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

Question 1

Which of the following is correct?

A)Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory.
B)Sales + Cost of Goods Sold = Gross Margin.
C)Beginning Inventory + Ending Inventory - Purchases = Cost of Goods Sold.
D)Income Before Taxes - Operating Expenses = Cost of Goods Sold.

Answer 1

A

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)?

A)Assets (inventory)were understated by $2,500 and pretax profit was understated by $2,500.
B)Assets (inventory)were understated by $2,500 and pretax profit was overstated by $2,500.
C)Cost of goods sold was understated by $2,500 and pretax profit was understated by $2,500.
D)Cost of goods sold was overstated by $2,500 and pretax profit was overstated by $2,500.

Answer 2

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?

A)Pretax profit understated by $2,000.
B)Cost of goods sold was understated by $2,000.
C)Pretax profit was overstated and the cost of goods sold was understated by $2000.
D)Pretax profit was overstated by $2,000.

Answer 3

C

Question 4

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

A)receipt of the sales order
B)receipt of the goods by the buyer.
C)passage of title from the seller to the buyer.
D)manufacture of the goods.

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.

A)$88,000
B)$100,000
C)$108,000
D)$112,000

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.

A)$8,000
B)$10,000
C)$18,000
D)$88,000

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?

A)$10,000
B)$25,000
C)$26,000
D)$27,000

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?

A)$40,000
B)$46,000
C)$58,000
D)$68,000

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?

A)$9,000
B)$10,000
C)$12,000
D)$16,000

Question 10

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

A)Costs to store finished motorcycles until they are sold.
B)Kickstands purchased for use in manufacturing the motorcycles.
C)The factory manager's salary and benefits.
D)The wages and benefits of an employee in the welding department.

Question 11

An overstatement of the beginning inventory results in

A)no effect on the period's profit.
B)an overstatement of profit.
C)an understatement of profit.
D)a need to adjust purchases.

Question 12

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

A)Finished goods inventory.
B)Raw material inventory.
C)Work in process inventory.
D)Merchandise 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?

A)$10,000.
B)$10,500.
C)$8,500.
D)$9,500.

Question 14

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

A)Sales salaries.
B)Electricity for the office building.
C)Wages for factory workers.
D)Wages for administrative staff.

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?

A)$36.00
B)$36.48
C)$37.20
D)$37.56

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.

A)$62,000
B)$66,000
C)$70,000
D)$74,000

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?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

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?

A)Current assets were overstated and profit was understated.
B)Current assets were understated and profit was understated.
C)Current assets were understated and profit was overstated.
D)Current assets were overstated and profit was overstated.

Question 19

Which of the following is true?

A)Factory overhead consists of manufacturing costs other than direct materials and direct labour.
B)Net realizable value is the expected sales price plus selling costs.
C)FIFO Reserve is a contra sales account for the excess of FIFO over weighted-average inventory.
D)Purchases discounts increase sales revenue to arrive at net sales.

Question 20

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

A)A jewellery store
B)A grocery store
C)A movie theatre
D)A manufacturer of batteries

Question 21

An aircraft company would most likely have a

A)high inventory turnover.
B)low profit margin.
C)high volume.
D)low inventory turnover.

Question 22

If beginning inventory is understated by $1,300 and ending inventory is understated by $700,pretax profit for the period will be which of the following?

A)Understated by $600.
B)Understated by $2,000.
C)Overstated by $600.
D)Overstated by $2,000.

Question 23

In order to determine cost of goods sold in a periodic inventory system we

A)subtract ending inventory from beginning inventory.
B)subtract ending inventory from cost of goods available for sale.
C)subtract purchases from ending inventory.
D)add purchases to beginning inventory.

Question 24

A problem with the specific identification method is that

A)inventories can be reported at actual costs.
B)management can manipulate profit.
C)matching is not achieved.
D)lower of cost and net realizable value cannot be applied.

