Professional Documents
Culture Documents
2.
Having one person post entries to accounts receivable subsidiary ledger and
a different person post to the Accounts Receivable Control account in the
general ledger is an example of
a. inadequate internal control.
b. duplication of effort.
c. external verification.
d. segregation of duties.
3.
When two or more people get together for the purpose of circumventing
prescribed controls, it is called
a. a fraud committee.
b. collusion.
c. a division of duties.
d. bonding of employees.
The control principle related to not having the same person authorize and
pay for goods is known as
a. establishment of responsibility.
b. independent internal verification.
c. separation of duties.
d. rotation of duties.
4.
Two individuals at a retail store work the same cash register. You evaluate
this situation as
a. a violation of establishment of responsibility.
b. a violation of separation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.
An accounts payable clerk also has access to the approved supplier master
file for
purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. separation of duties is violated.
Controls that enhance the accuracy and reliability of the accounting records
are
a. automated controls.
b. external controls.
c. mechanical and electronic controls.
d. physical controls.
5.
The independent internal verification principle involves each of the following
except the
______________ of data prepared by other employees.
a. comparison
b. reconciliation
c. review
d. segregation
Joe is warehouse custodian and also maintains the accounting record of the
inventory
held at the warehouse. An assessment of this situation indicates
a. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
d. establishment of responsibility is violated.
6.
In large companies the independent internal verification procedure is often
assigned to
a. computer operators.
b. management.
c. internal auditors.
d. outside CPAs.
Mrs. Smith has worked for Arcco Inc., for 20 years without taking a vacation.
An internal
control feature that would address this situation would be
a. other controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.
7.
A system of internal control
a. is infallible.
b. can be rendered ineffective by employee collusion.
c. invariably will have costs exceeding benefits.
d. is premised on the concept of absolute assurance.
For accounting purposes, postdated checks (checks payable in the future) are
considered to be
a. money orders.
b. cash.
c. petty cash.
d. accounts receivable.
8.
Checks received through the mail should
a. immediately be endorsed "For Deposit Only."
b. be sent to the accounts receivable subsidiary ledger clerk for immediate
posting to the
customer's account.
c. be cashed at the bank as soon as possible.
d. be "rung up" on a cash register immediately.
A company stamps checks received in the mail with the words "For Deposit
Only". This
endorsement is called
a. a blank endorsement.
b. a rubber stamp.
c. a restrictive endorsement.
d. an operational endorsement.
9.
The use of remittance advices for mail receipts is an example of
a. documentation procedures.
b. other controls.
c. physical controls.
d. independent internal verification.
10.
An exception to disbursements being made by check is acceptable when cash
is paid
a. to an owner.
b. to employees as wages.
c. from petty cash.
d. to employees as loans.
Blank checks
a. should be safeguarded.
b. should be pre-signed.
c. do not need to be safeguarded since they must be signed to be valid.
d. should not be pre-numbered.
11.
A voucher system is a series of prescribed control procedures
a. to check the credit worthiness of customers.
b. designed to assure that disbursements by check are proper.
c. which eliminates the need for a sales journal.
d. specifically designed for small firms who may not have checking accounts.
12.
A debit balance in Cash Over and Short is reported as a
a. contra asset.
b. miscellaneous asset.
c. miscellaneous expense.
d. miscellaneous revenue.
A petty cash fund of $100 is replenished when the fund contains $4 in cash
and receipts
for $93. The entry to replenish the fund would
a. credit Cash Over and Short for $3.
b. credit Miscellaneous Revenue for $3.
c. debit Cash Over and Short for $3.
d. debit Miscellaneous Expense for $3.
13.
A petty cash fund should not be used for
a. postage due.
b. loans to the petty cash custodian.
c. taxi fares.
d. customer lunches.
14.
All of the following are parties to a check except the
a. bank.
b. Federal Reserve.
c. maker.
d. payee.
A bank statement
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor's bank.
c. is a bill from the bank for services rendered.
d. shows the activity which increased or decreased the depositor's account
balance.
15.
Which one of the following would not cause a bank to debit a depositor's
account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF
A company maintains the asset account, Cash in Bank, on its books, while the
bank
maintains a reciprocal account which is
a. a contra-asset account.
b. a liability account.
c. also an asset account.
d. an owner's equity account.
16.
