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question pool ch 6 Accounting.doc, Lecture notes of Accounting

Abertay University Accounting

question pool ch 6 Accounting.doc

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2019/2020

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Financial Accounting, 9e (Harrison/Horngren/Thomas)

Chapter 6 Inventory & Cost of Goods Sold

6.1 Learning Objective 6-1

1) Inventory is an asset and cost of goods sold is an expense.

Answer: TRUE

Diff: 1

LO: 6-1

AICPA Bus Persp: Legal/Regulatory

AICPA Functional: Measurement

2) Inventory is presented on the balance sheet at the selling price of the item.

Answer: FALSE

Diff: 2

LO: 6-1

AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement

3) Service entities will have both a cost of goods sold and an inventory account.

Answer: FALSE

Diff: 1

LO: 6-1

AICPA Bus Persp: Legal/Regulatory

AICPA Functional: Measurement

4) Operating expenses are subtracted from sales to determine gross profit.

Answer: FALSE

Diff: 2

LO: 6-1

AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement

5) To determine net purchases, freight-in is added to the cost of the purchase price of the

inventory.

Answer: TRUE

Diff: 2

LO: 6-1

AASCB: Analytical Skills

AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement

6) A company will include goods they hold on consignment in their ending inventory.

Answer: FALSE

Diff: 2

LO: 6-1

AICPA Bus Persp: Strategic/Critical Thinking

AICPA Functional: Measurement

7) To document approval of purchase returns, a company will issue a debit memorandum.

Answer: TRUE

Diff: 2

LO: 6-1

AICPA Bus Persp: Legal/Regulatory

AICPA Functional: Measurement

1

Partial preview of the text

Download question pool ch 6 Accounting.doc and more Lecture notes Accounting in PDF only on Docsity!

Financial Accounting, 9e (Harrison/Horngren/Thomas)

Chapter 6 Inventory & Cost of Goods Sold

6.1 Learning Objective 6-

Inventory is an asset and cost of goods sold is an expense. Answer: TRUE Diff: 1 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
Inventory is presented on the balance sheet at the selling price of the item. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Service entities will have both a cost of goods sold and an inventory account. Answer: FALSE Diff: 1 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
Operating expenses are subtracted from sales to determine gross profit. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
To determine net purchases, freight-in is added to the cost of the purchase price of the inventory. Answer: TRUE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
A company will include goods they hold on consignment in their ending inventory. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
To document approval of purchase returns, a company will issue a debit memorandum. Answer: TRUE Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement

In a perpetual inventory system, a business maintains a continuous record for each inventory item. Answer: TRUE Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
Since a perpetual inventory system continuously updates the inventory account, a physical inventory count is not necessary to prove the inventory records. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
A purchase allowance increases the cost of the inventory. Answer: FALSE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Inventory on the balance sheet is based on the cost of the units that have been sold. Answer: FALSE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Under the perpetual inventory system, inventory shifts from an asset to an expense when the seller delivers the goods to the buyer. Answer: TRUE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
To record the cost of inventory sold under a perpetual inventory, a debit to Cost of Goods Sold and a credit to Inventory is required. Answer: TRUE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
For a merchandising company: A) the balance sheet reports the cost of the inventory that was on hand at the beginning of the period. B) the income statement reports the cost of the inventory sold during the period. C) ending inventory can be an asset or an expense.

The cost of inventory that is still on hand and has not been sold to customers is called: A) cost of goods sold, an expense that appears on the balance sheet. B) inventory, a current asset that appears on the income statement. C) inventory, a current asset that appears on the balance sheet. D) purchases, an expense that appears on the income statement. Answer: C Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
Another term for gross profit is: A) gross income. B) gross sales. C) gross margin. D) gross operating income. Answer: C Diff: 1 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
Two accounts that would appear on the financial statements of a merchandising company that are not needed by a service company are: A) cost of goods sold and depreciation. B) cost of goods sold and net income. C) cost of goods sold and inventory. D) inventory and depreciation. Answer: C Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Sales revenue is based on the ________ price of the inventory, while cost of goods sold is based on the ________ of the inventory. A) cost, sales B) cost, cost C) sales, sales D) sales, cost Answer: D Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

