Question 1

The inventory system whereby the merchandise inventory account balance is merely a record of the most recent physical inventory count is called

Accepted Answer

The inventory system described in the question where the merchandise inventory account balance is only updated after a physical inventory count is conducted is known as the periodic inventory system. In contrast, perpetual inventory systems continually update inventory balances after each transaction (e.g. sale, purchase). Therefore, answer choice D is the best answer.

Question 2

Match the terms with the definitions.
-A method of estimating inventory in which a business's normal gross profit percentage is used to estimate the cost of goods sold and ending inventory.

Accepted Answer

The gross profit method is the method of estimating inventory in which a business's normal gross profit percentage is used to estimate the cost of goods sold and ending inventory.

Question 3

Match the terms with the definitions.
-The cost to replace inventory at the prevailing purchase price.

Accepted Answer

The answer of Match the terms with the definitions.
-The cost...

Question 4

When merchandise is sold and the perpetual system of inventory is used, the journal entry for a sale would include

Accepted Answer

The answer of When merchandise is sold and the perpetual...

Question 5

Match the terms with the definitions.
-The accounting practice that states that we should never anticipate gains, but always anticipate and account for losses.

Accepted Answer

Conservatism is the accounting practice that states that we should never anticipate gains, but always anticipate and account for losses.

Question 6

The merchandise costing method that matches the most current cost of items purchased against the current sales revenue is called the

Accepted Answer

The answer of The merchandise costing method that matches the...

Question 7

The inventory system that uses the merchandise inventory account as an active account is called

Accepted Answer

A perpetual inventory system continuously updates the merchandise inventory account to reflect every transaction involving inventory, making it an active account. Option B and C refer to specific inventory valuation methods, while option D is the opposite of a perpetual system, which only updates the merchandise inventory account periodically. Therefore, option A is the correct answer.

Question 8

A method of allocating merchandise cost requiring each item sold and each item remaining in inventory to be separately identified with respect to its purchase cost is called the

Accepted Answer

The specific identification method requires each item sold and each item remaining in inventory to be separately identified with respect to its purchase cost. This method is typically used for high-value, unique items that can be easily identified and tracked.

Question 9

Match the terms with the definitions.
-A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore, the earliest goods purchased remain in inventory.

Accepted Answer

The answer of Match the terms with the definitions.
-A method...

Question 10

Assigning of the lower-of-cost-or-market to the items that comprise the inventory of merchandise at the end of the account period is an application of which of the following concepts?

Accepted Answer

The lower-of-cost-or-market (LCM) is an application of the conservatism principle, which states that when in doubt, accountants should choose the alternative that will be least likely to overstate assets or income. LCM ensures that inventory is not stated at a value higher than it can be sold for, and so the principle of conservatism is applied to record inventory at the lower of its cost or market value.

Question 11

A method of allocating merchandise cost that assumes the first merchandise bought was the first merchandise sold is called the

Accepted Answer

The method described in the question is the first-in, first-out (FIFO) method. This means that the cost of the merchandise is allocated based on the assumption that the first units purchased were the first ones sold. This is a common method used in inventory accounting, and is useful for businesses that deal in perishable goods or products with a short shelf life.

Question 12

Match the terms with the definitions.
-A method of allocating merchandise cost which assumes that the first goods purchased were the first goods sold and, therefore, that the latest goods purchased remain in inventory.

Accepted Answer

The answer of Match the terms with the definitions.
-A method...

Question 13

An error in the reported inventory will cause errors in all of the following EXCEPT

Accepted Answer

An error in the reported inventory will not directly affect the cash account.

Question 14

A method of allocating merchandise cost that assumes the sales in the period were made from the recently purchased merchandise and its earliest merchandise bought remains in the inventory is called the

Accepted Answer

The answer of A method of allocating merchandise cost that...

