Deck 15: Accounting for Merchandise Inventory

Question 1

A credit customer purchased $450 worth of items.Two days later,the customer returned $300 worth of those items.The entry to record this under the perpetual inventory method would include:

A)a debit to Sales Returns and Allowances $300
B)a credit to Merchandise Inventory for our cost.
C)a debit to Cost of Goods Sold for our cost.
D)a credit to Sales Returns and Allowances $300

Answer 1

A

Question 2

The journal entry to record a customer's return of an item for a cash refund would:

A)be the same under both the periodic and perpetual system.
B)only include one entry under the perpetual system.
C)include two entries under the perpetual system.
D)include none of the above.

Answer 2

C

Question 3

The freight paid on goods purchased F.O.B.shipping point was debited to the Purchases account.The company uses the periodic method.This error would cause:

A)the period end expenses to be understated.
B)the period end expenses to be overstated.
C)the period's net income to be understated.
D)None of these is correct.

Answer 3

D

Question 4

Under the periodic inventory system,in addition to making the entry to record a sale,a company would:

A)debit Merchandise Inventory and credit Cost of Goods Sold.
B)debit Cost of Goods Sold and credit Merchandise Inventory.
C)debit Cost of Goods Sold and credit Purchases.
D)make no additional entry.

Question 5

Which of the following would be used to record the payment for purchases under the periodic system?

A)Debit to Accounts Payable
B)Debit to Purchase Discounts
C)Credit to Accounts Payable
D)Debit to Cash

Question 6

Under the perpetual system,when merchandise is sold the journal entry would include a:

A)debit to Merchandise Inventory;credit to Accounts Payable or Cash.
B)debit to Cost of Goods Sold;credit to Merchandise Inventory.
C)debit to Accounts Receivable or Cash and a credit to Sales.
D)Both B and C are correct.

Question 7

The journal entry to record a purchase of inventory for cash under the perpetual system includes:

A)a debit to Merchandise Inventory.
B)a debit to Cash.
C)a credit to Cash.
D)Both A and C are correct.

Question 8

The freight paid on goods purchased F.O.B.shipping point was debited to the Freight Expense account.The goods are not sold at period end.The company uses the perpetual inventory method.This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be overstated.
D)None of these is correct.

Question 9

The journal entry to record the purchase of inventory under the perpetual system includes:

A)a debit to Cost of Goods Sold and a credit to Merchandise Inventory.
B)a debit to Merchandise Inventory;credit to Accounts Payable or Cash.
C)a debit to Accounts Receivable or Cash and a credit to Sales.
D)Both A and C are correct.

Question 10

Under the perpetual inventory system,in addition to making the entry to record a return of goods from a customer,a company would:

A)debit Merchandise Inventory and credit Cost of Goods Sold.
B)debit Cost of Goods Sold and credit Merchandise Inventory.
C)debit Sales and credit Cost of Goods Sold.
D)debit Purchases and credit Cost of Goods Sold.

Question 11

Office Supplies bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory.This error would cause:

A)the period end Cost of Goods Sold to be understated.
B)the period end Cost of Goods Sold to be overstated.
C)the period's net income to be overstated.
D)None of these is correct.

Question 12

The journal entry to record the return of a purchase of inventory under the periodic system includes a:

A)debit to Merchandise Inventory.
B)credit to Purchases Returns and Allowances.
C)credit to Merchandise Inventory.
D)credit to Purchases.

Question 13

In a perpetual inventory system:

A)Merchandise Inventory is credited every time inventory is purchased.
B)Cost of Goods Sold is debited every time inventory is sold.
C)a physical inventory is never taken performed.
D)all of the above take place.

Question 14

Under the perpetual inventory system,which of the following accounts would NOT be used?

A)Sales
B)Purchases
C)Cost of Goods Sold
D)Merchandise Inventory

Question 15

A customer returned merchandise that had been paid for within a discount period for credit.The entry was recorded with a debit to Sales Returns and Allowances and a credit to Accounts Receivable for the net amount.This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of these is correct.

Question 16

Which of the following accounts is used with a periodic inventory system?

A)Purchases
B)Purchase Discounts
C)Purchases Returns and Allowances
D)All of these answers are correct.

Question 17

The company returned $400 of damaged merchandise purchased on credit.The entry to record this under the periodic inventory method is:

A)debit Merchandise Inventory $400;credit Accounts Payable $400.
B)debit Cost of Goods Sold $400;credit Accounts Payable $400.
C)debit Accounts Payable $400;credit Purchases Returns and Allowances $400.
D)debit Accounts Payable $400;credit Merchandise Inventory $400.

Question 18

The perpetual inventory system is a system which:

A)updates inventory only at the end of each period.
B)uses only LIFO method.
C)needs a physical inventory taken.
D)Both A and B are correct.