A check returned by the bank marked "NSF" means
a. no service fee.
b. no signature found.
c. not satisfactorily filled-out.
d. not sufficient funds.
17.
Deposits in transit
a. have been recorded on the company's books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are checks from customers which have not yet been received by the
company.
In preparing a bank reconciliation, outstanding checks are
a. added to the balance per bank.
b. deducted from the balance per books.
c. added to the balance per books.
d. deducted from the balance per bank.
If a check correctly written and paid by the bank for $438 is incorrectly
recorded on the
company's books for $483, the appropriate treatment on the bank
reconciliation would be to
a. add $45 to the bank's balance.
b. add $45 to the book's balance.
c. deduct $45 from the bank's balance.
d. deduct $438 from the book's balance.
Notification by the bank that a deposited customer check was returned NSF
requires that
the company make the following adjusting entry:
a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.
18.
Dolan Company had checks outstanding totaling $5,400 on its June bank
reconciliation. In July, Dolan Company issued checks totaling $38,900. The
July bank statement shows
that $26,300 in checks cleared the bank in July. A check from one of Dolan
Company's
customers in the amount of $300 was also returned marked "NSF." The
amount of
outstanding checks on Dolan Company's July bank reconciliation should be
a. $12,600.
b. $18,000.
c. $17,700.
d. $7,200.
Each of the following items affect the cash balance per books except
a. bank service charges.
b. notes collected by the bank.
c. NSF checks.
d. outstanding checks.
19.
Bank errors
a. occur because of time lags.
b. must be corrected by debits.
c. are infrequent in occurrence.
d. are corrected by making an adjusting entry on the depositor's books.
Which of the following would not be reported on the balance sheet as a cash
equivalent?
a. Money market fund
b. Sixty-day certificate of deposit
c. Six-month Treasury bill
d. Money market savings certificate
20.
Compensating balances are a restriction on the use of a company's cash and
should be
a. reported as a current asset.
b. reported as a noncurrent asset.
c. disclosed in the financial statements.
d. reported as a reduction of cash.
Having different individuals receive cash, record cash receipts, and hold the
cash is an
example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
21.
Storing cash in a company safe is an application of which internal control
principle?
a. Segregation of duties
b. Documentation procedures
c. Physical controls
d. Establishment of responsibility
Using pre-numbered checks and having an approved invoice for each check is
an
example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
When making a payment from the petty cash fund for postage stamps, the
following
journal entry is made.
a. Office Supplies ......................... XXXX
Petty Cash ........................ XXXX
b. Postage Expense ..................... XXXX
Petty Cash ........................ XXXX
c. Miscellaneous Expense............ XXXX
Petty Cash ........................ XXXX
d. No entry is made.
22.
All of the following would involve a debit memorandum except
a. a bank service charge.
b. an NSF check.
c. the cost of printing checks.
d. interest earned.
Journal entries are required by the depositor for all of the following except
a. collection of a note receivable.
b. bank errors.
c. bank service charges.
d. an NSF check.
Cash equivalents are highly liquid investments that can be converted into a
specific
amount of cash with maturities of
a. 1 month or less when purchased.
b. 3 months or less when purchased.
c. 6 months or less when purchased.
d. 1 year or less when purchased.
RECEIVABLE
23.
Claims for which formal instruments of credit are issued as proof of the debt
are
a. accounts receivable.
b. interest receivable.
c. notes receivable.
d. other receivables.
24.
Notes or accounts receivables that result from sales transactions are often
called
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
Which one of the following is not a primary problem associated with accounts
receivable?
a. Depreciating accounts receivable
b. Recognizing accounts receivable
c. Valuing accounts receivable
d. Disposing of accounts receivable
25.
Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due.
26
Use the following information for next questions.
A customer charges a treadmill at Hank's Sport Shop. The price is $1,000 and
the financing
charge is 9% per annum if the bill is not paid in 30 days. The customer fails to
pay the bill within
30 days and a finance charge is added to the customer's account.
50. What is the amount of the finance charge?
a. $30.00
b. $7.50
c. $90.00
d. $3.00
The accounts affected by the journal entry made by Hank's Sport Shop to
record the
finance charge are
a. Accounts Receivable
Cash
b. Cash
Finance Receivable
c. Accounts Receivable
Interest Payable
d. Accounts Receivable
Interest Revenue
If a department store fails to make the entry to accrue the finance charges
due from
customers,
a. accounts receivable will be overstated.
b. interest revenue will be understated.
c. interest expense will be overstated.
d. interest expense will be understated.