Question 25

Sue Company reported profit in 20A of $27,000 and in 20B of $32,000.Later it was discovered that the ending inventory for 20A was understated by $15,000.Disregard income taxes.The correct amounts of profit for 20A and 20B were which of the following?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 26

During the audit of Virginia Company's 20B financial statements,the auditors discovered that the 20A ending inventory had been overstated by $10,000 and that the 20B ending inventory had been overstated by $8,000.Before the effect of these errors,20B pretax profit had been computed as $100,000.What should be reported as the correct 20B profit before taxes?

A)$98,000
B)$100,000
C)$102,000
D)$118,000

Question 27

In a period of rising prices,which of the following inventory cost formulas generally results in the lowest profit figure?

A)Weighted-average
B)FIFO
C)The inventory cost formula only affects the balance sheet
D)Need more information to answer

Question 28

In a period of declining prices,which of the following inventory cost formula generally results in the lowest statement of financial position figure for inventory?

A)Weighted-average
B)FIFO
C)Statement of financial position figure is the same under both FIFO and weighted-average cost
D)Need more information to answer

Question 29

Which of the following inventory costing methods is subject to manipulation with regard to the resulting inventory cost?

A)Weighted-average.
B)FIFO.
C)Specific identification.
D)Both FIFO and specific identification are subject to manipulation.

Question 30

The cost of goods available for sale is allocated between

A)beginning inventory and ending inventory.
B)beginning inventory and cost of goods on hand.
C)ending inventory and cost of goods sold.
D)beginning inventory and cost of goods purchased.

Question 31

Which of the following statements regarding inventories is correct?

A)FIFO assumes that the costs of the earliest goods acquired are the last to be sold.
B)It is generally good business management to sell the most recently acquired goods first.
C)Under FIFO,the ending inventory is based on the latest units purchased.
D)FIFO seldom coincides with the actual physical flow of inventory.

Question 32

Upaway Company hired some students to help count inventory during their semester break.Unfortunately,the students added incorrectly and ending inventory was overstated by $12,000.What would be the effect of this error in ending inventory?

A)Profit would be overstated.
B)Profit would be understated.
C)Ending retained earnings would be understated.
D)Cost of goods sold would be overstated.

Question 33

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A)valued at their current cost.
B)not under-valued.
C)not over-valued.
D)valued at their selling price.

Question 34

"Toys 4 U" had cost of goods sold in 2012 of $8,191 million and $7,710 million in 2011.Their merchandise inventory in 2012 was $1,902 million and $2,464 million in 2011.What was their inventory turnover in 2012?

A)3.64
B)3.53
C)4.31
D)3.75

Question 35

HD Motorcycles has an inventory turnover ratio of 10.1 in 2012 compared to their competitor TT Motorcycle with a 2.6 ratio in 2012.Which of the following is the most likely cause of TT Co's lower ratio?

A)Lower levels of inventory compared to HD.
B)It takes TT Co.fewer days to sell their inventory.
C)TT Co's smaller size makes it difficult for them to achieve the economies of scale in comparison to HD's scale of operations.
D)Higher inventory levels compared to HD.

Question 36

On December 15,20A,Toby Company accepted delivery of merchandise which it purchased on credit.As of December 31,20A,the company had neither recorded the transaction nor included the merchandise in its inventory because the seller's invoice had not been received.The effect of this omission on its statement of financial position at December 31,20A,(end of the accounting period)was which of the following?

A)Assets and shareholders' equity were overstated but liabilities were not affected.
B)Shareholder's equity was the only item affected by the omission.
C)Assets and liabilities were understated but shareholders' equity was not affected.
D)Assets and shareholders' equity were understated but liabilities were not affected.

Question 37

If a company decreases their inventory turnover ratio from last year to the current year,which of the following could cause that change?

A)Reduction of inventory levels through implementation of Just-in-Time.
B)Speedier production processes.
C)Increase in inventory levels through change in product mix.
D)Increasing sales at a faster rate than the growth in inventory while maintaining a constant gross profit percentage.