Question 19

Under the perpetual inventory method,merchandise inventory is assigned to Cost of Goods Sold when a company:

A)receives the inventory.
B)purchases the inventory.
C)sells the inventory.
D)makes payment on the inventory.

Question 20

The return of merchandise was recorded as a debit to Accounts Payable and a credit to Purchases.This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of these is correct.

Question 21

Merchandise Inventory is an asset account.

Question 22

In a perpetual inventory system,Cost of Goods Sold is not an account in the general ledger.

Question 23

The ________ system of accounting for inventory does not provide information about the balance in merchandise inventory on a transaction-by-transaction basis.

Question 24

Under the ________ inventory system,entries are made to the merchandise inventory or cost of goods sold account during the year.

Question 25

Sold merchandise on account.- Periodic
Debit ________ Credit ________

Question 26

Paid for merchandise after the discount period expired.- Perpetual
Debit ________ Credit ________

Question 27

Paid for merchandise within the discount period.- Perpetual
Debit ________ Credit ________ & ________

Question 28

When merchandise is sold,the periodic inventory system requires a debit to Cost of Goods Sold and a credit to Merchandise Inventory.

Question 29

Paid for merchandise after the discount period expired.- Periodic
Debit ________ Credit ________

Question 30

When a perpetual inventory system is used,a physical inventory should be taken at least monthly.

Question 31

In a perpetual inventory system,Purchases,Freight-In,and Purchases Returns and Allowances accounts are not used.

Question 32

Returned merchandise inventory for cash - Periodic
Debit ________ Credit ________

Question 33

Under a perpetual inventory system,inventory purchases are entered in the Merchandise Inventory account at cost.

Question 34

Purchased merchandise with cash;terms of 2/10,n/30.- Periodic
Debit ________ Credit ________

Question 35

Under the ________ inventory system,cost of goods sold and the amount of merchandise inventory on hand are updated at the end of the accounting period.

Question 36

Purchased merchandise with cash;terms of 2/10,n/30.- Perpetual
Debit ________ Credit ________

Question 37

When using a periodic inventory system,a physical inventory is required.

Question 38

In a perpetual inventory system,the Merchandise Inventory account is updated:

A)when merchandise is sold.
B)at the end of the period.
C)when merchandise is purchased.
D)All of the above are correct

Question 39

Title passes from the seller to the buyer under F.O.B.________ when the merchandise arrives at its destination.

Question 40

Under the periodic inventory method,purchase returns are credited to ________.

Question 41

The inventory method that matches most recently acquired costs with current selling prices is:

A)LIFO.
B)FIFO.
C)weighted-average.
D)specific invoice.

Question 42

The advantage of the weighted-average method is:

A)an equal cost is assigned to each unit so net income does not fluctuate as much as with other methods.
B)flow of goods and flow of costs are the same.
C)it matches current selling prices and current costs.
D)old costs are matched against current income.

Question 43

Individual inventory items are tracked in the:

A)accounts receivable ledger.
B)purchases journal
C)accounts payable ledger.
D)inventory ledger.

Question 44

The inventory method where the flow of goods and flow of costs are the same is:

A)LIFO.
B)specific invoice.
C)weighted-average.
D)FIFO.

Question 45

Customer returned goods purchased on credit - Perpetual
Debit ________ & ________ Credit ________ & ________

Question 46

Joe owns an auto parts store called Joe's Auto Care.The following transactions took place during July of the current year.
July 8 Purchased merchandise on account from Wheeler Auto for $6,000
July 10 Paid freight charges of $400 on merchandise purchases on the 8^th.
July 12 Sold merchandise on account to Lancaster Auto Sales for $5,500.
The cost of the merchandise was $3,500
July 16 Received a credit memo from Wheeler for merchandise returned,$900
July 22 Issued a credit memo to Lancaster Auto Sales for merchandise returned,$1,000.
The cost of the merchandise is $550.
Journalize the above transactions using the perpetual inventory system.

Question 47

An entry to record the payment to a vendor was not recorded and posted to the general ledger but was posted to the subsidiary ledger.This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the Accounts Payable will be larger than the subsidiary ledger.
D)the Accounts Payable will be less than the subsidiary ledger.

Question 48

Sold merchandise on account.- Perpetual
Debit ________ & ________ Credit ________ & ________

Question 49

Joe owns an auto parts store called Joe's Auto Care.The following transactions took place during September of the current year.
September 9 Purchased merchandise on account from Wheeler Auto for $6,000.
September 10 Paid freight charges of $300 on merchandise purchased on the 9^th.
September 13 Sold merchandise on account to Lancaster Auto Sales for $5,500.
The cost of the merchandise was $3,500.
September 15 Received a credit memo from Wheeler for merchandise returned,$900
September 25 Issued a credit memo to Lancaster Auto Sales for merchandise returned,$1,000.
The cost of the merchandise is $550.
Journalize the above transactions using the periodic inventory system.

