Finance Chapter 5 Inventories And Cost Goods Sold The Lifo Conformity Rule Requires That

Document Type
Test Prep
Book Title
Financial Accounting: The Impact on Decision Makers 10th Edition
Authors
Curtis L. Norton, Gary A. Porter
Chapter 5: Inventories and Cost of Goods Sold
True / False
1. The three forms or states in the development of inventory for a manufacturer are direct materials, direct labor, and
finished goods.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-01 - LO: 05-01
KEYWORDS:
Bloom's: Remembering
2. The three distinct types of cost to a manufacturer are direct materials, direct labor, and
manufacturing overhead.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-01 - LO: 05-01
KEYWORDS:
Bloom's: Remembering
3. Gross margin as a percentage of sales is a common analytical tool for service companies.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Remembering
4. Sales revenue is an inflow of assets.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Remembering
5. If a customer returns merchandise which has already been paid for, the retailer may give either a cash refund or a credit
on account.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6. Sales Returns and Allowances is a contra-asset account.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Remembering
7. Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of
the date of the invoice.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Understanding
8. On the income statement of a merchandising company, cost of goods is added to net sales to arrive at gross margin or
gross profit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
9. Like sales revenue, cost of goods sold represents an inflow of assets.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
10. Cost of goods sold represents an outflow of an asset, inventory, from the sale of products.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
11. If cost of goods sold does not equal the cost of merchandise purchased during the period, an adjustment must be made
to correct the error.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
12. Net purchases equal purchases less purchase return, allowances, and discounts plus transportation-in.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
13. Cost of goods sold is the difference between costs available for sale and beginning inventory.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
14. With the periodic inventory system, the inventory account is updated after each sale or purchase.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
15. Under the periodic inventory system, a physical inventory must be taken at the end of the period to determine cost of
goods sold.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16. Under the perpetual inventory system, each time goods are purchased, the inventory account is transferred to sales
revenue.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
17. A company using the periodic inventory system must total the selling prices of the units on hand at the end of the
period to value the ending inventory.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
18. Purchase returns and allowances is subtracted from cost of goods sold to determine net purchases.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
19. Purchase discounts decrease the total cost of merchandise acquired.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
20. The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
21. When merchandise is sold FOB shipping point, the buyer is responsible for the shipping costs.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
22. Cost of goods available for sale is equal to beginning inventory less cost of goods sold.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Understanding
23. The gross profit ratio is computed by dividing net sales by gross profit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-04 - LO: 05-04
KEYWORDS:
Bloom's: Remembering
24. The gross profit ratio is calculated as gross profit divided by net income.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-04 - LO: 05-04
KEYWORDS:
Bloom's: Remembering
25. It important that the proper amount be assigned to inventory because the amount assigned to inventory will affect the
amount eventually recorded as net sales.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 - LO: 05-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26. The inventory method that assigns the most recent costs to ending inventory is LIFO.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 - LO: 05-06
KEYWORDS:
Bloom's: Understanding
27. The weighted average cost is calculated by adding up the units' costs from each purchase and then dividing by the
number of purchases.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 - LO: 05-06
KEYWORDS:
Bloom's: Understanding
28. Under FIFO, the units in the ending inventory represent the oldest purchase(s).
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 - LO: 05-06
KEYWORDS:
Bloom's: Understanding
29. Specific identification relies on matching unit costs with the actual units sold.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 - LO: 05-06
KEYWORDS:
