Question 1

Maxell Company uses the periodic FIFO method to value inventory and had the followin transactions in the period. What are the cost of goods sold and ending inventory balances in dollars for the period?  
A) Choice A
B) Choice B
C) Choice C
D) Choice D

Accepted Answer

D

Question 2

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are
A) valued at their selling price.
B) reflective of obsolescence.
C) valued at their current cost.
D) not under-valued.

Accepted Answer

The lower of cost and net realizable value method ensures that inventories are valued considering potential obsolescence or decline in value, reflecting a more conservative and realistic valuation.

Question 3

How is the cost of goods sold calculated under the periodic method?
A) By subtracting the cost of the inventory on hand at the ending of the period from the cost of goods available for sale.
B) By adding the cost of purchases during the period to the cost of the inventory on hand at the beginning of the period and adding this figure to the cost of the inventory on hand at the end of the period.
C) By carefully matching selling and administrative expenses with the sales to which they are related and then reporting these expenses in the same period the associated revenue is reported.
D) By adding the cost of purchases during the period to the cost of the inventory on hand at the end of the period and subtracting the inventory on hand at the beginning of the period.

Accepted Answer

Under the periodic inventory system, the cost of goods sold is calculated by subtracting the ending inventory from the cost of goods available for sale, which includes beginning inventory plus purchases.

Question 4

If ABC's statement of earnings showed cost of goods sold at $78,000, purchases of $80,000, freight-in at $300, purchases returns of $500 and end-of-the period inventory at
$11,900, its beginning-of-the-period-inventory must have been:
A) $9,200
B) $9,900
C) $10,100
D) $10,400

Accepted Answer

Beginning inventory = Purchases + Freight-in - Purchases Returns - Ending Inventory= $80,000 + $300 - $500 - $11,900= $10,100

Question 5

In order to determine cost of goods sold in a periodic inventory system we
A) subtract ending inventory from beginning inventory.
B) add purchases to beginning inventory.
C) subtract purchases from ending inventory.
D) subtract ending inventory from beginning inventory plus purchases.

Accepted Answer

In a periodic inventory system, the cost of goods sold is determined by subtracting the ending inventory from the sum of the beginning inventory and the purchases made during the accounting period. This is because the beginning inventory reflects the cost of goods that were not sold from the previous period, and the purchases reflect the cost of goods acquired during the current period. Subtracting the ending inventory from the sum of these two amounts gives us the cost of goods sold during the period. Therefore, choice D is the correct answer.

Question 6

In 20B, Landings Inc. provided the following information in their financial statements: Cost of goods sold under FIFO costing is $22.2 billion and their inventory value under FIFO is $1.3 billion at the end of 20B and $1.2 billion at the end of 20A. What would their inventory turnover ratio be under the FIFO cost flow method?
A) 18.5
B) 17.1
C) 17.8
D) 8.9

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory

To calculate the average inventory, we need to add the ending inventory for 20B and 20A and divide by 2.

Average inventory = ($1.3 billion + $1.2 billion) / 2 = $1.25 billion

Inventory turnover ratio = $22.2 billion / $1.25 billion = 17.76

Rounding to one decimal place, the answer is 17.8, which corresponds to choice C.

Question 7

In 20B, Landings Inc. provided the following items in their footnotes. Its cost of goods available for sale was $6.2 billion under FIFO costing and its ending inventory value under FIFO costing was $2.1 billion. Its opening inventory was $2.5 billion. What was its purchases?
A) $3.7 billion
B) $8.3 billion
C) $4.6 billion
D) $4.1 billion

Accepted Answer

The cost of goods available for sale is calculated as opening inventory plus purchases. Therefore, purchases = cost of goods available for sale - opening inventory = $6.2 billion - $2.5 billion = $3.7 billion.

Question 8

Which of the following is true?
A) Factory overhead consists of manufacturing costs other than direct materials and direct labour.
B) Purchases discounts increase sales revenue to arrive at net sales.
C) Net realizable value is the expected sales price plus selling costs.
D) FIFO Reserve is a contra sales account for the excess of FIFO over weighted-average inventory.

Accepted Answer

Factory overhead includes indirect materials, indirect labor, and other indirect costs associated with manufacturing. It does not include direct materials and direct labor costs.

Answer: C
 Net realizable value is the estimated selling price of an item minus the costs of completing and selling it.

Answer: D
 The FIFO Reserve is not a contra sales account. It is a component of inventory that represents the difference between the cost of inventory calculated using FIFO method and the cost calculated using weighted-average method.

Question 9

Which of the following businesses would not have cost of goods sold?
A) A jewellery store
B) A manufacturer of batteries
C) A grocery store
D) A movie theatre

Accepted Answer

Cost of goods sold refers to the cost of materials and labor that goes into producing or purchasing the products that a business sells. A movie theater does not produce or purchase any products for resale, so it does not have a cost of goods sold.

Question 10

Two systems are used in accounting for inventory-perpetual and periodic. Which of the following statements is correct?
A) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only.
B) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period.
C) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period.
D) In a periodic inventory system, the inventory account is increased for each purchase during the accounting period.

Accepted Answer

In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. This is because the system continuously updates the inventory records in real-time as goods are bought and sold. In contrast, in a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only, and does not track individual purchases and sales throughout the accounting period. Therefore, option A and D are incorrect. Option B is also incorrect, as the inventory account is updated for each purchase under both perpetual and periodic inventory systems.

Question 11

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry for Joe Company to record the collection from Gibbs within 30 days if the company uses the periodic inventory system? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D

Accepted Answer

The answer of Joe Company sold merchandise with an invoice...