Question 38

Maxell Company uses the periodic FIFO method to value inventory and had the following transactions in the period.What are the cost of goods sold and ending inventory balances in dollars for the period?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 39

"Toys 4 U" had cost of goods sold in 2012 of $8,191 million and $7,710 million in 2011.Their merchandise inventory in 2012 was $1,902 million and $2,464 million in 2011.How long was "Toys 4 U" average days to sell their inventory in 20112?

A)84.7 days
B)93.4 days
C)103.3 days
D)97.3 days

Question 40

At the end of 20B,SAS Company failed to include some goods in its ending inventory and failed to record the purchase of these goods.For 20B,these two errors caused which of the following?

A)Goods available for sale,cost of goods sold,and income to be overstated.
B)Ending inventory,cost of goods sold,and retained earnings to be understated.
C)Ending inventory,goods available for sale,and retained earnings to be understated.
D)No effect on profit,working capital,or retained earnings.

Question 41

A company reports its 20B cost of goods sold at $20.0 billion.Its ending inventory for 20B is $1.8 billion and for 20A,ending inventory was $1.5 billion.How much inventory did the company purchase during 20B?

A)$18.5 billion
B)$19.7 billion
C)$20.3 billion
D)$21.8 billion

Question 42

On December 31,20A,the end of the accounting period,Dunn Company has on hand 5,000 units of a resale item which cost $21 per unit when purchased on June 15,20A.The selling price is $35 per unit.On November 30,20A,the quoted purchase cost of this item was $22 per unit; whereas on December 30,20A,the cost had dropped to $20 per unit.In view of the large quantity of units on hand,no purchases are anticipated in the next six to nine months.At what inventory amount should the 5,000 units be reported?

A)$100,000
B)$105,000
C)$110,000
D)$175,000

Question 43

David Company uses the gross method to record its credit purchases,and it uses the periodic inventory system.On July 21,20D,the company purchased goods that had an invoice price of $3,000 with terms of 3/10,n/30.If payment in full is made on July 30,the journal entries to record the purchase and payment should be which of the following?

A)Entry A
B)Entry B
C)Entry C
D)Entry D

Question 44

The lower of cost and net realizable value rule for inventory is an example of the application of:

A)The conservatism principle
B)The historical cost principle
C)The materiality constraint
D)The matching principle

Question 45

Welsh Company purchased an item for inventory that cost $10 per unit and was marked to sell at $14.It was determined that the replacement cost is $9 per unit.No purchases in the near future are anticipated.Using the lower of cost and net realizable value rule,what is the per unit valuation for inventory?

A)$9.00
B)$10.00
C)$12.00
D)$14.00

Question 46

Which of the following is true under the perpetual inventory system?

A)One entry is required to record a sales return.
B)Cost of goods sold cannot be determined unless a physical inventory is taken.
C)Two entries are required to record a sale.
D)A separate account for purchases is required.

Question 47

How is the cost of goods sold calculated under the periodic method?

A)By adding the cost of purchases during the period to the cost of the inventory on hand at the beginning of the period and adding this figure to the cost of the inventory on hand at the end of the period.
B)By adding the cost of purchases during the period to the cost of the inventory on hand at the end of the period and subtracting the inventory on hand at the beginning of the period.
C)By subtracting the cost of the inventory on hand at the ending of the period from the cost of goods available for sale.
D)By carefully matching selling and administrative expenses with the sales to which they are related and then reporting these expenses in the same period the associated revenue is reported.

Question 48

In 20B,Landings Inc.provided the following items in their footnotes.Its cost of goods available for sale was $6.2 billion under FIFO costing and its ending inventory value under FIFO costing was $2.1 billion.Its opening inventory was $2.5 billion.What was itspurchases?

A)$3.7 billion
B)$4.1 billion
C)$4.6 billion
D)$8.3 billion

Question 49

A company reports its cost of goods sold as $20.0 billion in 20B.It has $1.8 billion in inventory and reports trade payable sat $1.6 billion in 20B.In 20A,ending inventory was reported at $1.2 billion and trade payables was $1.1 billion.How much cash was paid to suppliers for 20B?

