ratio is:
A) 2.42.
B) 2.76.
C) 3.21.
D) 2.14.
171) Anthony Corporation reported the following amounts for the year:
Net sales
$
Cost of goods sold
Average inventory
Anthony’s average days in inventory is: (Round to the nearest whole day.)
A) 170 days.
B) 114 days.
C) 132 days.
D) 151 days.
172) Anthony Corporation reported the following amounts for the year:
Net sales
$
Cost of goods sold
Average inventory
Anthony’s gross profit ratio is:
A) 53.4%.
B) 51.9%.
C) 50.3%.
D) 46.6%.
173) Consider the following inventory data:
Beginning inventory
$
Ending inventory
Purchases
What is the average days in inventory for the year?
A) 126.7 days.
B) 101.4 days.
C) 152.0 days.
D) 111.7 days.