question

which of the following states that the business should use the same accounting methods from period to period? consistency principle; conservatism; materiality concept; disclosure principle

answer

consistency principle

question

which of the following state that a company must perform strictly proper accounting only for items that are significant to the business's financial statements?

answer

materiality concept

question

a company decides to ignore a very small error in their inventory balance. this is an example of application of the ___. disclosure principle; materiality concept; accounting conservatism; consistency principle

answer

materiality concept

question

changing from the LIFO to the specific identification method of valuing inventory ignores the principle of ____.

answer

consistency

question

which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

answer

disclosure principle

question

which requires that financial statements should report the least favorable figures?

answer

conservatism principle

question

which is an application of the conservatism principle

answer

reporting inventory at the lower of cost or market

question

which principle states that a business should never anticipate gains?

answer

conservatism

question

the disclosure principle states that a company should disclose all major accounting methods and procedures in the ____.

answer

footnotes to the financial statements

question

the materiality concept states that a company must ____

answer

perform strictly proper accounting only for significant items

question

which is true of a good merchandise inventory control system

answer

it often prevents the company from a stockout

question

the tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) ____ of inventory

answer

physical count

question

which inventory costing method is based on the actual cost of each particular unit of inventory? specific identification; weighted average; lifo; fifo

answer

specific identification

question

which inventory costing method uses the cost of the oldest purchases to calculate the cost of goods sold?

answer

FIFO

question

** which inventory costing method uses the cost of the oldest purchases to calculate the value of the ending inventory?

answer

LIFO (because you wouldve already gotten rid of the ones that were more recent, so the "first/oldest" ones would be left)

question

** under which inventory costing method is the ending inventory valued on the cost of the most recent purchases?

answer

FIFO (because you wouldve already gotten rid of the ones that were older, so the "last/most recent" ones would be left)

question

which method of inventory valuation requires the calculation of a new average cost after each purchase?

answer

weighted average

question

under the weighted average method for inventory costing, the cost per unit is determined by____

answer

dividing the cost of goods available for sale by the number of units available

question

what is the correct formula to calculate weighted average unit cost for merchandise inventory

answer

weighted average unit cost = cost of goods available for sale / number of units available

question

company uses perpetual, sold goods to a customer on account for 2300. the Cost of goods sold was 1150. which journal entry correctly records this transaction

answer

AR (debit) 2300 sales rev (credit) 2300 cost of goods sold (debit) 1150 merch inv. (credit) 1150

question

company uses perpetual, sold goods to a customer for cash for 3700. the Cost of goods sold was 1400. which journal entry correctly records this transaction

answer

cash (debit) 3700 sales rev (credit) 3700 cost of goods sold (debit) 1400 merch inv. (credit) 1400

question

*** a company that uses the perpetual inventory system sold goods for 2500 to a customer on account. the company had purchased the inventory for 800. which journal entry correctly records the cost of goods sold?

answer

cost of goods sold (debit) 800 merch inv. (credit) 800

question

company uses perpetual, purchased 500 pallets of industrial soap for 8000 and paid 850 for the freight-in. the company sold the whole lot to a supermarket chain for 12000 on account. which entry records the sale?

answer

AR (debit) 12000 sales rev (credit) 12000 cost of goods sold (debit) 8850 merch inv. (credit) 8850 (because the 850 freight in becomes part of the merch inv. cost)

question

company uses perpetual, purchased 500 pallets of industrial soap for 9000 and paid 790 for the freight-in. the company sold the whole lot to a supermarket chain for 14000 on account. the company uses the specific identification method. which entry records the cost of goods sold?

answer

cost of goods sold (debit) 9790 merch inv. (Credit) 9790

question

which inventory costing method yields the highest COGS during a period of rising inventory costs

answer

LIFO

question

which inventory costing method yields the lowest COGS during a period of rising inventory costs

answer

FIFO

question

which inventory costing method yields the highest NI during a period of rising inv. costs

answer

FIFO

question

which inventory costing method yields the lowest NI during a period of rising inventory costs

answer

LIFO

question

which inventory costing method results in the highest value of ending inventory during a period of rising inventory costs

answer

FIFO

question

which inventory costing method results in the lowest value of ending inv. during a period of rising inventory costs

answer

LIFO

question

which inventory valuation method minimizes income tax payment during a period of rising inventory costs

answer

LIFO

question

which inventory valuation method should be used for unique items

answer

specific identification

question

the cost of goods available for sale is equal to the _____

answer

cost of goods sold plus the ending inventory

question

which of the following values remains the same irrespective of the inventory valuation method used by a company? assume cost of inventory is rising. NI; ending merch inv; purchases; cogs

answer

purchases

question

when inv costs are declining, which inventory costing method will result in the highest cost of goods sold

answer

FIFO

question

*** during a period of declining inv. costs, which of the following costing methods should be used by a company that intends to minimize its tax expenses?