A)$19.5 billion
B)$19.9 billion
C)$20.1 billion
D)$21.2 billion

Question 50

In 20A,C Co.had an inventory turnover ratio of 6.11 while P Co.had a ratio of 10.67.Which of the following might most accurately explain the difference in their ratios?

A)C Co.had less inventory on hand in relation to their amount of cost of goods sold.
B)C Co.has a lower sales figure so cost of goods sold is lower leading to a higher turnover ratio.
C)C Co.takes a longer number of days to sell their inventory.
D)C Co.has a poor credit rating.

Question 51

In 20B,Landings Inc.provided the following information in their financial statements: Cost of goods sold under FIFO costing is $22.2 billion and their inventory value under FIFO is $1.3 billion at the end of 20B and $1.2 billion at the end of 20A.What would their inventory turnover ratio be under the FIFO cost flow method?

A)8.9
B)17.1
C)17.8
D)18.5

Question 52

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A)valued at their current cost.
B)not under-valued.
C)not over-valued.
D)valued at their selling price.

Question 53

A company purchased inventory as follows: On March 5,it sold 400 units for $17 each.
The weighted- average unit cost to be used for the cost of goods sold on March 5,in a perpetual inventory system,is

A)$9.00.
B)$9.40.
C)$9.60.
D)$10.00.

Question 54

A company recorded net purchases of $20.3 billion for 20B.In 20A,ending tradepayables was $1.2 billion and in 20B,it was $1.6 billion.How much cash was paid to suppliers in 20B?

A)$18.7 billion
B)$19.9 billion
C)$20.7 billion
D)$21.9 billion

Question 55

Which of the following is true under the periodic inventory system?

A)A transaction by transaction unit inventory record is maintained.
B)The cost of goods sold for each sale is recorded at the time each sale is made.
C)A separate account for purchases is used.
D)A continuous inventory record provides the amount of ending inventory and the cost of goods sold throughout the period.

Question 56

Which of the following may be used to calculate ending inventory (EI)under the periodic inventory system?

A)BI + P + CGS = EI
B)BI + P - CGS = EI
C)BI - P + CGS = EI
D)BI + P + GM

Question 57

In 20B,Landings,Inc.provided the following items in their footnotes.Their cost of goods available for sale was $4.5 billion under FIFO costing and their ending inventory value under FIFO costing was $2.1 billion.Their purchases were $4.1 billion.What was their opening inventory?

A)$0.4 billion
B)$2.0 billion
C)$2.4 billion
D)$6.2 billion

Question 58

If ABC's income statement showed cost of goods sold at $78,000,purchases of $80,000,freight-in at $300,purchases returns of $500 and end-of-the period inventory at $11,900,its beginning-of-the-period-inventory must have been:

A)$10,400
B)$10,100
C)$9,900
D)$9,200

Question 59

The cost of goods sold account is which of the following?

A)an asset
B)a contra-asset
C)an extraordinary item
D)an expense

Question 60

On March 15,20A,Jack Company purchased $5,000 of merchandise on credit subject to terms 2/10,n/20.Jack records its purchases using the gross amount.The periodic inventory system is used.If Jack pays for these goods on March 30,the entry made to record the payment should include which of the following?

A)Credit of $100 to Purchase discounts.
B)Debit of $4,900 to Trade payables.
C)Debit of $5,000 to Trade payables.
D)Credit of $4,900 to cash.

Question 61

Which one of the following statements concerning the periodic and perpetual inventory systems is true?

A)The periodic system uses a purchases account.
B)Inventory controls are only needed for the periodic inventory systems.
C)None of the accounting entries vary between the two systems.
D)Due to advances in computers,many businesses recently have begun to use the periodic inventory system.