Bloom's: Understanding
30. Under LIFO, the units in the ending inventory represent the most recent purchase(s).
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 - LO: 05-06
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
31. Changing inventory methods to take advantage of the tax breaks offered by LIFO is not a valid reason for a change in
methods.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
32. A LIFO liquidation occurs when a company sells fewer units than it buys during the period.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Remembering
33. According to the IRS's LIFO conformity rule, a company that chooses LIFO to report net income to its shareholders
may not use LIFO in preparing its income tax return.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
34. A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis exceeds the cost of goods sold on
a LIFO basis for the current year.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
35. FIFO results in the least amount of income before taxes, assuming a period of rising prices.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
36. The LIFO conformity rule requires that if a company uses LIFO in reporting income to stockholders, it also must use
LIFO on its tax return.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
37. Many countries prohibit the use of LIFO for tax or financial reporting purposes.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 - LO: 05-07
KEYWORDS:
Bloom's: Understanding
38. A counterbalancing inventory error is one where the error on the balance sheet is offset by the same amount of error
on the income statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 - LO: 05-08
KEYWORDS:
Bloom's: Understanding
39. If ending inventory is understated, then cost of goods sold is overstated.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 - LO: 05-08
KEYWORDS:
Bloom's: Understanding
40. If ending inventory is overstated, then net income is overstated as well.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 - LO: 05-08
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
41. The lower of cost or market (LCM) rule violates the historical cost principle.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-09 - LO: 05-09
KEYWORDS:
Bloom's: Understanding
42. The journal entry to write down inventory to its market value results in a loss on the income statement.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-09 - LO: 05-09
KEYWORDS:
Bloom's: Applying
43. Both U.S. GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost-or-market
rule to value inventories.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-09 - LO: 05-09
KEYWORDS:
Bloom's: Understanding
44. The inventory turnover ratio is defined as cost of goods sold divided by average inventory.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-10 - LO: 05-10
KEYWORDS:
Bloom's: Remembering
45. The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-10 - LO: 05-10
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
46. Under the indirect method, a decrease in inventory is added to net income to determine cash flow from operating
activities.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-11 - LO: 05-11
KEYWORDS:
Bloom's: Understanding
47. If a change in accounts payable was added back to net income on the statement of cash flows prepared using the
indirect method, then the amount owed to suppliers during the period had decreased.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-11 - LO: 05-11
KEYWORDS:
Bloom's: Understanding
48. Moving average is the name given to the use of an average cost method used with a periodic inventory system.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-12 - LO: 05-12
KEYWORDS:
Bloom's: Understanding
49. Whether LIFO costing is applied at the time each sale is made or only at the end of the period, both the periodic and
perpetual systems will yield the same ending inventory under LIFO.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-12 - LO: 05-12
KEYWORDS:
Bloom's: Understanding
50. Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the
perpetual system is used.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-12 - LO: 05-12
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
51. Finished goods are the equivalent of merchandise inventory for a retailer or wholesaler in that both represent the
inventory of goods held for sale.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-01 - LO: 05-01
KEYWORDS:
Bloom's: Remembering
52. When inventory is sold by a wholesaler or retailer, it is recorded in a different account on the income statement than a
manufacturer would use.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-01 - LO: 05-01
KEYWORDS:
Bloom's: Remembering
53. Assets are unexpired costs, and expenses are expired costs.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 - LO: 05-05
KEYWORDS:
Bloom's: Understanding
54. The value assigned to an asset such as inventory on the balance sheet determines the amount eventually recognized as
an expense on the income statement.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 - LO: 05-05
KEYWORDS:
Bloom's: Understanding
55. The effect of a misstatement of the year-end inventory is limited to the net income for that year.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 - LO: 05-08
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
56. If a company has a number of day’s sales in inventory equal to 60, that means that it takes about two months on
average to sell its inventory.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-10 - LO: 05-10
KEYWORDS:
Bloom's: Remembering
57. Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from
operating activities.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-11 - LO: 05-11
KEYWORDS:
Bloom's: Understanding
58. If the direct method is used to prepare the Operating Activities category of the statement of cash flows, the amount of
cash paid
to suppliers of inventory is shown as an addition in this section of the statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-11 - LO: 05-11
KEYWORDS:
Bloom's: Understanding
59. The inventory costing method is applied after each sale of merchandise to update the Inventory account.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-12 - LO: 05-12
KEYWORDS:
Bloom's: Understanding
60. The lower the inventory turnover ratio, the less time inventory resides in storage.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-10 - LO: 05-10
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
65. Which one of the following accounts most likely would appear on the income statement of a merchandise company,
but not on the income statement of a service company?
a.
