Question 1

Which of the following is correct?

Accepted Answer

This equation is known as the inventory equation and is used to determine the ending inventory balance. It states that the beginning inventory balance plus the total purchases made during the accounting period minus the total cost of goods sold during the period must equal the ending inventory balance. This equation is essential for calculating the cost of goods sold and ensuring that the accounting records are accurate. Option B is the equation for calculating gross profit. Option C is incorrect as it subtracts purchases from the sum of beginning and ending inventory balances which makes no sense. Option D is incorrect as it subtracts operating expenses from income before taxes which also makes no sense.

Question 2

At the end of 20A,a $2,500 understatement was discovered in the amount of the 20A ending inventory as reflected in the perpetual inventory records.What were the 20A effects of the $2,500 inventory error (before correction)?

Accepted Answer

A

Question 3

Will Company's independent accountant discovered that the ending inventory for 20B had been overstated by the company by $2,000.Before the correction,what was the effect in the 20B income statement because of the overstatement of the ending inventory?

Accepted Answer

Overstating the ending inventory means that the cost of goods sold will be understated, and as a result, pretax profit will be overstated by the same amount. So, the correct answer is that pretax profit was overstated and the cost of goods sold was understated by $2,000.

Question 4

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

Accepted Answer

Revenue should be recognized when the title of the goods transfers from the seller to the buyer. This is because at this point, the risks and rewards of owning the goods are transferred, and the seller has fulfilled its obligation to deliver the goods to the buyer. Receipt of the sales order, receipt of the goods by the buyer, or manufacture of the goods does not necessarily indicate when the title has transferred.

Question 5

The following information was taken from the 20B income statement of Milburn Company: Pretax profit,$12,000; Total operating expenses,$20,000; Sales revenue,$120,000.Compute the cost of goods sold.

Accepted Answer

To find the cost of goods sold (COGS), use the formula: Sales Revenue - COGS - Operating Expenses = Pretax Profit. Plugging in the values: $120,000 - COGS - $20,000 = $12,000. Solving for COGS gives COGS = $120,000 - $20,000 - $12,000 = $88,000.

Question 6

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.

Accepted Answer

The formula for calculating ending inventory is: Beginning inventory + Purchases - Cost of goods sold. 
To calculate Cost of goods sold, we need to subtract Total operating expenses from Sales revenue: 
Cost of goods sold = Sales revenue - Total operating expenses = $120,000 - $20,000 = $100,000

Using the formula for ending inventory: 
Ending inventory = Beginning inventory + Purchases - Cost of goods sold 
Ending inventory = $8,000 + $90,000 - $100,000 
Ending inventory = $10,000

Therefore, the answer is B) $10,000.

Question 7

Retail Company reported the following amounts on its 20B income statement: Purchases,$45,000; Beginning 20B inventory,$15,000; and Cost of goods sold,$50,000.What was the 20B ending inventory?

Accepted Answer

To find the ending inventory, use the formula: Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold. Plugging in the values: $15,000 + $45,000 - $50,000 = $10,000.

Question 8

Wilburn Company reported the following data at year-end: Sales,$100,000; Beginning inventory,$8,000; Ending inventory,$6,000; Cost of goods sold,$60,000; and Gross margin,$40,000.What was the amount of merchandise purchases for the year?

Accepted Answer

Using the formula: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold, we can solve for purchases:
$8,000 + Purchases - $6,000 = $60,000
Purchases = $58,000. Therefore, the answer is C, $58,000.

Question 9

The 20B records of Tom Company showed beginning inventory,$6,000; cost of goods sold,$14,000; and ending inventory,$8,000.What was the purchases amount for 20B?

Accepted Answer

The answer of The 20B records of Tom Company showed...

Question 10

Which of the following costs would not be part of product inventory costs for a manufacturer such as Harley Davidson?

Accepted Answer

Costs to store finished motorcycles until they are sold are considered period costs, not product costs, as they are incurred after the manufacturing process is complete.

Question 11

An overstatement of the beginning inventory results in

Accepted Answer

An overstatement of the beginning inventory will result in an overstatement of profit. This is because the cost of goods sold will be understated, leading to a higher gross profit and net income. Therefore, choice B is the correct answer.

Question 12

Which of the following types of inventory usually is not held by a manufacturing business?

Accepted Answer

Merchandise inventory is typically held by a retail business, not a manufacturing business. Manufacturing businesses typically hold raw material inventory, work in process inventory, and finished goods inventory.

Question 13

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 in the last accounting period.At the end of the current accounting period,the net realizable value is determined to be $10,500.At what amount should the inventory be reported on the current period's statement of financial position?

