Question 1

After performing a physical count of inventory at the end of the accounting period,it was discovered that the amount of inventory on hand was less than the accounting records reported.The entry to record this inventory shrinkage includes:

Accepted Answer

The answer of After performing a physical count of inventory...

Question 2

Flynn Company uses a perpetual inventory system and had the following transactions during November:
-November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30.
-November 8 - Returned $800 of defective units and received full credit.
-November 15 - Paid the amount due.
-Use the information above to answer the following question.What journal entry will be recorded by Flynn Company on November 8?

Accepted Answer

The answer of Flynn Company uses a perpetual inventory system...

Question 3

Which inventory system records a change in the Inventory account every time goods are bought,sold or returned?

Accepted Answer

Perpetual inventory system records each transaction every time goods are bought, sold, or returned, which means that the inventory account is constantly updated. This allows for real-time tracking of inventory levels and more accurate cost of goods sold calculations. The periodic system, on the other hand, only updates the inventory account periodically, such as at the end of each accounting period. FOB Shipping Point and FOB Destination are shipping terms and have no relevance to inventory systems.

Question 4

Your company purchases $50,000 of inventory from a wholesaler who allows you 45 days to pay.In addition,the wholesaler offers a 3% discount if payment is made within 12 days.These payment terms would be expressed as:

Accepted Answer

The answer of Your company purchases $50,000 of inventory from...

Question 5

Goods available for sale can:

Accepted Answer

Goods available for sale are inventory items that a company has on hand and intends to sell to customers. Once the goods are sold, their cost becomes cost of goods sold (COGS) on the income statement. Therefore, option A is the correct choice. Option B is incorrect because even if the goods are not sold, they are still reported on the balance sheet as inventory. Option C is incorrect because inventory is reported on the balance sheet, not the income statement. Option D is incorrect because COGS is reported on the income statement, not the balance sheet.

Question 6

To determine cost of goods sold for the period requires:

Accepted Answer

Cost of goods sold (COGS) is calculated by subtracting ending inventory from the goods available to sell. Goods available to sell is the sum of beginning inventory and purchases made during the period. Therefore, the formula for calculating COGS is: COGS = Beginning inventory + Purchases - Ending inventory. Option A correctly reflects this formula.

Question 7

Ace Electronics uses a perpetual inventory system.On May 1,beginning inventory was $100,000.During May,Ace purchased $35,000 of inventory and sold $71,000 of inventory.After the store closed on May 31,employees counted the inventory in the store and found that $60,000 of inventory remained unsold.What was Ace's inventory shrinkage?

Accepted Answer

Inventory shrinkage is calculated as the difference between the recorded inventory and the actual inventory counted. The recorded inventory should be $100,000 (beginning) + $35,000 (purchases) - $71,000 (sales) = $64,000. The actual inventory counted is $60,000. Therefore, the shrinkage is $64,000 - $60,000 = $4,000.

Question 8

When a perpetual system is in used and transportation cost is incurred to obtain inventory,the transportation cost is:

Accepted Answer

In a perpetual inventory system, transportation costs incurred to obtain inventory are added to the cost of inventory and are included in the inventory account. This is because the perpetual inventory system maintains an up-to-date balance of inventory and cost of goods sold accounts. Therefore, option A is the correct answer.

Question 9

Bennett's Clothing purchased goods on credit costing $50,000 with terms of 3/10 n/30.Payment is made to the seller 7 days after the purchase.How would the payment be recorded?

Accepted Answer

Since payment is made within the discount period, Bennett's Clothing can take the 3% discount ($50,000 x 0.03 = $1,500) and pay only $48,500.

Debit Accounts Payable for $50,000 to record the initial purchase, credit Inventory for $50,000 to record the increase in inventory.

When payment is made, first credit Accounts Payable for the full amount of $50,000. 
Then, debit Cash for the discounted amount of $48,500 and credit Inventory for the amount of the discount of $1,500 (which is effectively reducing the cost of the inventory purchased).

Thus, the appropriate journal entry is to Debit Accounts Payable for $50,000, credit Cash for $48,500, and credit Inventory for $1,500.

Question 10

Purrfect Pets uses the perpetual inventory system.At the beginning of the quarter,Purrfect Pets has $30,000 in inventory.During the quarter the company purchases $7,900 of new inventory from a vendor,returned $700 of inventory to the vendor,and took advantage of discounts from the vendor of $200.At the end of the quarter the balance in inventory is $26,500.What is the cost of goods sold?

Accepted Answer

The cost of goods sold is calculated as: Beginning Inventory ($30,000) + Purchases ($7,900) - Returns ($700) - Discounts ($200) - Ending Inventory ($26,500) = $10,500.