Income Tax Expense
b.
Cost of Goods Sold
c.
Selling Expenses
d.
Administrative Expenses
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying
66. Which one of the following ratios is a common analytical tool used by merchandise corporations, but not by service
corporations?
a.
Earnings per share
b.
Gross profit ratio
c.
Current ratio
d.
Profit margin
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying
67. A customer returned damaged goods for credit. Which of the seller's accounts decreases?
a.
Sales Returns
b.
Purchase Returns
c.
Accounts Receivable
d.
Sales Revenue
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying
68. Travelli Co. sold merchandise to Trapani Co. on account, $17,000, terms 2/15, net 45. The cost of the merchandise
sold is $15,400. Tavella Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The
Trapani Co. paid the invoice within the discount period. What is amount of net sales from the above transactions?
a.
$17,000
b.
$14,945
c.
$15,250
d.
None of these choices
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
69. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the
beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950;
Purchases Discounts, $330. The cost of merchandise purchased is equal to
a.
$8,420
b.
$17,230
c.
$12,670
d.
$9,070
ANSWER:
d
RATIONALE:
$10,700 $1,950 $330 + $650 = $9,070
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
70. Using the following information, what is the amount of cost of goods sold?
Purchases
$32,000
Purchases discounts
$960
Merchandise inventory
September 1
5,700
Merchandise inventory
September 30
6,370
Sales returns and
allowances
910
Sales
63,000
Purchases returns and
allowances
1,200
Freight In
1,040
a.
$26,900
b.
$20,530
c.
$28,130
d.
$30,210
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
71. Which of the following terms best describes “Cost of goods available for sale”?
a.
Cost of goods available for sale is an expense account.
b.
Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the
period.
c.
Cost of goods available for sale is subtracted from net sales to arrive at the gross margin
d.
Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the
fiscal year
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
72. Ending inventory is equal to the cost of items on hand plus
a.
the cost of all inventory purchased during the period.
b.
merchandise in transit sold to customers FOB shipping point.
c.
merchandise purchased in transit with terms FOB destination.
d.
merchandise in transit sold to customers FOB destination.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Applying
Takenson Corp.
Takenson Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed
below:
Sales
$500,000
Purchases
225,000
Inventory (beginning)
16,000
Inventory (ending)
30,000
Operating Expenses
148,000
Income Tax Expense
10,000
Retained Earnings (beginning)
53,000
Dividends
15,000
73. Refer to information for Takenson Corp.
Calculate the cost of goods sold for Takenson Corp.
a.
$275,000
b.
$211,000
c.
$241,000
d.
$259,000
ANSWER:
b
RATIONALE:
$16,000 (Inventory Beginning) + $225,000 (Purchases) $30,000 (Inventory Ending) =
$211,000
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
74. Refer to the information for Takenson Corp.
Calculate the gross profit.
a.
$241,000
b.
$275,000
c.
$425,000
d.
$289,000
ANSWER:
d
RATIONALE:
$500,000 Sales [($16,000 + $225,000 $30,000) Cost of goods sold] = $289,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
75. Refer to the information for Takenson Corp.
Calculate net income.
a.
$289,000
b.
$131,000
c.
$141,000
d.
$116,000
ANSWER:
b
RATIONALE:
$289,000 (Gross Profit) $148,000 (Operating Expenses) $10,000 (Income Tax Expense)
= $131,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
George’s Department Store
George’s Department Store is a merchandising company that uses the periodic inventory system. Selected account
balances are listed below:
Sales
$200,000
Purchases
90,000
Inventory (beginning)
23,000
Inventory (ending)
17,000
Purchase returns and allowances
3,000
Purchase discounts
7,000
Transportation-in
4,000
Sales discounts
8,000
Sales returns and allowances
5,000
76. Refer to the account information for George’s Department Store.
Calculate George’s net sales.
a.