Accepted Answer

The inventory should be reported at its original cost of $10,000 because the net realizable value has increased above the original cost. Inventory is reported at the lower of cost or net realizable value, and since the net realizable value is now higher than the original cost, the inventory should be reported at its original cost.

Question 14

Which of the following costs would be included in the costs of inventory of a manufacturer?

Accepted Answer

The costs of inventory of a manufacturer primarily consist of the direct costs incurred during the manufacturing process, such as the wages for factory workers, raw materials and supplies, and other manufacturing-related expenses. Costs such as sales salaries and wages for administrative staff would not be included in the costs of inventory. Similarly, the cost of electricity for the office building would be considered an indirect cost that is not directly related to the manufacturing process.

Question 15

On March 10,Frazier Company received merchandise for resale from its normal supplier.The invoice price was $3,600 with terms of 2/10,n/30 for 100 units of Part #345.The invoice was paid on March 17.Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory.What is the unit cost that should be recorded for each of the 100 units of Part #345?

Accepted Answer

The calculation is as follows: 
Invoice price for 100 units = $3,600 
Less discount (2% of $3,600) = $72 
Net invoice price = $3,528 
Add freight costs = $120 
Add interest costs = $108 
Total cost = $3,756 
Unit cost = Total cost / Number of units = $3,756 / 100 units = $37.56 per unit 
Rounded to two decimal places, the unit cost should be recorded as $36.48. Therefore, the best choice is B.

Question 16

Richmond Company had the following information taken from its 20A adjusted trial balance: Sales,$200,000; Sales Discounts,$4,000; Beginning Inventory,$10,000; and Purchases,$140,000.A physical count of the merchandise on hand at the end of the year showed $20,000.Compute the gross margin (gross profit)that would appear in the income statement.

Accepted Answer

Gross margin (gross profit) is calculated by subtracting the cost of goods sold from the net sales. To find the cost of goods sold, we need to subtract the ending inventory from the cost of goods available for sale (beginning inventory + purchases).

Beginning inventory + Purchases = $10,000 + $140,000 = $150,000
Cost of goods sold = $150,000 - $20,000 = $130,000
Net sales - Cost of goods sold = Gross margin (gross profit)
$200,000 - $130,000 = $70,000

However, the question states that there were sales discounts of $4,000. This means that some customers did not pay the full amount for their purchases. Sales discounts are deducted from gross sales to arrive at net sales.

Gross sales - Sales discounts = Net sales
$200,000 - $4,000 = $196,000

So, the updated calculation for gross margin (gross profit) is:

Net sales - Cost of goods sold = Gross margin (gross profit)
$196,000 - $130,000 = $66,000

Therefore, the answer is B) $66,000.

Question 17

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?

Accepted Answer

The correct pretax profit for 20B would be $11,000 + $2,000 = $13,000 (since ending inventory was understated by $2,000, it means cost of goods sold was overstated by $2,000, which would decrease the pretax profit by $2,000).

The correct pretax profit for 20C remains $15,000 since there was no error in inventory for that year.

Therefore, the total correct pretax profit for both years would be $13,000 + $15,000 = $28,000.

Question 18

A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared.What was the effect of the inventory error on the 20B financial statements?

Accepted Answer

The ending inventory is part of current assets, so an overstatement of inventory leads to an overstatement of current assets. Additionally, ending inventory affects the cost of goods sold and, consequently, the profit. An overstatement of ending inventory results in a lower cost of goods sold, which overstates profit.

Question 19

Which of the following is true?

Accepted Answer

Factory overhead includes costs such as indirect materials, indirect labor, and other manufacturing expenses that are not directly associated with the production of goods.

Answer: B
 Net realizable value is the estimated selling price of inventory minus any costs that are necessary to complete the sale, such as selling expenses or disposal costs.

Answer: C
 FIFO Reserve is a contra inventory account that is created when a company uses the FIFO (first-in, first-out) method to value its inventory. This account represents the difference between the inventory cost calculated using the FIFO method and the cost calculated using the weighted-average method.

Answer: None of the above
 Purchases discounts do not affect sales revenue, as they are a reduction in the cost of goods sold. They represent a reduction in the amount paid for inventory, and therefore, result in a lower cost of goods sold and higher gross margin.

Question 20

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

Accepted Answer

Cost of goods sold (COGS) refers to the cost of producing or acquiring the products or goods that a business sells. A movie theatre does not sell goods or products, they sell a service (movie-going experience), so it does not have cost of goods sold. Jewelry store, grocery store, and manufacturer of batteries have cost of goods sold.

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