Question 15

A method of allocating merchandise cost that assigns the most recent purchased costs to the ending inventory shown on the balance sheet is called the

Accepted Answer

The answer of A method of allocating merchandise cost that...

Question 16

Match the terms with the definitions.
-Under this system, cost of goods sold and the amount of merchandise inventory on hand are updated when merchandise is bought and sold.

Accepted Answer

The perpetual inventory system updates the cost of goods sold and the amount of merchandise inventory on hand in real-time as merchandise is bought and sold.

Question 17

Match the terms with the definitions.
-The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

Accepted Answer

Consistency is the principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

Question 18

When a fiscal year that starts and ends at the time the stock of merchandise is normally at its lowest level is selected, it is known as a(n)

Accepted Answer

A natural business year is selected to coincide with the low inventory levels of a company's merchandise. This makes it easier to calculate the cost of goods sold and other financial ratios. A calendar year runs from January 1 to December 31, with no consideration taken for the company's individual business cycle. A base year is a reference point used for comparisons in financial analysis. An accounting cycle refers to the process of preparing financial statements and closing out accounts at the end of a period.

Question 19

Match the terms with the definitions.
-The owner of the merchandise that is held by another business.

Accepted Answer

The term that matches the definition is consignor.

Question 20

Lower-of-cost-or-market (for tax purposes) may be used with all of the following merchandise costing methods EXCEPT

Accepted Answer

Lower-of-cost-or-market (LCM) is a valuation method that requires inventory to be reported at the lower of its cost or current market value. This means that if the current market value of inventory is lower than its cost, the inventory must be written down to its market value. LCM can be used with the first-in, first-out (FIFO), weighted-average, and specific identification methods. However, LCM cannot be used with the last-in, first-out (LIFO) method because LIFO assumes that the most recently purchased inventory is sold first and therefore does not accurately reflect the current value of inventory on hand.

Quiz 13: Accounting for Merchandise Inventory

The inventory system whereby the merchandise inventory account balance is merely a record of the most recent physical inventory count is called

Match the terms with the definitions. -A method of estimating inventory in which a business's normal gross profit percentage is used to estimate the cost of goods sold and ending inventory.

Match the terms with the definitions. -The cost to replace inventory at the prevailing purchase price.

When merchandise is sold and the perpetual system of inventory is used, the journal entry for a sale would include

Match the terms with the definitions. -The accounting practice that states that we should never anticipate gains, but always anticipate and account for losses.

The merchandise costing method that matches the most current cost of items purchased against the current sales revenue is called the

The inventory system that uses the merchandise inventory account as an active account is called

A method of allocating merchandise cost requiring each item sold and each item remaining in inventory to be separately identified with respect to its purchase cost is called the

Match the terms with the definitions. -A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore, the earliest goods purchased remain in inventory.

Assigning of the lower-of-cost-or-market to the items that comprise the inventory of merchandise at the end of the account period is an application of which of the following concepts?

A method of allocating merchandise cost that assumes the first merchandise bought was the first merchandise sold is called the

Match the terms with the definitions. -A method of allocating merchandise cost which assumes that the first goods purchased were the first goods sold and, therefore, that the latest goods purchased remain in inventory.

An error in the reported inventory will cause errors in all of the following EXCEPT

A method of allocating merchandise cost that assumes the sales in the period were made from the recently purchased merchandise and its earliest merchandise bought remains in the inventory is called the

A method of allocating merchandise cost that assigns the most recent purchased costs to the ending inventory shown on the balance sheet is called the

Match the terms with the definitions. -Under this system, cost of goods sold and the amount of merchandise inventory on hand are updated when merchandise is bought and sold.

Match the terms with the definitions. -The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

When a fiscal year that starts and ends at the time the stock of merchandise is normally at its lowest level is selected, it is known as a(n)

Match the terms with the definitions. -The owner of the merchandise that is held by another business.

Lower-of-cost-or-market (for tax purposes) may be used with all of the following merchandise costing methods EXCEPT