$200,000
b.
$187,000
c.
$195,000
d.
$192,000
ANSWER:
b
RATIONALE:
$200,000 (Sales) $8,000 (Sales discounts) $5,000 (Sales returns and allowances) =
$187,000
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
77. Refer to the account information for George’s Department Store
Calculate George’s cost of goods purchased
a.
$ 90,000
b.
$ 84,000
c.
$ 117,000
d.
$ 103,000
ANSWER:
b
RATIONALE:
$90,000 (Purchases) + $4,000 (Transportation-in) $3,000 (Purchase returns and
allowances) 7,000 (Purchase discounts) = $84,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
78. Refer to the account information for George’s Department Store.
Determine George’s gross profit.
a.
$93,000
b.
$97,000
c.
None of these choices
d.
$103,000
ANSWER:
b
RATIONALE:
Net Sales =
$200,000 (Sales) $8,000 (Sales discounts) $5,000 (Sales
returns and allowances) = $187,000
Cost of goods sold =
$23,000 (Beginning inventory) + [$90,000 (Purchases) + $4,000
(Transportation-in) $3,000 (Purchase returns and allowances)
$7,000 (Purchase discounts)] $17,000 (Ending inventory) =
$90,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
79. Anthony's Shoe Company uses a perpetual inventory system. The beginning balance in its inventory account is $1,500
and the ending balance is $1,000. Cost of goods sold is $6,500. What was the amount of inventory purchased during the
year?
a.
$ 500
b.
$7,000
c.
$7,500
d.
$6,000
ANSWER:
d
RATIONALE:
$6,500 (Cost of goods sold) + $1,000 (Ending inventory) $1,500 (Beginning inventory) =
$6,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 - LO: 05-03
KEYWORDS:
Bloom's: Analyzing
80. What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?
a.
Stockholders’ equity decreases and liabilities increase.
b.
Assets and stockholders’ equity decrease.
c.
Assets and stockholders’ equity increase.
d.
Assets decrease and liabilities increase.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying
81. Vern Corp. sold merchandise to a customer on credit. The invoice amount was $2,000; the invoice date was June 10;
credit terms were 1/20, n/30. Which one of the following statements is true?
a.
The customer must pay a $20 penalty if payment is made after July 9.
b.
The customer should pay $2,000 if the invoice is paid on July 9.
c.
The customer must pay $2,020 if payment is made after June 20.
d.
The customer can take a $20 discount if the invoice is paid on June 30.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
82. Grinn, Inc. offers terms of 2/10, n/30 to credit customers. Great Buy Corp. purchased 100 tile cutters with a list price
of $20 each on March 5, 2016, on account. If Great Buy Corp. pays the amount of the invoice for its purchase on March
14, 2016, how much cash will Grinn receive from Great Buy Corp.?
a.
$1,764
b.
$2,000
c.
$1,800
d.
$1,960
ANSWER:
d
RATIONALE:
($20 × 100 Tile cutters) 98% (or 100% 2%) = $1,960
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
83. Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price
of $20 each on August 5, 2016, on account. Tile Magic Corp. paid the invoice on August 31, 2016. How much sales
discount will Floors recognize?
a.
$ 40
b.
$ -0-
c.
$ 200
d.
$ 236
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Analyzing
84. Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the
effect of the payment on Blenham’s accounting equation?
a.
Assets and stockholders’ equity decrease.
b.
Assets and stockholders’ equity increase.
c.
Assets decrease and liabilities increase.
d.
Stockholders’ equity decreases and liabilities increase.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 - LO: 05-02
KEYWORDS:
Bloom's: Applying

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