27.
Under the allowance method, writing off an uncollectible account
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
28.
When the allowance method is used to account for uncollectible accounts,
Bad Debts
Expense is debited when
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer's account becomes past-due.
The collection of an account that had been previously written off under the
allowance
method of accounting for uncollectibles
a. will increase income in the period it is collected.
b. will decrease income in the period it is collected.
c. requires a correcting entry for the period in which the account was written
off.
d. does not affect income in the period it is collected.
29.
An aging of a company's accounts receivable indicates that $8,000 are
estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance,
the
adjustment to record bad debts for the period will require a
a. debit to Bad Debts Expense for $8,000.
b. debit to Allowance for Doubtful Accounts for $6,900.
c. debit to Bad Debts Expense for $6,900.
d. credit to Allowance for Doubtful Accounts for $8,000.
30.
A reasonable amount of uncollectible accounts is evidence
a. that the credit policy is too strict.
b. that the credit policy is too lenient.
c. of a sound credit policy.
d. of poor judgments on the part of the credit manager.
31.
The allowance method of accounting for uncollectible accounts is required if
a. the company makes any credit sales.
b. bad debts are significant in amount.
c. the company is a retailer.
d. the company charges interest on accounts receivable.
Bad Debts Expense is reported on the income statement as
a. part of cost of goods sold.
b. reducing gross profit.
c. an operating expense.
d. a contra-revenue account.
32.
To record estimated uncollectible accounts using the allowance method, the
adjusting
entry would be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful
Accounts.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful
Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts
Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.
33.
If an account is collected after having been previously written off,
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and balance sheet accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
34.
King Company uses the percentage of sales method for recording bad debts
expense. For the year, cash sales are $500,000 and credit sales are
$2,000,000. Management
estimates that 2% is the sales percentage to use. What adjusting entry will
King Company make to record the bad debts expense?
a. Bad Debts Expense ....................................................... 50,000
Allowance for Doubtful Accounts .......................... 50,000
b. Bad Debts Expense ....................................................... 40,000
Allowance for Doubtful Accounts .......................... 40,000
c. Bad Debts Expense ....................................................... 40,000
Accounts Receivable ............................................ 40,000
d. Bad Debts Expense ....................................................... 50,000
Accounts Receivable ............................................ 50,000
The balance of Allowance for Doubtful Accounts prior to making the adjusting
entry to
record estimated uncollectible accounts
a. is relevant when using the percentage of receivables basis.
b. is relevant when using the percentage of sales basis.
c. is relevant to both bases of adjusting for uncollectible accounts.
d. will never show a debit balance at this stage in the accounting cycle.
35.
Major advantages of credit cards to the retailer include all of the following
except the
a. issuer does the credit investigation of customers.
b. issuer undertakes the collection process.
c. retailer receives more cash from the credit card issuer.
d. All of these are advantages.
If a retailer regularly sells its receivables to a factor, the service charge of the
factor
should be classified as a(n)
a. selling expense.
b. interest expense.
c. other expense.
d. contra asset.
36.
Major advantages of credit cards to the retailer include all of the following
except the
a. issuer does credit investigation of the customer.
b. issuer maintains customer accounts.
c. retailer receives more cash from the credit card issuer than from the
customer.
d. issuer undertakes the collection process and absorbs any losses.
37.
When customers make purchases with a national credit card, the retailer
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the
credit card
company.
The basic issues in accounting for notes receivable include each of the
following except
a. analyzing notes receivable.
b. disposing of notes receivable.
c. recognizing notes receivable.
d. valuing notes receivable.
38.
The maturity value of a $60,000, 10%, 60-day note receivable dated July 3 is
a. $60,000.
b. $66,000.
c. $70,000.
d. $61,000.
A promissory note
a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.
39.
Which of the following is not true regarding a promissory note?
a. Promissory notes may not be transferred to another party by endorsement.
b. Promissory notes may be sold to another party.
c. Promissory notes give a stronger legal claim to the holder than accounts
receivable.
d. Promissory notes may be bearer notes and not specifically identify the
payee by
name.
When calculating interest on a promissory note with the maturity date stated
in terms of
days, the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.
