Question 1

Match the terms with the descriptions related to merchandise sales and purchases.
-Relies on a count of inventory on the last day of the year to determine amount on hand

Accepted Answer

The periodic inventory system relies on a count of inventory on the last day of the year to determine amount on hand.

Answer: C
 Net purchases is the total cost of merchandise purchased during a period after deducting purchase returns, purchase allowances, and purchase discounts.

Answer: E
 Cost of goods available for sale is the total cost of merchandise that is available for sale during a period, including both beginning inventory and net purchases.

Answer: G
 FOB Shipping point means that the buyer takes ownership of the merchandise as soon as it leaves the seller's shipping dock.

Answer: A
 Transportation-in refers to the freight costs incurred by the buyer when the merchandise is shipped from the seller to the buyer.

Answer: B
 The perpetual inventory system maintains a continuous record of inventory levels and is updated each time a transaction is made.

Answer: D
 FOB Destination means that the seller takes ownership of the merchandise until it reaches the buyer's location.

Answer: H
 Delivery expense refers to the costs incurred by the seller to deliver the merchandise to the buyer.

Question 2

Match the terms with the descriptions related to merchandise sales and purchases.
-Shipping costs paid to acquire merchandise.

Accepted Answer

Transportation-in refers to shipping costs paid by the buyer to acquire merchandise and is included in the cost of inventory.

Answer: B
 Perpetual inventory system is a method of constantly updating inventory records, which allows for real-time tracking of inventory levels and cost of goods sold.

Answer: C
 Net purchases are the total cost of inventory purchased during a period, minus any discounts, returns, or allowances.

Answer: D
 FOB Destination indicates that the seller bears the cost and responsibility of shipping the goods to the buyer's location.

Answer: E
 Cost of goods available for sale is the sum of the cost of beginning inventory and the cost of purchases during a period.

Answer: F
 Periodic inventory system is a method of accounting for inventory that involves taking a physical inventory count at the end of a period to determine the cost of goods sold.

Answer: G
 FOB Shipping point indicates that the buyer bears the cost and responsibility of shipping the goods from the seller's location.

Answer: H
 Delivery expense refers to the cost of shipping goods to customers, which is included in the selling expenses category.

Question 3

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation.
-Recorded cash sales for the day.

Accepted Answer

The answer of Maxim Company sells auto parts. The company...

Question 4

Match the terms with the descriptions related to merchandise sales and purchases.
-The seller is responsible for the cost of delivering the merchandise to the buyer

Accepted Answer

FOB Destination means that the seller is responsible for the cost of delivering the merchandise to the buyer.

Answer: B 
 Perpetual inventory system is a method of tracking inventory in which the inventory records are updated continuously as goods are bought and sold.

Answer: C 
 Net purchases are the total purchases made by a company during a period of time, less any returns, discounts or allowances.

Answer: G 
 FOB Shipping point means that the buyer is responsible for the cost of delivering the merchandise from the seller's location to the buyer's location.

Answer: E 
 Cost of goods available for sale is the total amount of merchandise a company has available for sale during a period of time.

Answer: H 
 Delivery expense is the cost of transporting merchandise from the seller to the buyer.

Question 5

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Freight costs incurred by the seller to ship goods to its customers

Accepted Answer

Freight costs incurred by the seller to ship goods to its customers are considered a selling expense and are not included in the cost of inventory.

Question 6

Bower Corp.'s cost of sales has remained steady over the last two years. During this same time period, however, its inventory has increased considerably. What does this information tell you about the company's inventory turnover? Explain your answer.

Accepted Answer

The answer of Bower Corp.'s cost of sales has remained...

Question 7

Match the terms with the descriptions related to merchandise sales and purchases.
-Requires updating of the inventory account at the time of each purchase and each sale.

Accepted Answer

A perpetual inventory system requires updating of the inventory account at the time of each purchase and each sale.

Answer: C
 Net purchases is the total cost of inventory purchased during a period after deducting purchase returns, purchase discounts, and freight-in.

Answer: G
 FOB shipping point means the ownership of goods transfers from the seller to the buyer at the shipping point, thus the buyer is responsible for the transportation costs from the shipping point to the final destination.

Answer: A
 Transportation-in is the shipping cost incurred by the buyer for goods purchased, thus it is added to the cost of inventory.

Answer: E
 Cost of goods available for sale is the total cost of inventory available for sale during a period, including beginning inventory and purchases.

Answer: F
 A periodic inventory system updates the inventory account at the end of a period by counting the inventory on hand, thus the inventory account is not updated after each purchase and sale.

Answer: H
 Delivery expense is a cost incurred by the seller for delivering goods to the buyer's location, thus it is added to the cost of inventory.

Question 8

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Invoice price paid for resale goods

Accepted Answer

The invoice price paid for resale goods is a cost that should be added to the inventory cost. This is because the invoice price represents the actual cost of the goods, and therefore should be included in the cost of inventory.

Question 9

Assume that a company is experiencing increasing inventory prices and prepares its financial statements in accordance with IFRS. Which costing method should it use to pay the least amount of taxes? Explain your answer.

