Chapter 6

Financial Accounting

Business
193
Questions
41
True/False
58
Choices
94
Essay
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Questions

Q1
Free

Inventory is usually reported as a long-term asset in the balance sheet.

True/False
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A) True.
B) False.
Answer:
False
Q2
Free

Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement.

True/False
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A) True.
B) False.
Answer:
False
Q3
Free

Merchandising companies purchase inventories that are primarily in finished form for resale to customers.

True/False
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A) True.
B) False.
Answer:
True
Q4

Cost of goods sold is an expense reported in the income statement and represents the cost of inventory sold during the period.

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A) True.
B) False.
Answer:

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Q5

If a company has beginning inventory of $15,000, purchases during the year of $75,000, and ending inventory of $20,000, cost of goods sold equals $70,000.

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A) True.
B) False.
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Q6

If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.

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B) False.
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Q7

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.

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A) True.
B) False.
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Q8

Using the first-in, first-out method (FIFO), the first units purchased are assumed to be the first ones sold.

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A) True.
B) False.
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Q9

Using the weighted-average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year.

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A) True.
B) False.
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Q10

Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold.

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A) True.
B) False.
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Q11

For most companies, actual physical flow of their inventory follows LIFO.

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A) True.
B) False.
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Q12

During periods of rising costs, FIFO generally results in a higher ending inventory balance.

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A) True.
B) False.
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Q13

During periods of rising costs, FIFO generally results in a higher cost of goods sold.

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A) True.
B) False.
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Q14

During periods of rising costs, LIFO generally results in a higher cost of goods sold.

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A) True.
B) False.
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Q15

During periods of rising costs, LIFO generally results in a higher ending inventory balance.

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A) True.
B) False.
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Q16

Accountants often call FIFO the balance sheet approach because the amount it reports for ending inventory better approximates the current cost of inventory.

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A) True.
B) False.
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Q17

One of the primary benefits of using FIFO when inventory costs are rising is that it results in greater tax savings.

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A) True.
B) False.
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Q18

The LIFO conformity rule requires a company that uses LIFO for tax reporting to use FIFO for financial reporting.

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A) True.
B) False.
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Q19

The LIFO reserve is the additional amount of inventory a company would report if it used FIFO instead of LIFO.

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A) True.
B) False.
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Q20

Using a perpetual inventory system, the purchase of inventory is recorded with a debit to the Purchases account, which is a temporary account closed to cost of goods sold at the end of the period.

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B) False.
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Q21

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory.

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B) False.
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Q22

For inventory that is shipped FOB shipping point, title transfers from the seller to the buyer once the seller ships the inventory.

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A) True.
B) False.
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Q23

Freight-in is included in the cost of inventory.

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B) False.
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Q24

At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system.

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B) False.
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Q25

A multiple-step income statement reports multiple levels of profitability, such as gross profit, operating income, income before income taxes, and net income.

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A) True.
B) False.
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Q26

Gross profit equals net sales of inventory less cost of goods sold.

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B) False.
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Q27

Sales revenue minus cost of goods sold is referred to as operating income.

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B) False.
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Q28

Income before income taxes equals operating income plus nonoperating revenues less nonoperating expenses.

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B) False.
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Q29

When the value of inventory falls below its cost, companies have the option of recording the inventory at cost or the lower market value.

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A) True.
B) False.
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Q30

When the market value of inventory falls below its cost, no adjustment to the accounting records is needed.

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A) True.
B) False.
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Q31

The adjustment to write down inventory from cost to its lower market value includes a debit to Cost of Goods Sold and a credit to Inventory.

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A) True.
B) False.
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Q32

The use of the lower-of-cost-or-market method to report inventory is an example of conservatism in financial reporting.

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B) False.
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Q33

The inventory turnover ratio equals cost of goods sold divided by average inventory.

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B) False.
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Q34

Generally, a higher inventory turnover ratio reflects positively on a company's ability to manage its inventory.

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B) False.
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Q35

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.

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B) False.
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Q36

The gross profit ratio measures the amount by which the sale price of inventory exceeds its cost per dollar of sales.

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B) False.
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Q37

Generally, a lower gross profit ratio reflects positively on a company's ability to manage its inventory.

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B) False.
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Q38

Using LIFO, the amount reported for ending inventory does not differ depending on whether a company uses a periodic system or a perpetual system.

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B) False.
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Q39

A periodic inventory system does not continually modify inventory amounts, but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.

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B) False.
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Q40

Overstating ending inventory in the current year causes net income in the current year to be overstated.

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B) False.
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Q41

Understating ending inventory in the current year causes cost of goods sold in the current year to be understated.