Question 12

Wilder Company reported pretax profit amounts of: 20B, $11,000; and 20C, $15,000. Later it was discovered that the ending inventory for 20B was understated by $2,000 (and not corrected in 20C). The correct pretax profit for each year was which of the following? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D

Accepted Answer

The answer of Wilder Company reported pretax profit amounts of:...

Question 13

If beginning inventory is understated by $1,300 and ending inventory is understated by $700, pretax profit for the period will be which of the following?
A) Overstated by $600.
B) Overstated by $2,000.
C) Understated by $2,000.
D) Understated by $600.

Accepted Answer

The understatement of beginning inventory increases the cost of goods sold by $1,300, reducing profit. The understatement of ending inventory decreases the cost of goods sold by $700, increasing profit. The net effect is a $600 overstatement of profit ($1,300 - $700 = $600).

Question 14

When goods are sold on credit, revenue usually should be recognized at the date of which of the following?
A) receipt of the sales order
B) passage of title from the seller to the buyer.
C) receipt of the goods by the buyer.
D) manufacture of the goods.

Accepted Answer

Revenue is recognized at the point when the title of the goods is transferred from the seller to the buyer. This point is also called the point of sale. It is at this point that the seller can reasonably measure the amount of revenue recognized from the transaction.

Question 15

The inventory turnover ratio is calculated by dividing cost of goods sold by
A) beginning inventory.
B) 365 days.
C) ending inventory.
D) average inventory.

Accepted Answer

The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory. This gives a measure of how quickly a company is selling and replenishing its inventory over a given period of time. Using the beginning or ending inventory alone does not provide a complete picture of inventory management. Therefore, option D is the best choice.

Question 16

David Company uses the gross method to record its credit purchases, and it uses the periodic inventory system. On July 21, 20D, the company purchased goods that had an invoice price of $3,000 with terms of 3/10, n/30. If payment in full is made on July 30, the journal entries to record the purchase and payment should be which of the following? 
A) Entry A
B) Entry B
C) Entry C
D) Entry D

Accepted Answer

The answer of David Company uses the gross method to...

Question 17

When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true?
A) Cost of goods sold is computed at the end of the accounting periods rather than at each sale.
B) The inventory account is updated throughout the year as purchases are made.
C) Purchases are recorded in the cost of goods sold account.
D) The inventory account is updated after each sale.

Accepted Answer

In the periodic inventory system, the inventory account is only updated at the end of the accounting period, and cost of goods sold is calculated by subtracting the ending inventory balance from the beginning inventory balance and adding any purchases made during the period. Purchases are recorded in a separate account called purchases, not in the cost of goods sold account. The inventory account is not updated after each sale, only at the end of the period.

Question 18

The following information was taken from the 20B income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases,
$90,000. Compute the amount of the ending inventory.
A) $18,000
B) $10,000
C) $88,000
D) $8,000

Accepted Answer

Using the formula: Cost of goods sold = Beginning inventory + Purchases - Ending inventory.
We can rearrange it to solve for the ending inventory:
Ending inventory = Beginning inventory + Purchases - Cost of goods sold.
First, we need to calculate the cost of goods sold:
Sales revenue - Cost of goods sold - Operating expenses = Pretax profit.
Substituting the given values:
120,000 - Cost of goods sold - 20,000 = 12,000
Cost of goods sold = 88,000
Then, we can calculate the ending inventory:
Ending inventory = 8,000 + 90,000 - 88,000
Ending inventory = 10,000. 
Therefore, the correct answer is B) $10,000.

Question 19

Upaway Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and ending inventory was overstated by $12,000. What would be the effect of this error in ending inventory?
A) Cost of goods sold would be overstated.
B) Ending retained earnings would be understated.
C) Profit would be overstated.
D) Profit would be understated.

Accepted Answer

Overstating the ending inventory will decrease the cost of goods sold and increase the gross profit, leading to an overstatement of profit.

Question 20

The cost of goods sold account is which of the following?
A) a contra-asset
B) an asset
C) an expense
D) an extraordinary item

Accepted Answer

Cost of goods sold is an expense account that represents the direct costs of producing the goods sold by a company. It is used to calculate the gross profit margin of a business.

Quiz 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Maxell Company uses the periodic FIFO method to value inventory and had the followin transactions in the period. What are the cost of goods sold and ending inventory balances in dollars for the period?

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

How is the cost of goods sold calculated under the periodic method?

If ABC's statement of earnings showed cost of goods sold at $78,000, purchases of $80,000, freight-in at $300, purchases returns of $500 and end-of-the period inventory at $11,900, its beginning-of-the-period-inventory must have been:

In order to determine cost of goods sold in a periodic inventory system we

In 20B, Landings Inc. provided the following items in their footnotes. Its cost of goods available for sale was $6.2 billion under FIFO costing and its ending inventory value under FIFO costing was $2.1 billion. Its opening inventory was $2.5 billion. What was its purchases?

Which of the following is true?

Which of the following businesses would not have cost of goods sold?

Two systems are used in accounting for inventory-perpetual and periodic. Which of the following statements is correct?

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. Which of the following is the correct entry for Joe Company to record the collection from Gibbs within 30 days if the company uses the periodic inventory system?

Wilder Company reported pretax profit amounts of: 20B, $11,000; and 20C, $15,000. Later it was discovered that the ending inventory for 20B was understated by $2,000 (and not corrected in 20C) . The correct pretax profit for each year was which of the following?

If beginning inventory is understated by $1,300 and ending inventory is understated by $700, pretax profit for the period will be which of the following?

When goods are sold on credit, revenue usually should be recognized at the date of which of the following?

The inventory turnover ratio is calculated by dividing cost of goods sold by

When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true?

The following information was taken from the 20B income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes) , $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000. Compute the amount of the ending inventory.

Upaway Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and ending inventory was overstated by $12,000. What would be the effect of this error in ending inventory?

The cost of goods sold account is which of the following?