Question 1

The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.

Accepted Answer

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Question 2

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

Accepted Answer

A)     Accounts Receivable 15,000 Sales Revenue 15,000 Cost of Goods Sold 7,800 Merchandise Inventory 7,800\begin{array} { | c | r | r | } \hline 	ext { Accounts Receivable } & 15,000 & \\hline 	ext { Sales Revenue } & & 15,000 \\hline 	ext { Cost of Goods Sold } & 7,800 & \\hline 	ext { Merchandise Inventory } & & 7,800 \\hline\end{array} Accounts Receivable  Sales Revenue  Cost of Goods Sold  Merchandise Inventory ​15,0007,800​15,0007,800​​ 
B)     Merchandise Inventory 15,000 Cost of Goods Sold 15,000\begin{array} { | c | r | l | } \hline 	ext { Merchandise Inventory } & 15,000 & \\hline 	ext { Cost of Goods Sold } & & 15,000 \\hline\end{array} Merchandise Inventory  Cost of Goods Sold ​15,000​15,000​​ 
C)     Cost of Goods Sold 15,000 Sales Revenue 15,000\begin{array} { | c | r | l | } \hline 	ext { Cost of Goods Sold } & 15,000 & \\hline 	ext { Sales Revenue } & & 15,000 \\hline\end{array} Cost of Goods Sold  Sales Revenue ​15,000​15,000​​ 
D)     Accounts Receivable 15,000 Sales Revenue 15,000 Cost of Goods Sold 7,000 Merchandise Inventory 7,000\begin{array} { | c | r | r | } \hline 	ext { Accounts Receivable } & 15,000 & \\hline 	ext { Sales Revenue } & & 15,000 \\hline 	ext { Cost of Goods Sold } & 7,000 & \\hline 	ext { Merchandise Inventory } & & 7,000 \\hline\end{array} Accounts Receivable  Sales Revenue  Cost of Goods Sold  Merchandise Inventory ​15,0007,000​15,0007,000​​E) A) and C)
F) B) and C)

Question 3

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.

Accepted Answer

A) True 
 B)False

Question 4

An inventory error cancels out after two periods.

Accepted Answer

A) True 
 B)False

Question 5

If the historical cost of inventory is less than its current replacement cost,the business must adjust the inventory value.

Accepted Answer

A) True 
 B)False

Question 6

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Accepted Answer

A) True 
 B)False

Question 7

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is the correct formula to calculate days' sales in inventory?

Accepted Answer

A)   Days' sales in inventory = 365 days × Inventory turnover
B)   Days' sales in inventory = 365 days + Inventory turnover
C)   Days' sales in inventory = 365 days / Inventory turnover
D)   Days' sales in inventory = 365 days - Inventory turnoverE) A) and C)
F) None of the above

Question 9

A company purchased 200 units for $30 each on January 31.It purchased 220 units for $33 each on February 28.It sold a total of 350 units for $45 each from March 1 through December 31.What is the cost of ending inventory on December 31 if the company uses the first-in,first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)

Accepted Answer

A)   $2,310
B)   $300
C)   $2,100
D)   $1,800E) All of the above
F) C) and D)

Question 10

The lower-of-cost-or-market value (LCM) rule ________.

Accepted Answer

A)   replaces the use of specific identification, FIFO, LIFO, or weighted-average inventory costing methods.
B)   violates the conservatism principle
C)   requires that merchandise inventory be reported in the financial statements at the lower of the historical cost or the selling price of the inventory
D)   is an accounting issue separate from applying an inventory costing methodE) B) and D)
F) A) and B)

Question 11

Provide a definition for each of the following accounting principles.
 $$\begin{array} { | l | l | } 
\hline \text { Accounting Principle } & \text { Definition } \
\hline \text { Disclosure } & \
\hline \text { Materiality Concept } & \
\hline
\end{array}$$

Accepted Answer

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Question 12

Michigan Motors is considering which inventory costing method it should use.The business wants to show the highest Merchandise Inventory balance during a period of declining costs.Which inventory method should Michigan Motors select? Discuss your selection.