Which is the correct order for items to appear on the income statement? A) Sales revenue, operating expenses, gross profit, net income B) Sales revenue, gross profit, net income, operating expenses C) Sales revenue, gross profit, cost of goods sold, operating expenses D) Sales revenue, cost of goods sold, gross profit, net income Answer: C Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
A small ________ would most likely use a perpetual inventory system. A) automobile dealership B) fabric store C) restaurant D) flower shop Answer: A Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
A periodic inventory system: A) is used for inexpensive goods. B) is not expensive to maintain. C) does not keep a running record of inventory on hand. D) is all of the above. Answer: D Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
The inventory system that uses computer software to keep a running record of inventory on hand is the: A) cost of goods sold inventory system. B) periodic inventory system. C) perpetual inventory system. D) hybrid inventory system. Answer: C Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement

How do purchase returns and allowances and purchase discounts affect gross purchases? A) Both are added to purchases. B) Both are subtracted from purchases. C) Purchase returns and allowances are added to purchases; purchase discounts are subtracted from purchases. D) Purchase returns and allowances are subtracted from purchases; purchase discounts are added to purchases. Answer: B Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
A purchase: A) allowance increases the cost of the inventory. B) discount increases the cost of the inventory. C) allowance has no effect on the cost of the inventory. D) return decreases the cost of the inventory. Answer: D Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Which of the following is NOT used to determine net purchases? A) Freight-out B) Freight-in C) Purchase returns D) Purchase discounts Answer: A Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
When inventory is shipped from the seller to the buyer with shipping terms of FOB destination: A) title passes from the seller to the buyer when the goods leave the seller's shipping dock. B) the goods will be included in the inventory of the seller until they reach their destination. C) the buyer owns the goods while they are in transit. D) the goods will be included in the inventory of the buyer and the seller while they are in transit. Answer: B Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Company A has inventory out on consignment and held for sale by Company B. Which Company will include the goods in their inventory? A) Company A B) Company B

C) Either Company A or Company B D) Cannot be determined from the facts Answer: A Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

Using a perpetual inventory system, which of the following entries would record the cost of merchandise sold on credit? A) Sales Discounts Accounts Payable B) Cost of Goods Sold Purchases Discounts C) Cost of Goods Sold Inventory D) Inventory Cost of Goods Sold Answer: C Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

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? A) Sales, $1,000; Inventory, $ B) Cash, $1,000; Cost of Goods Sold, $ C) Cash, $800; Cost of Goods Sold, $1, D) Sales, $800; Inventory, $ Answer: B Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Under a perpetual inventory system, the journal entry to record the purchase of inventory will include a: A) debit to Accounts Receivable. B) debit to Inventory. C) debit to Accounts Payable. D) debit to Cost of Goods Sold. Answer: B Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Which of the following is a correct statement regarding shipping terms and freight costs? A) Freight-out paid by the seller under shipping terms FOB destination is part of the cost of inventory. B) Freight-out is added to the purchase price of the inventory. C) Freight-out is the transportation cost paid by the buyer under the shipping terms FOB shipping point. D) Freight-out paid by the seller is a delivery expense and not part of the cost of the inventory. Answer: D Diff: 3 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

Martson and Co. made the following journal entries: Accounts Receivable 25, Sales Revenue 25, Cost of Goods Sold 10, Inventory 10, What is Martson's gross profit from this sale? A) $10, B) $15, C) $25, D) $35, Answer: B Explanation: B) 25,000 - 10,000 = 15, Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
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: A) is $4,000. B) is $16,000. C) is $20,000. D) cannot be determined. Answer: A Explanation: A) cost of goods sold per unit = 1,000.80 = 800 Total sales = 1,00020 = 20, Total CGS= 800*20 = 16, Gross profit = 20,000-16,000 = 4, Diff: 3 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

A company purchased 400 units at $75 per unit. The company sold 385 units. What is the cost of goods sold and ending inventory? A) $10,000 and $9,625. B) $40,000 and $28,875. C) $28,875 and $1,125. D) $28,875 and $10,000. Answer: C Explanation: C) CGS = 385*75 = 28, EI = (400-385) * 75 = 1, Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Mary Sue is the controller for Sue's Flowers, Inc. and needs your help. Mary Sue has the following information for the month of April: Sales $98, Sales discounts $ 800 Cost of goods sold $51, Salary expense $ 8, Rent expense $ 3, Income tax expense $ 1, Prepare an income statement for Hedgehog for the month ending April 30. Answer: Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

The following transactions occurred for Melissa's Fine Jewelry Store during the year: a. Purchased 10 exquisite necklaces on account at $5,000 apiece b. Sold three of the necklaces on account at $8,000 each c. Melissa paid off the accounts payable d. Melissa collected all of the accounts receivable Required:

Journalize these transactions for Melissa's Fine Jewelry Store, which uses the perpetual inventory system.
What will Melissa's Fine Jewelry Store report for inventory at the end of the year?
Compute the gross profit for Melissa's Fine Jewelry Store. Answer:

Date Account Dr Cr a. Inventory 50, Accounts Payable 50, b. Sales 24, Accounts Receivable 24, b. Cost of Goods sold 15, Inventory 15, c. Accounts Payable 50, Cash 50, d. Cash 24, Accounts Receivable 24,

purchased 10 necklaces and sold 3 therefore 7 left @5,000 = 35,
gross profit = sales — cost of goods sold 24,000 - 15,000 = 9, Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

Michelle Industries has the following information available for February 2012: Total sales $3,000, Credit sales 70% Purchases $1,800, Credit purchases 40% Beginning inventory $ 265, Cost of goods sold 65% of sales Required:

Prepare the journal entries necessary to record the above items.
Calculate the ending inventory balance. Answer:
Date Account Debit Credit 2011 Feb 28 Inventory 1,800, Accounts payable 720, Cash 1,080, Accounts receivable 2,100, Cash 900, Sales 3,000, Cost of goods sold 1,950, Inventory 1,950,

Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

Journalize the following transactions for ABC, Inc. A) Purchases of inventory on account, $74, B) Sales on account, $110, C) Cost of goods sold (perpetual inventory system), $50, D) Collections on account, $48, Answer: A) Inventory 74, Accounts payable 74, B) Accounts receivable 110, Revenue 110, C) Cost of goods sold 50, Inventory 50, D) Cash 48, Accounts receivable 48, Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

6.2 Learning Objective 6-

The choice of an inventory costing method does not impact company's balance sheet. Answer: FALSE Diff: 1 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
The specific unit cost method is used for inventory items that have common characteristics. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
The FIFO method assigns the most recent inventory cost to expense. Answer: FALSE Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

LIFO allows managers to manipulate net income by timing the purchases of inventory. Answer: TRUE Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
The cost of inventory is the: A) purchase price. B) sum of all the costs incurred to bring the inventory to its intended use. C) sum of all the costs incurred to bring the inventory to its intended use, plus any discounts and allowances. D) sum of all the costs incurred to bring the inventory to its intended use, less any discounts and allowances. Answer: D Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
All of the following costs would be included in inventory EXCEPT for: A) freight-in. B) advertising. C) taxes paid on the purchase price. D) insurance while in transit. Answer: B Diff: 2 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement
ABC Auto Sales sells new Lexus vehicles. ABC will most likely use the ________ method to cost its ending inventory. A) First-in, first-out B) Last-in, first-out C) Specific-unit-cost D) Weighted-average Answer: C Diff: 1 LO: 6- AICPA Bus Persp: Legal/Regulatory AICPA Functional: Measurement

The specific-unit-cost method: A) will produce the highest net income. B) is also known as the specific identification method. C) will produce the same ending inventory as the average cost method. D) is also known as the cost-of-goods sold model. Answer: B Diff: 2 LO: 6- AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
If the cost to purchase a unit of inventory does not change, ending inventory: A) will be the highest under FIFO. B) will be the highest under LIFO. C) cannot be computed using the average-cost method. D) will be the same under LIFO and FIFO. Answer: D Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
Deciding on which inventory method a company should use affects: A) the profits to be reported. B) the income taxes to be paid. C) the values of ratios reported from the balance sheet. D) all of the above. Answer: D Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement
To determine cost of goods sold under the FIFO method: A) the first costs into inventory are the first costs assigned to cost of goods sold. B) the last costs into inventory are the first costs assigned to cost of goods sold. C) the average cost of the inventory must be determined. D) the company must first determine the specific units sold. Answer: A Diff: 2 LO: 6- AASCB: Analytical Skills AICPA Bus Persp: Strategic/Critical Thinking AICPA Functional: Measurement

question pool ch 6 Accounting.doc, Lecture notes of Accounting

Related documents

Partial preview of the text

Download question pool ch 6 Accounting.doc and more Lecture notes Accounting in PDF only on Docsity!

Financial Accounting, 9e (Harrison/Horngren/Thomas)

Chapter 6 Inventory & Cost of Goods Sold

6.1 Learning Objective 6-

6.2 Learning Objective 6-