answer

FIFO

question

when inv costs are declining, which inv costing method will result in the lowest ending merchandise inventory

answer

FIFO

question

which of the following assets must be reported at the lower-of-cost-or-market value? notes receiv.; prepaid insurance; AR; merchandise inventory

answer

merchandise inventory

question

which value is considered the market value when valuing inventory at lower-of-cost-or-market ?

answer

current replacement cost

question

under GAAP, which amount would be reported as merch inv. on the BS of a company if the cost of an item is 85 and the current replacement cost is 70? 85; 70; the average of 70 and 85; 155

answer

70 (its the lowest)

question

*** best deals inc. has 7 cd players in ending merch inv on Dec 31. the players were purchased in Nov for $200. the price lists from suppliers indicate the current replacement cost of a cd player to be $198. which is true of the effects of the adjustments to ending merch inv on the cost of goods sold?

answer

the cost of goods sold would increase by $14. ( 7 * 200 = 1400 7 * 198 = 1386 1400 - 1386 = 14)

question

better buy has 9 cd players in inventory on Dec 31. the players were purchased in Nov for $200. the price lists from suppliers indicate the current replacement cost of a cd player to be $196. what is the effect on gross profit if better buy values its ending merch inv using the lower-of-cost-or-market rule?

answer

the gross profit would decrease by $36. ( 9 * 200 = 1800 9 * 196 = 1764 1800 - 1764 = 36 COGS would be increasing by that much, and if COGS is increasing, then GP would decrease because COGS is subtracted from it.)

question

when a company uses the perpetual inventory method, which would be the entry to adjust inventory to lower-of-cost-or-market?

answer

debit Cost of Goods Sold and credit Merchandise Inventory

question

sandra inc. had 600 units of inventory on hand at the end of the year. these were recorded at a cost of $16 each using LIFO. current replacement cost is $12 per unit. the selling price charged by sandra for each finished product is $19. in order to record the adjusting entry needed under LCM rule, the cost of goods sold will be ____

answer

debited by 2400 (600 * 16 = 9600 600 * 12 = 7200 9600 - 7200 = 2400 increase of COGS which is debit )

question

sandra inc. had 500 units of inventory on hand at the end of the year. these were recorded at a cost of $14 each using LIFO. current replacement cost is $11 per unit. the selling price charged by sandra for each finished product is $17. in order to record the adjusting entry needed under LCM rule, the merch. inv. will be ____

answer

credited by 1500 ( 500 * 14 = 7000 500 * 11 = 5500 7000 - 5500 = 1500

question

sandra inc. had 400 units of inventory on hand at the end of the year. these were recorded at a cost of $17 each using LIFO. current replacement cost is $15 per unit. the selling price charged by sandra for each finished product is $23. as a result of recording the adjusting entry as per the LCM rule, the gross profit will ____

answer

decrease by 800 (400 * 17 = 6800 400 * 15 = 6000 6800 - 6000 = 800 bc cogs would be increasing by 800 which would in turn decrease gp since cogs is subtracted from that)

question

*** the ending merch inv. for the current year is overstated by 30,000. what effect will this error have on the following year's Net Income?

answer

net income will be understated by 30,000 (the following year)

question

ending merch in for current acctg period is overstated by 3500. what is the effect of this error

answer

the NI for current acctg period will be overstated by 3500

question

ending merch inv for the current acctg period is understated by 2700. what effect will this error have on cogs and ni

answer

cogs - overstated ni - understated

question

ending inv for the current acctg period is overstated by 2700. what effect will this error have on cogs and ni

answer

cogs - understated ni - overstated

question

*** a company can show a higher net income in its income statement by ______

answer

overstating its ending inventory

question

which is affected as a result of an error in performing the physical count of inventory at the end of the acctg. period? ni; operating exp; net cost of purchases; sales rev

answer

net income

question

inventory turnover measures:

answer

how rapidly merch inv is sold

question

a lower days' sales in inventory for Moonshine Inc when compared to other companies indicates that it is

answer

selling its inventory quickly

question

what is the formula to calculate inventory turnover

answer

inventory turnover = cost of goods sold / average merchandise inventory

question

what is the formula to calculate average merch inv

answer

average merch inv = (beg. merch inv + end. merch inv) / 2

question

what is the formula to calculate days' sales in inventory

answer

days' sales in inv. = 365 days / inventory turnover

Acctg. 211 – Ch. 6 Practice Exam – Flashcards

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