Question 50

Sold merchandise on cash - Periodic
Debit ________ Credit ________

Question 51

This method assumes that the oldest goods are sold first.

A)LIFO
B)FIFO
C)Specific invoice method
D)Weighted-average method

Question 52

Journalize the following assuming periodic inventory.
June 20 Made purchases of inventory for $4,500 on account.
June 21 Made sales of $3,500 cash and $2,500 credit.
June 22 Returned $2,000 of purchases for defects.

Question 53

The inventory method that assumes the recent goods are sold first is:

A)LIFO.
B)FIFO.
C)weighted-average.
D)specific invoice.

Question 54

One disadvantage of the LIFO method is that:

A)an equal cost is assigned to each unit,so net income does not fluctuate as much as with other methods.
B)flow of goods and flow of costs are the same.
C)it matches current selling prices and current costs.
D)ending inventory is valued at very old costs.

Question 55

Prepare journal entries for the following transactions for Jane's Violin Shop applying the perpetual inventory system.Omit explanations.

Question 56

A purchases journal may be used to track inventory.

Question 57

An inventory ledger is used to track details of quantities and costs.

Question 58

Prepare journal entries for the following transactions for HO Train Shop applying the perpetual inventory system.Omit explanations.

Question 59

The inventory method where the ending inventory consists of oldest costs is:

A)LIFO.
B)FIFO.
C)weighted-average.
D)specific invoice.

Question 60

The weighted-average method:

A)calculates an average unit cost by dividing the total cost of goods sold by the total units sold.
B)calculates an average unit cost by dividing the total cost of goods available for sale by the total units of goods available for sale.
C)calculates an average unit cost by adding the total cost of goods available for sale to the total units of goods available for sale.
D)None of these answers is correct.

Question 61

Which of the following goods should Nassen Company include in its December 31,201X,count?

A)Goods held on consignment for Acorn Supply
B)Goods sold to Crishom,F.O.B.destination,and arrival date scheduled for January 5
C)Goods that are not salable
D)Goods in transit purchased F.O.B.destination

Question 62

Lois's Furniture uses a periodic inventory system.Lois sold 60 tables during August.Other data for August includes:
$$\begin{array} { | r | l | l | } \hline \text { Aug. } 1 & \text { Balance } & 3 @ \$ 15 \\\hline 9 & \text { Purchased } & 12 @ \$ 18 \\\hline 18 & \text { Purchased } & 60 @ \$ 20 \\\hline\end{array}$$
Cost of Goods Sold under the LIFO method is:

A)$1,200.
B)$336.
C)$1,130.
D)$400.

Question 63

The principle of consistency states that:

A)changes in accounting methods should occur from one fiscal period to the next.
B)a company cannot change from one inventory valuation method to another.
C)a company should switch from LIFO to FIFO every other period.
D)by using the same method,the financial statements are more meaningful.

Question 64

If goods are shipped FOB shipping point by the seller,when does title pass?

A)When the goods arrive at the buyer's location
B)When the goods leave the seller's location
C)When the goods are signed for
D)None of the above

Question 65

Hall Novelty Shop uses a periodic inventory system.It sold 65 balloons during April.Other data for April includes:
$\begin{array}{|r|l|l|}\hline\text { Apr. } 1 & \text { Balance } & 40 @ \$ 2.00 \\\hline 11 & \text { Purchased } & 40 @ \$ 4.00 \\\hline 25 & \text { Purchased } & 20 @ \$ 6.00 \\\hline\end{array}$
Cost of goods sold under the weighted-average method (rounded to the nearest dollar)is:

A)$52.
B)$432.
C)$234.
D)$48.

Question 66

Shayla's Design uses a periodic inventory system.Shayla sold 33 artist kits during January.Other data for January includes:
$\begin{array}{|r|l|l|}\hline \text { Jan, } 1 & \text { Balance } & \text { 12 kits } @ \$ 30 \\\hline 11 & \text { Purchased } & 20 \text { kits } @ \$ 33 \\\hline 25 & \text { Purchased } & 26 \text { kits } @ \$ 38 \\\hline\end{array}$
Cost of Goods Sold under the LIFO method is:

A)$1,219.
B)$1,055.
C)$950.
D)$789.

Question 67

Shayla's Design uses a periodic inventory system.Shayla sold 33 artist kits during January.Other data for January includes:
$\begin{array}{|r|l|l|}\hline \text { Jan, } 1 & \text { Balance } & \text { 12 kits } @ \$ 30 \\\hline 11 & \text { Purchased } & 20 \text { kits } @ \$ 33 \\\hline 25 & \text { Purchased } & 26 \text { kits } @ \$ 38 \\\hline\end{array}$
Ending Inventory under the FIFO method is:

A)$1,219.
B)$1,055.
C)$950.
D)$789.

