Deck 15: Accounting for Merchandise Inventory

Question 1

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 1

C

Question 2

Inventory becomes part of 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.

Answer 2

C

Question 3

Which of the following would not be used to pay for purchases under the periodic system?

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

Answer 3

C

Question 4

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 are correct.

Question 5

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

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

Question 6

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

A)a debit to Merchandise Inventory.
B)a debit to Purchases.
C)a credit to Accounts Payable.
D)both A and C.

Question 7

The company returned $200 of damaged merchandise. The entry to record this under the periodic inventory method is:

A)debit Merchandise Inventory $200; credit Accounts Payable $200.
B)debit Cost of Goods Sold $200; credit Accounts Payable $200.
C)debit Accounts Payable $200; credit Purchases Returns and Allowances $200.
D)debit Accounts Payable $200; credit Merchandise Inventory $200.

Question 8

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 9

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 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

The freight paid on goods purchased F.O.B. shipping point was debited to the Purchases account. 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 are correct.

Question 12

The perpetual inventory system is a system which:

A)updates inventory continuously.
B)uses either FIFO, LIFO, weighted-average, or specific invoice method.
C)never needs a physical inventory taken.
D)both A and B.

Question 13

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; credit Accounts Receivable $300.
B)a debit to Merchandise Inventory for our cost.
C)a credit to Cost of Goods Sold for our cost.
D)All of the above.

Question 14

The freight paid on goods purchased F.O.B. shipping point was debited to the Freight Expense account. 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 are correct.

Question 15

The journal entry to record a sale 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 Cost of Goods Sold and a debit to Merchandise Inventory.
C)a debit to Accounts Receivable or Cash and a credit to Sales.
D)both A and C.

Question 16

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 understated.
D)None of these are correct.

Question 17

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 18

In a perpetual inventory system:

A)Merchandise Inventory is debited every time inventory is purchased.
B)Cost of Goods Sold is debited every time inventory is sold.
C)a physical inventory is taken at least annually.
D)all of the above take place.

Question 19

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 are correct.

Question 20

Under the perpetual system, the purchase of merchandise is recorded by a:

A)debit to Merchandise Inventory; credit to Accounts Payable or Cash.
B)debit to Cost of Goods Sold; credit to Accounts Payable.
C)debit to Purchases; credit to Accounts Payable.
D)debit to Accounts Payable; credit to Purchases.

Question 21

Under the ________ inventory system, cost of goods sold and the amount of merchandise inventory on hand are updated when merchandise is bought and sold.

Question 22

Only periodic systems must take a physical inventory at year-end.

Question 23

The ________ system of accounting for inventory provides information on a transaction-by-transaction basis.

Question 24

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

Question 25

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Purchased merchandise with credit terms of 2/10, n/30. - Periodic
Debit ________ & ________ Credit ________ & ________

Question 26

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Purchased merchandise with credit terms of 2/10, n/30. - Perpetual
Debit ________ & ________ Credit ________ & ________

Question 27

Journalize the following assuming periodic inventory.

Question 28

Merchandise Inventory is an expense account.

Question 29

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

Question 30

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

Question 31

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

A)at the end of the accounting period.
B)once each month.
C)when merchandise is purchased.
D)The account never needs updating.

Question 32

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Paid for merchandise within the discount period. - Perpetual
Debit ________ & ________ Credit ________ & ________

Question 33

Under the ________ inventory system, no entries are made to the merchandise inventory or cost of goods sold account during the year.

Question 34

Joe owns an auto parts store called Joe's Auto Care. The following transactions took place during November of the current year.
Journalize the above transactions using the perpetual inventory system.

Question 35

Title passes immediately to the buyer under FOB ________.

Question 36

In a perpetual inventory system, Cost of Goods Sold is an account in the general ledger.

Question 37

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

Question 38

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

Question 39

Joe owns an auto parts store called Joe's Auto Care. The following transactions took place during November of the current year.
Journalize the above transactions using the periodic inventory system.