Accepted Answer

Michigan should select the last-in,first...

Question 13

Ending inventory equals the cost of goods available for sale less beginning inventory.

Accepted Answer

A) True 
 B)False

Question 14

Better Deals Company has 6 units in inventory on December 31.The units were purchased in November for $155 each.The price lists from the suppliers indicate that the same items would now cost the company a total of $960.What would be the amount reported as ending Merchandise Inventory on the balance sheet?

Accepted Answer

A)   $1,890
B)   $315
C)   $930
D)   $960E) A) and B)
F) A) and C)

Question 15

In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.

Accepted Answer

A) True 
 B)False

Question 16

A company is uncertain whether a complex transaction should be recorded as an asset or an expense.Under the conservatism principle,it should choose to treat it as an asset.

Accepted Answer

A) True 
 B)False

Question 17

Samson Company had the following balances and transactions during 2019:   Beginning Merchandise  Inventory 20 units at $94 March 10  Sold 17 units  Purchased 60 units at  June 10 $100 October 30  Sold 54 units \begin{array} { | l | l | } \hline\begin{array} { l }  	ext { Beginning Merchandise } \	ext { Inventory }\end{array} & 20 	ext { units at } \$ 94 \\hline 	ext { March 10 } & 	ext { Sold 17 units } \\hline & 	ext { Purchased 60 units at } \	ext { June 10 } & \$ 100 \\hline 	ext { October 30 } & 	ext { Sold 54 units } \\hline\end{array} Beginning Merchandise  Inventory ​ March 10  June 10  October 30 ​20 units at $94 Sold 17 units  Purchased 60 units at $100 Sold 54 units ​​  What is the balance of the company's Merchandise Inventory,as disclosed in the December 31,2019 balance sheet as per the periodic FIFO inventory costing method?

Accepted Answer

A)   $564
B)   $600
C)   $1,880
D)   $900 E) C) and D)
F) B) and D)

Question 18

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,600.The cost of the goods sold was $1,000.Which of the following journal entries correctly records this transaction?

Accepted Answer

A)     Cost of Goods Sold 4,600 Sales Revenue 4,600\begin{array} { | c | r | r | } \hline 	ext { Cost of Goods Sold } & 4,600 & \\hline 	ext { Sales Revenue } & & 4,600 \\hline\end{array} Cost of Goods Sold  Sales Revenue ​4,600​4,600​​ 
B)     Cash 4,600 Sales Revenue 4,600 Cost of Goods Sold 1,000 Merchandise Inventory 1,000\begin{array} { | l | r | r | } \hline 	ext { Cash } & 4,600 & \\hline 	ext { Sales Revenue } & & 4,600 \\hline 	ext { Cost of Goods Sold } & 1,000 & \\hline 	ext { Merchandise Inventory } & & 1,000 \\hline\end{array} Cash  Sales Revenue  Cost of Goods Sold  Merchandise Inventory ​4,6001,000​4,6001,000​​ 
C)     Accounts Receivable 4,600 Cash 4,600 Cost of Goods Sold 1,000 Merchandise Inventory 1,000\begin{array} { | l | r | r | } \hline 	ext { Accounts Receivable } & 4,600 & \\hline 	ext { Cash } & & 4,600 \\hline 	ext { Cost of Goods Sold } & 1,000 & \\hline 	ext { Merchandise Inventory } & & 1,000 \\hline\end{array} Accounts Receivable  Cash  Cost of Goods Sold  Merchandise Inventory ​4,6001,000​4,6001,000​​ 
D)     Merchandise Inventory 4,600 Sales Revenue 4,600\begin{array} { | c | r | r | } \hline 	ext { Merchandise Inventory } & 4,600 & \\hline 	ext { Sales Revenue } & & 4,600 \\hline\end{array} Merchandise Inventory  Sales Revenue ​4,600​4,600​​E) A) and B)
F) C) and D)

Question 19

The periodic inventory system works well for small businesses in which the inventory is not large in size or dollar amounts.

