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Accounting Chapter 6
End-of-Chapter Quiz Questions
| Question | Answer |
|---|---|
| True or False. The invoice is the purchaser's request for collection from the customer. | False |
| True or False. Gross profit is the excess of sales revenue over cost of goods sold. | True |
| True or False. The Sales account is used to record only sales on account. | False |
| True or False. A service company purchases products from suppliers and then sells them. | False |
| Sales discounts should appear in the financial statements as a: | Deduction from Sales |
| How is inventory classified in the financial statements? | As an Asset |
| Beginning inventory UNITS: 15; UNIT COST: $5; TC: $75 Purchase on Apr 25 UNITS: 40; UNIT COST: 8; TC: 320 Purchase on Nov 13 UNITS: 10; UNIT COST: 9; TC: 90 Sales UNITS: 40; UNIT COST: ?; TC: ? Tortoise uses a FIFO inventory system. Cost of goods sold | $275 [(15 x $5) + (25 x $8)] |
| Beginning inventory UNITS: 15; UNIT COST: $5; TC: $75 Purchase on Apr 25 UNITS: 40; UNIT COST: 8; TC: 320 Purchase on Nov 13 UNITS: 10; UNIT COST: 9; TC: 90 Sales UNITS: 40; UNIT COST: ?; TC: ? Tortoise's LIFO cost of ending inventory would be: | $155 (15 x $5) + (10 x $8) |
| Beginning inventory UNITS: 15; UNIT COST: $5; TC: $75 Purchase on Apr 25 UNITS: 40; UNIT COST: 8; TC: 320 Purchase on Nov 13 UNITS: 10; UNIT COST: 9; TC: 90 Sales UNITS: 40; UNIT COST: ?; TC: ? Tortoise's average cost of ending inventory is: | $187 [($75 + $320 + $90) / 65] |
| When applying lower-of-cost-or-market to inventory, "market" generally means: | Replacement Cost |
| During a period of rising prices, the inventory method that will yield the highest net income and asset value is: | FIFO |
| True or False. When prices are rising, the inventory method that results in the lowest ending inventory value is FIFO. | False |
| True or False. The inventory method that best matches current expense with current revenue is FIFO. | False |
| True or False. Application of the lower-of-cost-or-market rule often results in a lower inventory value. | True |
| True or False. An error overstating ending inventory in 2010 will understate 2010 net income. | False |
| The ending inventory of Misty Harbor Co. is $57,000. If beginning inventory was $68,000 and goods available totaled $117,000, the cost of goods sold is: | $60,000 ($117,000 - $57,000) |
| Lantern Company had cost of goods sold of $145,000. The beginning and ending inventories were $15,000 and $25,000, respectively. Purchases for the period must have been: | $155,000 ($145,000 + $25,000 - $15,000) |
| Fairway Company had a $28,000 beginning inventory and a $35,000 ending inventory. Net Sales were $184,000; purchases, $93,000; purchase returns and allowances, $7,000; and freight-in, $3,000. Cost of goods sold for the period is: | $82,000 ($28,000 + $93,000 + $3,000 - $7,000 - $35,000) |
| Fairway Company had a $28,000 beginning inventory and a $35,000 ending inventory. Net Sales were $184,000; purchases, $93,000; purchase returns and allowances, $7,000; and freight-in, $3,000. What is Fairway's gross profit percentage (rounded to %)? | 55% ($184,000 - 82,000)/$184,000 |
| Fairway Company had a $28,000 beginning inventory and a $35,000 ending inventory. Net Sales were $184,000; purchases, $93,000; purchase returns and allowances, $7,000; and freight-in, $3,000. What is Fairway's rate of inventory turnover? | 2.6 times [$82,000/($28,000 + $35,000)/2] |
| Beginning inventory is $110,000, purchases are $260,000 and sales total $470,000. The normal gross profit is 40%. Using the gross profit method, how much is ending inventory? | $88,000; $110,000 + $260,000 - [$470,000 x (1-0.40)] |
| An overstatement of ending inventory in one period results in: | An understatement of net income of the next period |
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