Question 40

Inventory purchases are entered in the Merchandise Inventory account at the expected sales price amount.

Question 41

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Customer returned goods - Periodic
Debit ________ & ________ Credit ________ & ________

Question 42

This method assumes that the most recently acquired goods are sold first.

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

Question 43

An inventory ledger may be used to track inventory.

Question 44

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Sold merchandise for cash. - Periodic
Debit ________ & ________ Credit ________ & ________

Question 45

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Returned merchandise inventory for credit - Periodic
Debit ________ & ________ Credit ________ & ________

Question 46

One advantage 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 47

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 48

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

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

Question 49

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Paid for merchandise after the discount period expired. - Perpetual
Debit ________ & ________ Credit ________ & ________

Question 50

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

Question 51

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

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

Question 52

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Paid for merchandise after the discount period expired. - Periodic
Debit ________ & ________ Credit ________ & ________

Question 53

The inventory method that matches old costs with current selling prices is:

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

Question 54

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Sold merchandise on account - Periodic

Question 55

A subsidiary payables ledger is used to track details of quantities and costs.

Question 56

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 are correct.

Question 57

An entry to record the payment to a vendor was correctly recorded and posted to the general ledger but was not 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 58

Given the following accounts:
Indicate the account(s)to be debited and credited to record the following transactions.
Sold merchandise on account. - Perpetual
Debit ________ & ________ Credit ________ & ________

Question 59

Tracking individual inventory items is tracked in the:

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

Question 60

The inventory method where the cost flows tend to follow the physical flow is:

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

Question 61

Sterling Supply uses a periodic inventory system. Magnum sold 25 globes during March. Other data for March includes: Ending inventory under the weighted-average method is:

A)$281.25.
B)$155.00.
C)$180.00.
D)$168.75.

Question 62

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

A)Goods held on consignment from ABC Wholesale
B)Goods sold and shipped to Gray Brothers, in-transit F.O.B shipping point.
C)Goods that have been consigned to Dalton Brothers
D)Goods in transit purchased F.O.B. destination point

Question 63

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.

Question 64

Shayla's Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data for January includes: Ending inventory under the LIFO method is:

A)$1,141.
B)$1,055.
C)$875.
D)$789.

Question 65

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

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

Question 66

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 67

Hall Novelty Shop uses a periodic inventory system. It sold 150 balloons during April. Other data for April includes: Cost of goods sold under the weighted-average method (rounded to the nearest dollar)is:

A)$52.
B)$483.
C)$501.
D)$48.

Question 68

Barry's Books uses a periodic inventory system. Barry's Books sold 45 copies of Helpful Hints during September. Other data for September include: Cost of goods sold under the FIFO method is:

A)$956.
B)$514.
C)$1,020.
D)some other number

Question 69

Shayla's Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data for January includes: Ending inventory under the FIFO method is:

A)$1,141.
B)$1,055.
C)$875.
D)$789.

Question 70

Lois's Furniture uses a periodic inventory system. Lois sold 60 tables during August. Other data for August includes: Ending inventory under the LIFO method is:

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

Question 71

Which of the following goods should Nassen Company include in its December 31, 200X, 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 72

Barry's Books uses a periodic inventory system. Barry's Books sold 45 copies of Helpful Hints during September. Other data for September include: Ending inventory under the FIFO method is:

A)$450.
B)$514.
C)$528.
D)$440.

Question 73

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 74

Which of the following items should be included in 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)All of the above

Question 75

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 consignor.
D)Both B and C are correct.

Question 76

Sterling Supply uses a periodic inventory system. Magnum sold 25 globes during March. Other data for March includes: Cost of goods sold under the weighted-average method is:

A)$281.25.
B)$155.00.
C)$180.00.
D)$168.75.

Question 77

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

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

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

Hawkeye Tack uses a periodic inventory system. Hawkeye Tack sold 80 sweaters during September. Other data for September includes: Cost of goods sold under the FIFO method is:

A)$800.
B)$2,406.
C)$1,024.
D)$2,182.

Question 80

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

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