The maturity value of a $2,000, 9%, 60-day note receivable dated February
10th is
a. $2,030.
b. $2,015.
c. $2,000.
c. $2,180.
40.
The interest on a $3,000, 10%, 1-year note receivable is
a. $3,000.
b. $300.
c. $3,030.
d. $3,300.
41.
A company that receives an interest bearing note receivable will
a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.
42.
Short-term notes receivable are reported at
a. cash (net) realizable value.
b. face value.
c. gross realizable value.
d. maturity value.
43.
When a note receivable is honored, Cash is debited for the note's
a. net realizable value.
b. maturity value.
c. gross realizable value.
d. face value.
44.
On February 1, 2005, Dickens Company sells merchandise on account to
Livingston
Company for $5,000. The entry to record this transaction by Dickens
Company is
a. Sales .................................................................................... 5,000
Accounts Payable ......................................................... 5,000
b. Cash..................................................................................... 5,000
Sales ............................................................................. 5,000
c. Accounts Receivable............................................................ 5,000
Sales ............................................................................. 5,000
d. Notes Receivable ................................................................. 5,000
Accounts Receivable ....................................................
5,000
When the allowance method of recognizing bad debts expense is used, the
entry to
recognize that expense
a. increases net income.
b. decreases current assets.
c. has no effect on current assets.
d. has no effect on net income.
45.
Voight Company's account balances at December 31 for Accounts Receivable
and
Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.),
respectively. An
aging of accounts receivable indicated that $128,000 are expected to
become
uncollectible. The amount of the adjusting entry for bad debts at December
31 is
a. $128,000.
b. $58,000.
c. $198,000.
d. $70,000.
Gudenas Co., makes a credit card sale to a customer for $500. The credit
card sale has a grace period of 30 days and then an interest charge of 18%
per year or 1.5% per month is added to the balance. If the unpaid balance on
the above sale is $300 at the end of the grace period, the interest charge is
a. $7.50.
b. $5.00.
c. $3.00.
d. $4.50.
46.
On February 1, Kline Company received a $6,000, 10%, four-month note
receivable. The cash to be received by Kline Company when the note
becomes due is
a. $200.
b. $6,000.
c. $6,200.
d. $6,600.
The entry to record the dishonor of a note receivable assuming the payee
expects
eventual collection includes a debit to
a. Notes Receivable.
b. Cash.
c. Allowance for Doubtful Accounts.
d. Accounts Receivable.
Which of the following statements concerning receivables is incorrect?
a. Notes receivable are often listed last under receivables.
b. The contingent liability from selling notes receivable should be disclosed.
c. Both the gross amount of receivables and the allowance for doubtful
accounts should
be reported.
d. Interest revenue and gain on sale of notes receivable are shown under
other
revenues and gains.
INVENTORY
47.
Inventories affect
a. only the balance sheet.
b. only the income statement.
c. both the balance sheet and the income statement.
d. neither the balance sheet nor the income statement.
Merchandise inventory is
a. reported under the classification of Property, Plant, and Equipment on the
balance
sheet.
b. often reported as a miscellaneous expense on the income statement.
c. reported as a current asset on the balance sheet.
d. generally valued at the price for which the goods can be sold.
48.
The factor which determines whether or not goods should be included in a
physical count of inventory is
a. physical possession.
b. legal title.
c. management's judgment.
d. whether or not the purchase price has been paid.
49.
An employee assigned to counting computer monitors in boxes should
a. estimate the number if there is a large quantity to be counted.
b. read each box and rely on the box description for the contents.
c. determine that the box contains a monitor.
d. rely on the warehouse records of the number of computer monitors.
50.
The term "FOB" denotes
a. free on board.
b. freight on board.
c. free only (to) buyer.
d. freight charge on buyer.
51.
Cost of goods sold is computed from the following equation:
a. beginning inventory – cost of goods purchased + ending inventory.
b. sales – cost of goods purchased + beginning inventory – ending inventory.
c. sales + gross profit – ending inventory + beginning inventory.
d. beginning inventory + cost of goods purchased – ending inventory
The LIFO inventory method assumes that the cost of the latest units
purchased are
a. the last to be allocated to cost of goods sold.
b. the first to be allocated to ending inventory.
c. the first to be allocated to cost of goods sold.
d. not allocated to cost of goods sold or ending inventory.
52.
Use the following information for next questions.