Question 62

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs,Inc.,with terms of 2/10,n/30.Which of the following is the correct entry for Joe Company to record the payment by Gibbs within the 10 days if the company uses the periodic inventory system and the gross method to record purchases?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 63

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs,Inc.,with terms of 2/10,n/30.Which of the following is the correct entry to record the purchase by Gibbs if the company uses the periodic inventory system and the gross method to record purchases?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 64

When ending inventory is smaller than beginning inventory,gross margin is less than if ending inventory were larger than beginning inventory (assuming purchases remain constant).

Question 65

Two systems are used in accounting for inventory--perpetual and periodic.Which of the following statements is correct?

A)In a perpetual inventory system,the inventory account is not changed for each purchase during the accounting period.
B)In a perpetual inventory system,cost of goods sold is recorded at the time of each sale during the accounting period.
C)In a periodic inventory system,cost of goods sold is developed from a comparison of beginning inventory and ending inventory only.
D)In a periodic inventory system,the inventory account is increased for each purchase during the accounting period.

Question 66

A manufacturing company uses three different inventory accounts to track their product costs.

Question 67

Inventory is a tangible asset purchased for use in the company's operations.

Question 68

The cost of goods purchased for resale should include all amounts that are the responsibility of the purchaser for freight and handling charges in order to get the goods to the purchaser's intended location.

Question 69

Seinerfeld Company had its merchandise inventory warehouse destroyed by a fire.Thankfully,the owner had the accounting records at home to prepare financial statements after counting the inventory earlier in the day.The company used the periodic inventory system.In the shock of being notified of the fire,the owner spilled his dinner on the income statement he had just completed.However,the following information was readable: Sales,$200,000; Beginning Inventory,$20,000; Purchases,$130,000; Total Operating Expenses (not including taxes),$40,000; and Profit Before Taxes,$20,000.There were no sales returns,purchases returns,sales discounts nor purchases discounts.Compute the amount of the ending inventory on hand before the fire.

A)$-0-
B)$10,000
C)$20,000
D)$30,000

Question 70

If transportation costs are the responsibility of the buyer,they should be added to the cost of purchases for the period.

Question 71

When a company uses the periodic inventory system in accounting for its merchandise inventory,which of the following is true?

A)Purchases are recorded in the cost of goods sold account.
B)The inventory account is updated after each sale.
C)Cost of goods sold is computed at the end of the accounting periods rather than at each sale.
D)The inventory account is updated throughout the year as purchases are made.

Question 72

Joe Company sold merchandise with an invoice price of $1,000 to Gibbs,Inc.,with terms of 2/10,n/30.Which of the following is the correct entry for Joe Company to record the collection from Gibbs within the 10 days if the company uses the periodic inventory system?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 73

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

A)valued at their current cost.
B)not undervalued.
C)not overvalued.
D)valued at their selling price.

Question 74

The ending inventory of one accounting period becomes the beginning inventory amount of the next accounting period.

Question 75

On February 20,20A,Ross Sound Company purchased $10,000 of stereo equipment for resale on credit,subject to the terms 3/15,n/30.The company records all purchases using the gross method.The periodic inventory system is used.If the company paid for these goods on March 20,the entry made to record the payment should include which of the following?

A)A $300 debit to Purchases discounts.
B)A $10,000 debit to Trade payables.
C)An $8,500 credit to Cash.
D)A $9,700 debit to Purchases.

Question 76

The periodic inventory system is based on a physical inventory count of ending inventory and the costing of those goods to determine the proper amounts for cost of sales and ending inventory.

Question 77

Ownership of goods passes from the seller to the buyer after the buyer has paid for the goods.

Question 78

An error in the measurement of ending inventory affects the cost of sales on the current period's income statement and ending inventory on the statement of financial position.

Question 79

In conformity with the matching process,the total cost of sales during the period must be related to the sales revenue earned during the period.

Question 80

If merchandise for resale is purchased for $2,000,terms 2/10,n/30,the entry to record the purchase should be which of the following (assuming a periodic inventory system and the gross method)?

A)Choice A
B)Choice B
C)Choice C
D)Choice D