Question 1

A company purchased 400 units at $75 per unit. The company sold 385 units. What is the cost of goods sold and ending inventory?

Accepted Answer

A)   
B)   
C)   
D)    .

Question 2

Bronx Company's ending inventory (at cost) was greater than the market value of the ending inventory. What adjusting entry is required to account for this difference?

Accepted Answer

A)   
B)   
C)   
D)  No adjusting entry is required.

Question 3

A gross profit margin of 30% means that:

Accepted Answer

A)  for each dollar of sales, the company has a cost of goods sold of seventy cents.
B)  for each dollar of sales, the company has a gross profit of thirty cents.
C)  for each dollar of sales, the company has a cost of goods sold of thirty cents.
D)  both A and B are true.

Question 4

When the FIFO method is used, ending inventory is assumed to consist of the:

Accepted Answer

A)  units with the lowest per unit cost.
B)  units with the highest per unit cost.
C)  oldest units.
D)  most recently purchased units.

Question 5

The number of inventory units on hand during the year may be determined from the accounting records under a perpetual inventory system; therefore, using this method, it is never necessary to count inventory at the end of the year.

Accepted Answer

A) True 
 B)False

Question 6

Inventory is presented on the balance sheet at the selling price of the item.

Accepted Answer

A) True 
 B)False

Question 7

To determine how much inventory a company should buy, the following formula should be used:

Accepted Answer

A)  Cost of goods sold, plus ending inventory, less beginning inventory equals purchases.
B)  Cost of goods sold, less ending inventory, less beginning inventory equals purchases.
C)  Cost of goods sold, plus ending inventory, plus beginning inventory equals purchases.
D)  None of the above are correct.

Question 8

The two main types of inventory accounting systems are:

Accepted Answer

A)  cost of goods sold and gross profit.
B)  perpetual and periodic.
C)  perpetual and continuous.
D)  none of the above.

Question 9

On July 16, 2011, Martson and Co. made the following journal entry:  What is the Gross Profit from this sale?

Accepted Answer

A)  $10,000
B)  $15,000
C)  $25,000
D)  $ 0

Question 10

How do purchase returns and allowances and purchase discounts affect net purchases?

Accepted Answer

A)  Both are added to purchases.
B)  Both are subtracted from purchases.
C)  Purchase returns and allowances are added to purchases; purchase discounts are subtracted from purchases.
D)  Purchase returns and allowances are subtracted from purchases; purchase discounts are added to purchases.

Question 11

The inventory system that uses computer software to keep a running record of inventory on hand is the:

Accepted Answer

A)  cost of goods sold inventory system.
B)  periodic inventory system.
C)  perpetual inventory system.
D)  hybrid inventory system.

Question 12

The choice of an inventory costing method has no significant impact on the company's income statement and balance sheet.

Accepted Answer

A) True 
 B)False

Question 13

When using the average-cost method to determine the cost of inventory, the average cost per unit is calculated as the cost of goods:

Accepted Answer

A)  in ending inventory, divided by the number of units in ending inventory.
B)  sold, divided by the number of units sold.
C)  available for sale, divided by the number of units available for sale.
D)  sold, divided by the average number of units in inventory.

Question 14

An error in the valuation of beginning inventory in the current period will affect the current year's net income.

Accepted Answer

A) True 
 B)False

Question 15

A company can use the cost-of-goods-sold formula to determine how much inventory to purchase.

Accepted Answer

A) True 
 B)False

Question 16

Given the following data, what would the income tax amount be if the company uses FIFO?

Accepted Answer

A)  $ 6,800
B)  $ 8,960
C)  $10,200
D)  $13,440

Question 17

The following data was collected from the accounting records of Ambrose, Inc., which currently uses the FIFO method of valuing inventory.  What would have been the difference in Ambrose's ending inventory under the LIFO costing method?

Accepted Answer

A)  Ending inventory would have been $120 higher.
B)  Ending inventory would have been $120 lower.
C)  Ending inventory is the same under both methods.
D)  The difference cannot be determined using this information.

Question 18

The disclosure principle requires that management prepare financial reports that disclose all of the following types of information EXCEPT:

Accepted Answer

A)  information that is relevant to decision making.
B)  forecasts of expected future earnings to help investors decide whether to invest in the company.
C)  the method of inventory used.
D)  information that facilitates comparison with other companies' financial reports.

Question 19

Wonkie Company's ending inventory (at cost) was $75,000. The market value of the ending inventory was $65,000. How will this affect the reported ending inventory and cost of goods sold?

Accepted Answer

A)  It will increase both ending inventory and cost of goods sold by $10,000.
B)  It will decrease ending inventory by $10,000 and increase cost of goods sold by $10,000.
C)  It will increase ending inventory by $10,000 and have no effect on cost of goods sold.
D)  It will have no effect on either ending inventory or cost of goods sold.

Question 20

The cost of the inventory that the business has sold to customers is called:

Accepted Answer

A)  Inventory.
B)  Cost of Goods Sold.
C)  Purchases.
D)  Gross Profit.

Exam 6: Inventory and Cost of Goods Sold

Wonkie Company's ending inventory (at cost) was $75,000. The market value of the ending inventory was $65,000. How will this affect the reported ending inventory and cost of goods sold?

Correct AnswerverifiedShow Answer

To determine how much inventory a company should buy, the following formula should be used:

Correct AnswerverifiedShow Answer

An error in the valuation of beginning inventory in the current period will affect the current year's net income.

Correct AnswerverifiedShow Answer

The choice of an inventory costing method has no significant impact on the company's income statement and balance sheet.

Correct AnswerverifiedShow Answer

The following data was collected from the accounting records of Ambrose, Inc., which currently uses the FIFO method of valuing inventory. What would have been the difference in Ambrose's ending inventory under the LIFO costing method?

Correct AnswerverifiedShow Answer

On July 16, 2011, Martson and Co. made the following journal entry: What is the Gross Profit from this sale?

Correct AnswerverifiedShow Answer

A gross profit margin of 30% means that:

Correct AnswerverifiedShow Answer

The cost of the inventory that the business has sold to customers is called:

Correct AnswerverifiedShow Answer

When the FIFO method is used, ending inventory is assumed to consist of the:

Correct AnswerverifiedShow Answer

When using the average-cost method to determine the cost of inventory, the average cost per unit is calculated as the cost of goods:

Correct AnswerverifiedShow Answer

The number of inventory units on hand during the year may be determined from the accounting records under a perpetual inventory system; therefore, using this method, it is never necessary to count inventory at the end of the year.

Correct AnswerverifiedShow Answer

The two main types of inventory accounting systems are:

Correct AnswerverifiedShow Answer

The inventory system that uses computer software to keep a running record of inventory on hand is the:

Correct AnswerverifiedShow Answer

Bronx Company's ending inventory (at cost) was greater than the market value of the ending inventory. What adjusting entry is required to account for this difference?

Correct AnswerverifiedShow Answer

Inventory is presented on the balance sheet at the selling price of the item.

Correct AnswerverifiedShow Answer

How do purchase returns and allowances and purchase discounts affect net purchases?

Correct AnswerverifiedShow Answer

The disclosure principle requires that management prepare financial reports that disclose all of the following types of information EXCEPT:

Correct AnswerverifiedShow Answer

A company can use the cost-of-goods-sold formula to determine how much inventory to purchase.

Correct AnswerverifiedShow Answer

Given the following data, what would the income tax amount be if the company uses FIFO?

Correct AnswerverifiedShow Answer

A company purchased 400 units at $75 per unit. The company sold 385 units. What is the cost of goods sold and ending inventory?

Correct AnswerverifiedShow Answer

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