A company just starting business made the following four inventory
purchases in June:
June 1 150 units $ 780
June 10 200 units 1,170
June 15 200 units 1,260
June 28 150 units 990
$4,200
A physical count of merchandise inventory on June 30 reveals that there are
200 units on hand.
Using the LIFO inventory method, the value of the ending inventory on June
30 is
a. $1,073.
b. $1,305.
c. $2,895.
d. $3,128.
Using the FIFO inventory method, the amount allocated to cost of goods sold
for June is
a. $1,305.
b. $2,545.
c. $2,895.
d. $3,128.
Using the average cost method, the amount allocated to the ending inventory
on June 30 is
a. $4,200.
b. $3,000.
c. $1,150.
d. $1,200.
The inventory method which results in the highest gross profit for June is
a. the FIFO method.
b. the LIFO method.
c. the weighted average unit cost method.
d. not determinable.
53.
Which of the following items will increase inventoriable costs for the buyer of
goods?
a. Purchase returns and allowances granted by the seller
b. Purchase discounts taken by the purchaser
c. Freight charges paid by the seller
d. Freight charges paid by the purchaser
Vic's Used Cars uses the specific identification method of costing inventory.
During
March, Vic purchased three cars for $4,000, $5,000, and $6,500, respectively.
During
March, two cars are sold for $6,000 each. Vic determines that at March 31,
the $6,500 car is still on hand. What is Vic’s gross profit for March?
a. $3,500.
b. $3,000.
c. $500.
d. $5,500.
54.
Of the following companies, which one would not likely employ the specific
identification
method for inventory costing?
a. Music store specializing in organ sales
b. Farm implement dealership
c. Antique shop
d. Hardware store
55.
Which of the following is not a common cost flow assumption used in costing
inventory?
a. First-in, first-out
b. Middle-in, first-out
c. Last-in, first-out
d. Average cost
The accounting principle that requires that the cost flow assumption be
consistent with the physical movement of goods is
a. called the matching principle.
b. called the consistency principle.
c. nonexistent; that is, there is no accounting requirement.
d. called the physical flow assumption.
56.
The cost of goods available for sale is allocated to the cost of goods sold and
the
a. beginning inventory.
b. ending inventory.
c. cost of goods purchased.
d. gross profit.
Companies adopt different cost flow methods for each of the following
reasons except
a. balance sheet effects.
b. cash flow effects.
c. income statements effects.
d. tax effects.
Two companies report the same cost of goods available for sale but each
employs a
different inventory costing method. If the price of goods has increased during
the period,
then the company using
a. LIFO will have the highest ending inventory.
b. FIFO will have the highest cost of good sold.
c. FIFO will have the highest ending inventory.
d. LIFO will have the lowest cost of goods sold.
57.
If companies have identical inventoriable costs but use different inventory
flow
assumptions when the price of goods have not been constant, then the
a. cost of goods sold of the companies will be identical.
b. cost of goods available for sale of the companies will be identical.
c. ending inventory of the companies will be identical.
d. net income of the companies will be identical.
58.
The managers of Teng Company receive performance bonuses based on the
net income of the firm. Which inventory costing method are they likely to
favor in periods of declining prices?
a. LIFO
b. Average Cost
c. FIFO
d. Physical inventory method
59.
The accountant at Kline Company is figuring out the difference in income
taxes the
company will pay depending on the choice of either FIFO or LIFO as an
inventory costing method. The tax rate is 30% and the FIFO method will
result in income before taxes of $3,640. The LIFO method will result in
income before taxes of $3,290. What is the difference in tax that would be
paid between the two methods?
a. $350.
b. $150.
c. $105.
d. Cannot be determined from the information provided.
60.
Which costing method cannot be used to determine the cost of inventory
items before
lower of cost or market is applied?
a. Specific identification
b. FIFO
c. LIFO
d. All of these methods can be used.
61.
The lower of cost or market (LCM) basis may be be used with all of the
following methods except
a. average cost.
b. FIFO.
c. LIFO.
d. The LCM basis may be used with all of these.
62.
If beginning inventory is understated by $10,000, the effect of this error in
the current
period is
Cost of Goods Sold Net Income
a. Understated Understated
b. Overstated Overstated
c. Understated Overstated
d. Overstated Understated
A company uses the periodic inventory method and the beginning inventory
is overstated by $4,000 because the ending inventory in the previous period
was overstated by $4,000.