Accepted Answer

A) True 
 B)False

Question 20

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

Accepted Answer

A)   The net income will be overstated by $50,000.
B)   The net income will be overstated by $25,000.
C)   The net income will be understated by $25,000.
D)   The net income will be understated by $50,000.E) A) and D)
F) B) and C)

Exam 6: Merchandise Inventory

An inventory error cancels out after two periods.

Correct Answer
verified

The periodic inventory system works well for small businesses in which the inventory is not large in size or dollar amounts.

Correct Answer
verified

Correct Answer
verified

A company is uncertain whether a complex transaction should be recorded as an asset or an expense.Under the conservatism principle,it should choose to treat it as an asset.

Correct Answer
verified

Provide a definition for each of the following accounting principles. $\begin{array} { | l | l | } \hline \text { Accounting Principle } & \text { Definition } \\\hline \text { Disclosure } & \\\hline \text { Materiality Concept } & \\\hline\end{array}$

Correct Answer
verified
\[\begin{array} { | l | l | }
\hline \t...
View Answer

The lower-of-cost-or-market value (LCM) rule ________.

Correct Answer
verified

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

Correct Answer
verified

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Correct Answer
verified

Correct Answer
verified

Ending inventory equals the cost of goods available for sale less beginning inventory.

Correct Answer
verified

Which of the following is the correct formula to calculate days' sales in inventory?

Correct Answer
verified

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

Correct Answer
verified

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.

Correct Answer
verified

In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.

Correct Answer
verified

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,600.The cost of the goods sold was $1,000.Which of the following journal entries correctly records this transaction?

Correct Answer
verified

Michigan Motors is considering which inventory costing method it should use.The business wants to show the highest Merchandise Inventory balance during a period of declining costs.Which inventory method should Michigan Motors select? Discuss your selection.

Correct Answer
verified
Michigan should select the last-in,first...
View Answer

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Correct Answer
verified

The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.

Correct Answer
verified
\[\begin{array} { | c | r | r | }
\hlin...
View Answer

If the historical cost of inventory is less than its current replacement cost,the business must adjust the inventory value.

Correct Answer
verified

Correct Answer
verified

Exam 6: Merchandise Inventory

An inventory error cancels out after two periods.

Correct AnswerverifiedShow Answer

The periodic inventory system works well for small businesses in which the inventory is not large in size or dollar amounts.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company is uncertain whether a complex transaction should be recorded as an asset or an expense.Under the conservatism principle,it should choose to treat it as an asset.

Correct AnswerverifiedShow Answer

Correct Answerverified\[\begin{array} { | l | l | } \hline \t...View AnswerShow Answer

The lower-of-cost-or-market value (LCM) rule ________.

Correct AnswerverifiedShow Answer

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

Correct AnswerverifiedShow Answer

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Ending inventory equals the cost of goods available for sale less beginning inventory.

Correct AnswerverifiedShow Answer

Which of the following is the correct formula to calculate days' sales in inventory?

Correct AnswerverifiedShow Answer

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

Correct AnswerverifiedShow Answer

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.

Correct AnswerverifiedShow Answer

In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.

Correct AnswerverifiedShow Answer

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,600.The cost of the goods sold was $1,000.Which of the following journal entries correctly records this transaction?

Correct AnswerverifiedShow Answer

Michigan Motors is considering which inventory costing method it should use.The business wants to show the highest Merchandise Inventory balance during a period of declining costs.Which inventory method should Michigan Motors select? Discuss your selection.

Correct AnswerverifiedMichigan should select the last-in,first...View AnswerShow Answer

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Correct AnswerverifiedShow Answer

The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.

Correct Answerverified\[\begin{array} { | c | r | r | } \hlin...View AnswerShow Answer

If the historical cost of inventory is less than its current replacement cost,the business must adjust the inventory value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Michigan should select the last-in,first...
View Answer

Correct Answer
verified

Correct Answer
verified
\[\begin{array} { | c | r | r | }
\hlin...
View Answer

Correct Answer
verified

Correct Answer
verified