Question 1

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Freight costs incurred by the buyer to ship goods to its place of business

Accepted Answer

Freight costs incurred by the buyer to ship goods to its place of business should be added to the inventory cost.

Question 2

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Excise taxes paid on goods acquired

Accepted Answer

Excise taxes paid on goods acquired should be added to the inventory cost.

Question 3

Complete the following data taken from the condensed income statements for merchandising companies: Action, Break, & Connors. $$\begin{array} { | l | c | c | c | } 
\hline & \text { Action } & \text { Break } & \text { Connors } \
\hline \text { Net income } & 315 & ? & 215 \
\hline \text { Sales } & ? & 865 & 560 \
\hline \text { Gross profit } & 430 & ? & 325 \
\hline \text { Operating expenses } & ? & 125 & ? \
\hline \text { Cost of merchandise sold } & 545 & 320 & ? \
\hline
\end{array}$$

Accepted Answer

The answer of Complete the following data taken from the...

Question 4

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Sales taxes paid on goods acquired

Accepted Answer

Sales taxes paid on goods acquired should be added to the inventory cost.

Question 5

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items:
-Prices are rising; profits are higher with this method.

Accepted Answer

When prices are rising, the FIFO (First In, First Out) method results in higher profits because the older, lower-cost items are recorded as sold first, leaving the newer, higher-cost items in inventory. This leads to a higher ending inventory value and lower cost of goods sold, which in turn increases profits.

Question 6

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Invoice price paid for resale goods

Accepted Answer

The invoice price paid for resale goods is considered a cost associated with acquiring the inventory and should be added to the cost of inventory.

Question 7

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Cost of storing the goods before they are sold to customers

Accepted Answer

Costs of storing goods before they are sold are considered part of the cost of inventory, as they are necessary to bring the inventory to its present location and condition.

Question 8

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items:
-Prices are declining; income taxes are higher with this method.

Accepted Answer

LIFO achieves the effect of lower net income and higher income taxes when prices are declining. This is because LIFO assumes that the last units purchased are the first ones sold, leading to higher cost of goods sold and lower ending inventory value. As a result, the company reports lower profits, leading to higher income tax expense.

Question 9

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation.
-Recorded cash sales for the day.

Accepted Answer

Recording cash sales increases cash (an asset) and sales revenue (an equity account).

Question 10

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items:
-Prices are declining; gross margin is higher with this method.

Accepted Answer

Under LIFO, the most recent purchases are assumed to be sold first. When prices are declining, this means that the cost of goods sold will be higher, resulting in a higher gross margin.

Question 11

During the current period, Mercado Corp.sold products to customers for a total of $76,000.Due to defective products, customers were given $2,800 in refunds for products that were returned and another $3,500 in reductions to their account balances.Discounts in the amount of $5,500 were given for early payment of account balances.

Prepare the Net Sales section of Mercado's income statement.

Accepted Answer

The answer of During the current period, Mercado Corp.sold products...

Question 12

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation.
-Granted a customer a credit on its balance due for goods that were returned.

Accepted Answer

When a customer returns goods, the company must decrease its assets (inventory) and decrease its owners' equity (revenue).

Question 13

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Freight costs incurred by the seller to ship goods to its customers

Accepted Answer

Freight costs incurred by the seller to ship goods to its customers are considered a selling expense and are not included in the cost of inventory.

Question 14

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation.
-Sold merchandise on credit to customers.

Accepted Answer

When Maxim Company sells merchandise on credit, it increases its accounts receivable (asset) and revenue (which increases owners' equity). Therefore, there is an increase in both assets and owners' equity.

Question 15

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items:
-Prices are rising; cost of goods sold is lower with this method.

Accepted Answer

When prices are rising, the FIFO (First In, First Out) method results in a lower cost of goods sold because it assumes that the oldest, and typically cheaper, inventory is sold first.

Question 16

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Cost of insurance during transit to acquire inventory items

Accepted Answer

The cost of insurance during transit is directly related to acquiring the inventory items, so it should be added to the inventory cost.

Question 17

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation.
-Gave a customer a cash refund.

Accepted Answer

The answer of Maxim Company sells auto parts.The company employs...

Question 18

Based upon the following data, determine the cost of merchandise sold for April. $$\begin{array} { l r } 
\text { Merchandise Inventory April } 1 & \$ 85,560 \
\text { Merchandise Invent ory April } 30 & 96,330 \
\text { Purchases } & 373,880 \
\text { Purchases Returns \& Allowances } & 14,760 \
\text { Purchases Discounts } & 10,900 \
\text { Freight In } & 4,135
\end{array}$$

Accepted Answer

The answer of Based upon the following data, determine the...

Question 19

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Income taxes paid on profits earned from selling goods to customers

Accepted Answer

Income taxes paid on profits earned from selling goods to customers are not considered part of the cost of inventory.

Question 20

Match the terms with the descriptions related to merchandise sales and purchases.
-Relies on a count of inventory on the last day of the year to determine amount on hand.

Accepted Answer

The periodic inventory system relies on a count of inventory on the last day of the year (or accounting period) to determine the amount on hand.

Quiz 5: Inventories and Cost of Goods Sold

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the buyer to ship goods to its place of business

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Excise taxes paid on goods acquired

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Sales taxes paid on goods acquired

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items: -Prices are rising; profits are higher with this method.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Invoice price paid for resale goods

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Cost of storing the goods before they are sold to customers

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items: -Prices are declining; income taxes are higher with this method.

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation. -Recorded cash sales for the day.

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items: -Prices are declining; gross margin is higher with this method.

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation. -Granted a customer a credit on its balance due for goods that were returned.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the seller to ship goods to its customers

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation. -Sold merchandise on credit to customers.

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items: -Prices are rising; cost of goods sold is lower with this method.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Cost of insurance during transit to acquire inventory items

Maxim Company sells auto parts.The company employs a periodic inventory system.Identify all the effects on the accounting equation. -Gave a customer a cash refund.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Income taxes paid on profits earned from selling goods to customers

Match the terms with the descriptions related to merchandise sales and purchases. -Relies on a count of inventory on the last day of the year to determine amount on hand.