Question 11

Purple Corp.purchased $10,000 of merchandise on June 3,subject to the terms,2/10,n/30.On June 9,it pays for all the merchandise purchased on June 3.When the entry relating to this transaction is recorded,that entry will reduce:

Accepted Answer

The payment was made within the discount period, so a 2% discount is applied. The discount amount is $200 ($10,000 x 2%). This reduces the cost of inventory, as the company records the inventory at the discounted price.

Question 12

Berkley Company had beginning inventory of $4,000 and purchases of $20,000.If half of its inventory was sold,Berkley's goods available for sale will:

Accepted Answer

The goods available for sale will be split between cost of goods sold (which will appear as an expense on the income statement) and ending inventory (which will appear as an asset on the balance sheet). Half of the inventory was sold, so $12,000 ($4,000 beginning inventory + $20,000 purchases / 2) will be split between cost of goods sold and ending inventory.

Question 13

Beginning inventory was $5,000.During the month,the company purchased an additional $25,000 of inventory and sold goods that cost $20,000.Ending inventory was:

Accepted Answer

To calculate the ending inventory, we need to subtract the cost of goods sold (COGS) from the total cost of goods available for sale (beginning inventory + purchases).

COGS = $20,000 
Total cost of goods available for sale = $5,000 (beginning inventory) + $25,000 (purchases) = $30,000

Ending inventory = Total cost of goods available for sale - COGS 
Ending inventory = $30,000 - $20,000 
Ending inventory = $10,000

Therefore, the correct answer is C) $10,000.

Question 14

Assume that a perpetual inventory system is in use.Which of the following statements regarding the journal entries prepared is correct?

Accepted Answer

When a customer returns inventory under a perpetual inventory system, the seller debits Sales Returns and Allowances, and credits Inventory to reflect the decrease in inventory. Choice A is incorrect because freight-out costs are considered a selling expense and should be recorded separately from Cost of Goods Sold. Choice B is incorrect because when a company receives payment from a customer for a sale, Cash is debited, and Accounts Receivable is credited, not Accounts Payable. Choice C is incorrect because when a company grants an allowance to a customer, Sales Returns and Allowances is credited, not Inventory.

Question 15

West Co.returned $500 of merchandise that was purchased on account.As a result of this transaction,assets will:

Accepted Answer

When merchandise is returned on account, it means that the company had already paid out the money for the merchandise but is now receiving the money back due to the return. This means that their assets will decrease (since they no longer have the inventory) and their liabilities will decrease (since they no longer owe the money for the merchandise).

Question 16

On April 6,Lopez Co.purchased $5,000 of inventory,terms 1/15,n/30.Lopez Co.uses a perpetual inventory system.The company paid for the purchase on April 26.The entry to record the payment on April 26 includes which of the following?

Accepted Answer

Since the company uses a perpetual inventory system, the purchase of inventory was already recorded with a debit to the Inventory account. When the company paid for the purchase on April 26, it would need to credit Cash for the amount paid, which is $5,000. Option A is incorrect because no further adjustment is needed for the Inventory account. Option B is incorrect because it implies that the company still owes $4,900 to the supplier, but the payment has already been made. Option C is also incorrect because it would result in an overstatement of the company's liabilities, which is not accurate since the payment has been made. Therefore, the correct answer is Option D.

Question 17

Which inventory system updates the inventory account only at the end of the accounting period?

Accepted Answer

The periodic inventory system updates the inventory account only at the end of the accounting period, whereas the perpetual inventory system updates the inventory account continuously as transactions occur. LIFO and FIFO refer to methods of valuing inventory, not inventory systems. Therefore, the best choice is D, periodic.

Question 18

A company that purchases inventory for $10,000 with terms 2/10,n/30.It then returns $2,000 of the inventory purchased to the supplier and also receives an allowance for defective inventory of $100.The company pays the amount due within the discount period.What is the amount of the discount that will be taken?

Accepted Answer

The discount is calculated on the net amount after returns and allowances. The net purchase is $10,000 - $2,000 - $100 = $7,900. The discount is 2% of $7,900, which is $158.

Question 19

Flynn Company uses a perpetual inventory system and had the following transactions during November:
-November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30.
-November 8 - Returned $800 of defective units and received full credit.
-November 15 - Paid the amount due.
-Use the information above to answer the following question.What journal entry will be recorded by Flynn Company on November 6?

Accepted Answer

Flynn Company will record the purchase of inventory by debiting Inventory and crediting Accounts Payable for the full purchase amount of $5,800.

Question 20

If merchandise purchased on credit is returned to the seller for a full refund,what would be the effect on the accounts listed below?

Accepted Answer

When merchandise is returned for a full refund, the inventory will decrease as the goods are no longer on hand. There will be no effect on the Cost of Goods Sold because the items were not actually sold. Finally, the accounts payable will decrease as the seller is no longer owed money for the returned merchandise.

Quiz 6: Internal Control and Financial Reporting for Cash and Merchandising Operations