Question 68

Sterling Supply uses a periodic inventory system.Sterling Supply sold 25 globes during March.Other data for March includes:
$$\begin{array} { | c | l | c | } \hline \text { Mar. 1 } & \text { Balance } & 30 @ \$ 12 \\\hline 11 & \text { Purchased } & 20 @ \$ 15 \\\hline 25 & \text { Purchased } & 10 @ \$ 10 \\\hline\end{array}$$
Round per unit cost to two decimal places.Ending inventory under the weighted-average method is:

A)$281.25.
B)$155.00.
C)$443.45.
D)$168.75.

Question 69

This inventory method produces the lowest income tax during a period of inflation.

A)FIFO
B)LIFO
C)Weighted-average
D)All would have the same tax effect.

Question 70

Barry's Books uses a periodic inventory system.Barry's Books sold 40 copies of Helpful Hints during September.Other data for September include:
$$\begin{array} { | c | l | l | } \hline \text { Sep. } 1 & \text { Balance } & 10 \text { books } @ \$ 20 \\\hline 8 & \text { Purchased } & 15 \text { books } @ \$ 21 \\\hline 17 & \text { Purchased } & 20 \text { books } @ \$ 22 \\\hline 25 & \text { Purchased } & 20 \text { books } @ \$ 24 \\\hline\end{array}$$
Ending inventory under the FIFO method is:

A)$480.
B)$515.
C)$590.
D)$500.

Question 71

Hawkeye Tack uses a periodic inventory system.Hawkeye Tack sold 80 sweaters during September.Other data for September includes:
$$\begin{array} { | c | l | l | } \hline \text { Sep. } 1 & \text { Balance } & 40 @ \$ 24 \\\hline 8 & \text { Purchased } & 12 @ \$ 29 \\\hline 17 & \text { Purchased } & 25 @ \$ 35 \\\hline 25 & \text { Purchased } & 35 @ \$ 30 \\\hline\end{array}$$
Cost of goods sold under the FIFO method is:

A)$2,081.
B)$2,273.
C)$2,215.
D)$2,182.

Question 72

Goods that are consigned to another party:

A)belong to the other party because title has passed.
B)belong to the company that has consigned them.
C)belong to the consignee.
D)Both B and C are correct.

Question 73

The inventory method that assumes the cost of the ending inventory consists of old inventory is:

A)LIFO.
B)FIFO.
C)weighted-average.
D)specific invoice.

Question 74

Which of the following goods should Pin Department Store include in its December 31 count?

A)Goods available for sale in the warehouse
B)Goods in transit purchased F.O.B.shipping point
C)Goods that have been consigned to Dalton Brothers
D)All of the Above.

Question 75

Barry's Books uses a periodic inventory system.Barry's Books sold 40 copies of Helpful Hints during September.Other data for September include:
$$\begin{array} { | c | l | l | } \hline \text { Sep. } 1 & \text { Balance } & 10 \text { books } @ \$ 20 \\\hline 8 & \text { Purchased } & 15 \text { books } @ \$ 21 \\\hline 17 & \text { Purchased } & 20 \text { books } @ \$ 22 \\\hline 25 & \text { Purchased } & 20 \text { books } @ \$ 24 \\\hline\end{array}$$
Cost of goods sold under the FIFO method is:

A)$920.
B)$845.
C)$1,020.
D)some other number.

Question 76

Which of the following should NOT be included in inventory costs?

A)Goods that are not resalable
B)Goods on consignment to you
C)Goods for sale at a value that is greater than cost
D)Both A and B are correct.

Question 77

Which of the following items should be included in merchandise inventory?

A)Supplies on hand
B)Goods that have been consigned to another company
C)Goods in transit shipped to another company FOB destination
D)Both B and C

Question 78

The full disclosure principle says that if a change is made:

A)the company should disclose the change.
B)the effects of the change on profit and inventory valuation should be disclosed.
C)the company should show justification for the change in a footnote on the financial reports.
D)All of these answers are correct.

Question 79

Sterling Supply uses a periodic inventory system.Sterling Supply sold 25 globes during March.Other data for March includes:
$$\begin{array} { | c | l | c | } \hline \text { Mar. 1 } & \text { Balance } & 30 @ \$ 12 \\\hline 11 & \text { Purchased } & 20 @ \$ 15 \\\hline 25 & \text { Purchased } & 10 @ \$ 10 \\\hline\end{array}$$
Round per unit cost to two decimal places.Cost of goods sold under the weighted-average method is:

A)$281.25.
B)$155.00.
C)$316.75.
D)$168.75.

Question 80

Goods on consignment to another company:

A)belong to the consignee because title has passed.
B)belong to the consignor because title has passed.
C)belong to the consignor because the consignee is merely selling them for the consignor.
D)belong to the consignee because the consignor is merely selling them for the consignee.