Question 1

Purchases,returns and allowances should be added to the cost of purchases on the income statement,assuming the periodic inventory system is used.

Accepted Answer

Purchases are added to the cost of purchases, but returns and allowances are subtracted from the cost of purchases on the income statement under the periodic inventory system.

Question 2

When the periodic inventory system is used,the year-end statement of financial position may easily be prepared without taking a physical inventory.

Accepted Answer

The periodic inventory system relies on occasional physical counts of inventory to determine the quantity and value of goods on hand. Therefore, a physical inventory count is necessary in order to prepare an accurate year-end statement of financial position.

Question 3

When a periodic inventory system is used,a sales transaction requires two journal entries,while under the perpetual system,a sales transaction requires only one journal entry.

Accepted Answer

The statement is incorrect. Under a perpetual inventory system, a sales transaction requires two journal entries - one to record the sale and the other to record the reduction in inventory. Under a periodic inventory system, a sales transaction requires only one journal entry to record the sale.

Question 4

In the periodic inventory system,ending inventory is determined by taking an actual physical count of goods on hand on the last day of the accounting period; beginning inventory for the next period is determined by taking another physical count of goods on the first day of the new period.

Accepted Answer

In the periodic inventory system, the ending inventory is determined by a physical count at the end of the period, and this count is used as the beginning inventory for the next period without taking another physical count on the first day of the new period.

Question 5

Taste Best Company uses the periodic inventory system.It has compiled the following information in order to prepare the financial statements at the end of 20B:

Accepted Answer

The answer of Taste Best Company uses the periodic inventory...

Question 6

The higher the inventory turnover ratio,the higher the average days it takes to sell inventory.

Accepted Answer

The higher the inventory turnover ratio, the lower the average days it takes to sell inventory. This is because a higher turnover ratio indicates that the company is selling inventory quickly, which means they have less inventory on hand for a longer period of time. Therefore, the average days it takes to sell inventory decreases.

Question 7

Under the perpetual inventory system,cost of goods sold can be determined before a physical inventory count is completed.

Accepted Answer

Under the perpetual inventory system, the cost of goods sold can be determined in real-time as sales are made and inventory is continuously updated. This means that a physical inventory count is not necessary to determine the cost of goods sold. Hence, the statement is true.

Question 8

Under the periodic inventory system,the balance in the inventory account changes each time a purchase or sale is recorded.

Accepted Answer

Under the periodic inventory system, the inventory account balance only changes at the end of the period when a physical count is taken, and the cost of goods sold and purchases are calculated based on that count.

Question 9

A company that has decreased its inventory between years will cause a decrease in cash flow from operations.

Accepted Answer

When a company decreases its inventory, it means they have sold goods and generated revenue. This increase in revenue will offset the decrease in cash flow from operations, therefore, there will not necessarily be a decrease in cash flow from operations. In fact, if the revenue generated from the sale of inventory is greater than the cost of goods sold, there may be an increase in cash flow from operations.

Question 10

Ending inventory should be measured based on the lower of actual cost or net realizable value.

Accepted Answer

According to the lower of cost or market rule (also known as lower of cost or net realizable value), ending inventory should be measured at the lower of its historical cost or its net realizable value (i.e. the amount for which it can be sold minus any disposal costs). Therefore, the statement is true.

Question 11

Under the periodic inventory system,cost of goods sold is computed as a residual amount by subtracting beginning inventory from total goods available for sale.

Accepted Answer

In the periodic inventory system, cost of goods sold is calculated by subtracting ending inventory from total goods available for sale, not beginning inventory.

Question 12

A physical inventory count is not required when a computerized perpetual inventory system is maintained by a business.

Accepted Answer

While a computerized perpetual inventory system keeps track of inventory levels and transactions, it is still important to conduct periodic physical inventory counts to ensure the accuracy of the system and to identify any discrepancies or losses. These counts can also help to identify any issues with theft or improper stock management.

Question 13

The lower of cost and net realizable value is a valuation method departing from the cost principle.

Accepted Answer

The lower of cost and net realizable value method departs from the cost principle, which states that assets should be recorded at their historical cost. This method takes into account the possibility of a decline in the value of assets, and requires that assets be written down to their lower of cost or net realizable value. This departure from the cost principle is necessary to ensure that financial statements provide a true and fair view of the company's financial position.

Question 14

The LCNRV adjustment decreases cost of sales,decreases profit,and decreases reported inventory.

Accepted Answer

The LCNRV (Lower of Cost or Net Realizable Value) adjustment decreases the reported inventory value and increases cost of sales, which in turn decreases profit.

Question 15

A company that increases inventory by $.5 billion while trade payables increases by $.7 billion will cause an increase in cash flow from operations of $.2 billion.

Accepted Answer

An increase in inventory reduces cash flow from operations, while an increase in trade payables increases cash flow from operations. The net effect of these two changes is an increase in cash flow from operations.

Question 16

Damaged,obsolete,and out-of-season inventory should be written down to their current estimated net realizable value if that is below cost.

Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), inventory should be written down to its lower of cost or net realizable value. If the net realizable value of damaged, obsolete, or out-of-season inventory is below cost, it should be written down to that value. This is known as the valuation allowance or provision for inventory obsolescence. Therefore, the statement is true.

Question 17

A high inventory turnover ratio indicates that minimal funds are tied up in inventory.

Accepted Answer

A high inventory turnover ratio means that inventory is being sold quickly, which suggests that minimal funds are tied up in inventory. This is because the company is effectively managing its inventory and turning it into cash, rather than letting it sit idle and tying up funds. Therefore, a high inventory turnover ratio is generally considered a positive indication of a company's efficiency and profitability.

Question 18

When a perpetual inventory system is used,the purchases returns and allowances account will not be part of the general ledger accounts.

Accepted Answer

The answer of When a perpetual inventory system is used,the...

Question 19

The appearance of a purchases account in a trial balance usually indicates that the company is using a periodic inventory system.

Accepted Answer

A purchases account is typically used in a periodic inventory system to track raw material or merchandise purchases during the accounting period. In contrast, a perpetual inventory system would have a separate inventory account to track changes in inventory levels as goods are bought and sold.

Question 20

Purchases discounts should be recorded as an addition to the cost of purchases in the calculation of cost of goods sold.

Accepted Answer

Purchases discounts should be recorded as a deduction from the cost of purchases in the calculation of cost of goods sold. The formula for calculating cost of goods sold is: Beginning Inventory + Net Purchases - Ending Inventory. Net purchases are calculated as total purchases minus purchase returns and allowances minus purchases discounts.

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