Question 1

When inventory is shipped from the seller to the buyer with shipping terms of FOB destination:

Accepted Answer

FOB destination means that title passes from the seller to the buyer at the destination, meaning the goods are the seller's responsibility until they arrive at the buyer's destination. Therefore, the goods will be included in the inventory of the seller until they reach their destination.

Question 2

Which is the correct order for items to appear on the income statement?

Accepted Answer

Sales revenue is the starting point, followed by deducting the cost of goods sold to arrive at gross profit. Then, operating expenses are subtracted from gross profit to arrive at net income. Therefore, the correct order is sales revenue, gross profit, cost of goods sold, and operating expenses.

Question 3

Martson and Co. made the following journal entries:   What is Martson's gross profit from this sale?

Accepted Answer

The journal entries indicate that Martson sold goods for $75,000 with a cost of goods sold of $60,000. Therefore, the gross profit is $15,000 ($75,000 - $60,000).

Question 4

A company purchased inventory for $800 per unit. The company later sold the inventory for $1,000 per unit. The entries to record the sale for cash and cost of goods sold would include debits to which of the following accounts?

Accepted Answer

- To record the sale for cash, there should be a debit to Cash account for the amount received, which is $1,000 per unit.
- To record the cost of goods sold, there should be a debit to Cost of Goods Sold account for the cost of the inventory sold, which is $800 per unit.

Question 5

How do purchase returns and allowances and purchase discounts affect gross purchases?

Accepted Answer

Purchase returns and allowances and purchase discounts are subtracted from gross purchases to calculate net purchases. They reduce the total amount of purchases made by a company.

Question 6

A periodic inventory system:

Accepted Answer

The answer of A periodic inventory system:
...

Question 7

Using a perpetual inventory system, which of the following entries would record the sale of merchandise sold on credit?

Accepted Answer

In a perpetual inventory system, the sale of merchandise on credit is recorded by debiting Accounts Receivable and crediting Sales Revenue. Option D is the only one that includes a credit to Accounts Receivable, so it is the correct choice. Option A has a debit entry to the Inventory account which suggests that merchandise was sold for cash, not on credit. Option B has a debit to Cost of Goods Sold and credit to Inventory, which is incorrect. Option C has a debit to Accounts Receivable but there is no corresponding credit entry, so it is also incorrect.

Question 8

If Martson and Co. make the following journal entries, they are using the ________ inventory system.

Accepted Answer

Martson and Co. are using the perpetual inventory system where inventory is continuously updated in the accounting records as purchases and sales are made. This is apparent from the fact that they are making journal entries for each transaction, including the purchase and sale of inventory. The other choices, FIFO and LIFO, refer to methods of determining cost of goods sold under either periodic or perpetual inventory systems.

Question 9

Using a perpetual inventory system, which of the following entries would record the cost of merchandise sold on credit?

Accepted Answer

The answer of Using a perpetual inventory system, which of...

Question 10

Under a perpetual inventory system, the journal entry to record the purchase of inventory will include a:

Accepted Answer

Under a perpetual inventory system, the purchase of inventory is recorded with a debit to the Inventory account to reflect the increase in inventory on hand.

Question 11

ABC Company purchases inventory from XYZ Company with the shipping terms FOB shipping point. This means that:

Accepted Answer

Under FOB shipping point terms, the buyer (ABC Company) takes ownership of the goods as soon as they leave the seller's (XYZ Company) shipping dock, meaning ABC Company should include the goods in their inventory at that point.

Question 12

A purchase:

Accepted Answer

A return decreases the cost of the inventory because it results in a decrease in the amount paid for the inventory. On the other hand, an allowance is a reduction in the cost of the inventory and therefore decreases the cost. Similarly, a discount reduces the cost of the inventory and also decreases the cost. Therefore, options A, B, and C are incorrect.

Question 13

The inventory system that uses computer software to keep a running record of inventory on hand is the:

Accepted Answer

A perpetual inventory system allows for continuous tracking of inventory levels using computer software. The other options, cost of goods sold inventory system and periodic inventory system, do not involve computer software for tracking inventory levels. The option of a hybrid inventory system is not a commonly used term in accounting, making C the best answer.

Question 14

Under a perpetual inventory system:

Accepted Answer

In a perpetual inventory system, inventory levels are continuously updated through the use of computerized systems, barcodes, or other tracking methods. This allows for real-time monitoring and immediate identification of any shortages or overages in inventory levels. Therefore, it can be readily determined if there is a sufficient supply of inventory on hand at any given time, without the need for a physical count. However, a physical count may still be necessary to ensure the accuracy of the inventory records and to adjust for any discrepancies.

Question 15

Which of the following is a correct statement regarding shipping terms and freight costs?

Accepted Answer

Freight-out paid by the seller is a delivery expense and is not considered part of the cost of the inventory. Option A and B are incorrect because freight-out is not considered part of the inventory cost. Option C is incorrect because under the shipping terms FOB shipping point, the transportation cost is paid by the buyer and is called freight-in.

Question 16

Under a perpetual inventory system, when a sale is made, the company:

Accepted Answer

Under a perpetual inventory system, a company records the cost of goods sold simultaneously with the sale. Therefore, a journal entry is required to record both the sale and the cost of goods sold. This allows for more accurate and up-to-date inventory management and cost of goods sold calculations. Option A and B are incorrect as they only record part of the transaction, and option D is incorrect as a journal entry is required to maintain accurate records.

Question 17

BMX Co. sells item XJ15 for $1,000 per unit, and has a cost of goods sold percentage of 80%. The gross profit to be found for selling 20 items:

Accepted Answer

The answer of BMX Co. sells item XJ15 for $1,000...

Question 18

Which of the following is NOT used to determine net purchases?

Accepted Answer

Freight-out is not used to determine net purchases. Freight-in is added to the cost of purchases, purchase returns are deducted from purchases, and purchase discounts are also deducted from purchases to determine net purchases.

Question 19

A small ________ would most likely use a perpetual inventory system.

Accepted Answer

An automobile dealership would most likely use a perpetual inventory system because it deals with high-value items and needs to keep precise, real-time inventory records.

Question 20

Company A has inventory out on consignment and held for sale by Company B. Which Company will include the goods in their inventory?

Accepted Answer

The answer of Company A has inventory out on consignment...

Quiz 6: Inventory Cost of Goods Sold