The amounts reflected in the current end of the period balance sheet are
Assets Owner’s Equity
a. Overstated Overstated
b. Correct Correct
c. Understated Understated
d. Overstated Correct
Disclosures about inventory should include each of the following except the
a. basis of accounting.
b. costing method.
c. quantity of inventory.
d. major inventory classifications.
63.
Inventory turnover is calculated by dividing cost of goods sold by
a. beginning inventory.
b. ending inventory.
c. average inventory.
d. 365 days.
64.
The Jansen Company uses the perpetual inventory system and the moving
average
method to value inventories. On August 1, there were 10,000 units valued at
$30,000 in
the beginning inventory. On August 10, 20,000 units were purchased for $6
per unit. On
August 15, 24,000 units were sold for $12 per unit. The amount charged to
cost of goods
sold on August 15 was
a. $80,000.
b. $120,000.
c. $144,000.
d. $108,000.
Under the gross profit method, each of the following items are estimated
except for the
a. cost of ending inventory.
b. cost of goods sold.
c. cost of goods purchased.
d. gross profit.
Under the retail inventory method, the estimated cost of ending inventory is
computed by
multiplying the cost-to-retail ratio by
a. net sales.
b. goods available for sale at retail.
c. goods purchased at retail.
d. ending inventory at retail.
Inventories are estimated
a. more frequently under a periodic inventory system than a perpetual
inventory system.
b. using the wholesale inventory method.
c. more frequently under a perpetual inventory system than the periodic
inventory
system.
d. using the net method.
65.
Nolan Department Store estimates inventory by using the retail inventory
method. The
following information was developed:
At Cost At Retail
Beginning inventory $212,000 $500,000
Goods purchased 600,000 900,000
Net sales 800,000
The estimated cost of the ending inventory is
a. $464,000.
b. $348,000.
c. $588,000.
d. $600,000.
Watson Department Store utilizes the retail inventory method to estimate its
inventories. It calculated its cost to retail ratio during the period at 75%.
Goods available for sale at retail amounted to $200,000 and goods were sold
during the period for $125,000. The
estimated cost of the ending inventory is
a. $75,000.
b. $150,000.
c. $56,250.
d. $100,000.
Farr Company prepares monthly financial statements and uses the gross
profit method to estimate ending inventories. Historically, the company has
had a 40% gross profit rate. During June, net sales amounted to $40,000; the
beginning inventory on June 1 was $12,000; and the cost of goods purchased
during June amounted to $18,000. The
estimated cost of Farr Company's inventory on June 30 is
a. $6,000.
b. $24,000.
c. $10,000
d. $16,000.
Goods in transit should be included in the inventory of the buyer when the
a. public carrier accepts the goods from the seller.
b. goods reach the buyer.
c. terms of sale are FOB destination.
d. terms of sale are FOB shipping point.
66.
Inventory items on an assembly line in various stages of production are
classified as
a. Finished goods.
b. Work in process.
c. Raw materials.
d. Merchandise inventory.
The cost flow method that often parallels the actual physical flow of
merchandise is the
a. FIFO method.
b. LIFO method.
c. average cost method.
d. gross profit method.
In a period of inflation, the cost flow method that results in the lowest income
taxes is the
a. FIFO method.
b. LIFO method.
c. average cost method.
d. gross profit method.
67.
In a period of rising prices, FIFO will have
a. lower net income than LIFO.
b. lower cost of goods sold than LIFO.
c. lower income tax expense than LIFO.
d. lower net purchases than LIFO.
Euler Company made an inventory count on December 31, 2005. During the
count, one of the clerks made the error of counting an inventory item twice.
For the balance sheet at
December 31, 2005, the effects of this error are
Assets Liabilities Owner’s Equity
a. overstated understated overstated
b. understated no effect understated
c. overstated no effect overstated
d. overstated overstated understated
68.
Pearson Company's records indicate the following information for the year:
Merchandise inventory, 1/1 $ 440,000
Purchases 1,800,000
Net Sales 2,400,000
On December 31, a physical inventory determined that ending inventory of
$480,000 was in the warehouse. Pearson's gross profit on sales has remained
constant at 30%. Pearson suspects some of the inventory may have been
taken by some new employees. At December 31, what is the estimated cost
of missing inventory?
a. $80,000.
b. $160,000.
c. $240,000.
d. $560,000.