Accepted Answer

The answer of Assume that a company is experiencing increasing...

Question 10

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Costs of direct materials, overhead, and direct labor used in goods that have been sold.

Accepted Answer

The costs of direct materials, overhead, and direct labor used in goods that have been sold are included in the Cost of Goods Sold account for both retailers and manufacturers. Merchandise Inventory is only used for retailers to track the cost of their inventory that is available for sale. Raw Materials, Work in Process, and Finished Goods are only used for manufacturers to track the stages of their production process.

Question 11

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Cost of completed, but unsold items.

Accepted Answer

The cost of completed but unsold items would fall under the Finished Goods category for both retailers and manufacturers.

Question 12

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Freight costs incurred by the buyer to ship goods to its place of business

Accepted Answer

Freight costs incurred by the buyer to ship goods to its place of business should be added to inventory cost.

Question 13

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation.
-Granted a customer a credit on its balance due for goods that were returned.

Accepted Answer

The answer of Maxim Company sells auto parts. The company...

Question 14

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Costs to purchase goods ready to sell.

Accepted Answer

The cost to purchase goods ready to sell would be included in Merchandise Inventory for retailers or Finished Goods Inventory for manufacturers.

Question 15

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Cost of materials which are not yet entered into the production process.

Accepted Answer

Raw materials are the materials that are not yet entered into the production process but will be used to manufacture the finished goods. Therefore, the cost of raw materials is included in the inventory for retailers and manufacturers.

Question 16

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment.
-Cost of storing the goods before they are sold to customers

Accepted Answer

The cost of storing the goods before they are sold to customers is an additional cost incurred in order to bring the inventory to a sellable state. As a result, it is appropriate to include this cost as part of the inventory cost.

Question 17

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation.
-Sold merchandise on credit to customers.

Accepted Answer

When Maxim Company sells merchandise on credit, it increases its accounts receivable (asset) and revenue (which increases owners' equity). Therefore, there is an increase in both assets and owners' equity.

Question 18

Match the terms with the descriptions related to merchandise sales and purchases.
-The buyer must pay the shipping costs.

Accepted Answer

This term means that the seller is responsible for the shipping costs, and therefore the buyer is not required to pay any transportation or delivery expenses.

Answer: B
 This system involves keeping real-time track of inventory levels and costs, as opposed to the periodic system which only updates inventory at set intervals.

Answer: C
 This term refers to the total amount spent on inventory, minus any discounts or returns.

Answer: D
 With this type of FOB term, the seller is responsible for the goods until they reach the buyer's destination. Therefore, the seller would be responsible for any shipping costs incurred.

Answer: E
 This term refers to the total value of inventory available for sale, including beginning inventory and any additional purchases made during the period.

Answer: A
 This term refers to the costs associated with transporting goods to the buyer's location, and is typically included in the cost of inventory.

Answer: H
 This term refers to any expenses related to delivering goods to the buyer, such as fuel and labor costs. These are typically separate from transportation costs.

Question 19

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Costs of direct materials, overhead, and direct labor used in unfinished goods.

Accepted Answer

Costs of direct materials, overhead, and direct labor used in unfinished goods would be included in Work in Process inventory.

Question 20

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation.
-Gave a customer a cash refund.

Accepted Answer

The answer of Maxim Company sells auto parts. The company...

Quiz 5: Inventories and Cost of Goods Sold

Match the terms with the descriptions related to merchandise sales and purchases. -Relies on a count of inventory on the last day of the year to determine amount on hand

Match the terms with the descriptions related to merchandise sales and purchases. -Shipping costs paid to acquire merchandise.

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation. -Recorded cash sales for the day.

Match the terms with the descriptions related to merchandise sales and purchases. -The seller is responsible for the cost of delivering the merchandise to the buyer

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the seller to ship goods to its customers

Bower Corp.'s cost of sales has remained steady over the last two years. During this same time period, however, its inventory has increased considerably. What does this information tell you about the company's inventory turnover? Explain your answer.

Match the terms with the descriptions related to merchandise sales and purchases. -Requires updating of the inventory account at the time of each purchase and each sale.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Invoice price paid for resale goods

Assume that a company is experiencing increasing inventory prices and prepares its financial statements in accordance with IFRS. Which costing method should it use to pay the least amount of taxes? Explain your answer.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Costs of direct materials, overhead, and direct labor used in goods that have been sold.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Cost of completed, but unsold items.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Freight costs incurred by the buyer to ship goods to its place of business

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation. -Granted a customer a credit on its balance due for goods that were returned.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Costs to purchase goods ready to sell.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Cost of materials which are not yet entered into the production process.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Cost of storing the goods before they are sold to customers

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation. -Sold merchandise on credit to customers.

Match the terms with the descriptions related to merchandise sales and purchases. -The buyer must pay the shipping costs.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Costs of direct materials, overhead, and direct labor used in unfinished goods.

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation. -Gave a customer a cash refund.