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B) False.
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Q42

Inventory does not include:

Multiple Choice
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A) Materials used in the production of goods to be sold
B) Assets intended to be sold in the normal course of business
C) Equipment used in the manufacturing of assets for sale
D) Assets currently in production for normal sales
Answer:

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Q43

The largest expense on a retailer's income statement is typically:

Multiple Choice
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A) Salaries
B) Cost of goods sold
C) Income tax expense
D) Depreciation expense
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Q44

Cost of Goods Sold is:

Multiple Choice
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A) An asset account
B) A revenue account
C) An expense account
D) A permanent equity account
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Q45

Cost of goods sold equals:

Multiple Choice
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A) Beginning inventory - net purchases + ending inventory
B) Beginning inventory + accounts payable - net purchases
C) Net purchases + ending inventory - beginning inventory
D) Beginning inventory + net purchases - ending inventory
Answer:

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Q46

Baker Fine Foods has beginning inventory for the year of $12,000. During the year, Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory. Baker will report cost of goods sold equal to:

Multiple Choice
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A) $150,000
B) $158,000
C) $142,000
D) $170,000
Answer:

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Q47

Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals:

Multiple Choice
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A) $15,000
B) $18,000
C) $21,000
D) $19,000
Answer:

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Q48

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO would be:

Multiple Choice
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A) $500
B) $490
C) $470
D) $480
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Q49

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be:

Multiple Choice
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A) $1,730
B) $1,700
C) $1,720
D) $1,710
Answer:

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Q50

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Ending inventory assuming FIFO would be:

Multiple Choice
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A) $500
B) $490
C) $470
D) $480
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Q51

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming FIFO would be:

Multiple Choice
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A) $1,730
B) $1,700
C) $1,720
D) $1,710
Answer:

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Q52

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Multiple Choice
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A) $502
B) $490
C) $489
D) $480
Answer:

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Q53

Inventory records for Dunbar Incorporated revealed the following: Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Multiple Choice
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A) $1,711
B) $1,700
C) $1,720
D) $1,708
Answer:

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Q54

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be:

Multiple Choice
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A) $5,040
B) $5,055
C) $5,075
D) $5,135
Answer:

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Q55

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be:

Multiple Choice
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A) $5,140
B) $5,080
C) $5,060
D) $5,050
Answer:

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Q56

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Multiple Choice
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A) $5,087
B) $5,107
C) $5,077
D) $5,005
Answer:

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Q57

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming LIFO would be:

Multiple Choice
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A) $16,800
B) $16,760
C) $16,540
D) $16,660
Answer:

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Q58

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming FIFO would be:

Multiple Choice
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A) $16,800
B) $16,760
C) $16,540
D) $16,660
Answer:

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Q59

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

Multiple Choice
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A) $16,733
B) $17,408
C) $16,713
D) $16,089
Answer:

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Q60

The following information pertains to Julia & Company: March 1 Beginning inventory = 30 units @ $5 March 3 Purchased 15 units @ $4 March 9 Sold 25 units @ $8 What is the cost of goods sold for Julia & Company assuming it uses LIFO?

Multiple Choice
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A) $125
B) $100
C) $110
D) $85
Answer:

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Q61

The following information pertains to Julia & Company: March 1 Beginning inventory = 30 units @ $5 March 3 Purchased 15 units @ $4 March 9 Sold 25 units @ $8 What's the ending balance of inventory for Julia & Company assuming that it uses FIFO?

Multiple Choice
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A) $125
B) $100
C) $110
D) $85
Answer:

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Q62

Consider the following inventory transactions for September: Beginning inventory 15 units @ $3.00 Purchase on September 12 20 units @ $3.50 Purchased on September 23 10 units @ $4.00 For the month of September, the company sold 35 units. What is the cost of good sold under the weighted- average cost method (round the weighted-average unit cost to four decimals if necessary)?

Multiple Choice
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A) $121
B) $116
C) $124
D) $131
Answer:

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Q63

In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is:

Multiple Choice
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A) Lower-of-cost-or-market method
B) Weighted-average cost
C) FIFO
D) LIFO
Answer:

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Q64

In a period when inventory costs are falling, the lowest taxable income is most likely reported by using the inventory method of:

Multiple Choice
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A) Weighted average
B) LIFO
C) Moving average
D) FIFO
Answer:

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Q65

Which of the following is true regarding LIFO and FIFO?

Multiple Choice
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A) In a period of decreasing costs, LIFO results in lower total assets than FIFO
B) In a period of decreasing costs, LIFO results in lower net income than FIFO
C) In a period of rising costs, LIFO results in lower net income than FIFO
D) The amount reported for COGS is based on market value of inventory if LIFO is used
Answer:

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Q66

During periods when inventory costs are rising, cost of goods sold will most likely be:

Multiple Choice
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A) Higher under FIFO than LIFO
B) Higher under FIFO than average cost
C) Lower under average cost than LIFO
D) Lower under LIFO than FIFO
Answer:

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Q67

In a period of rising prices, which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet?

Multiple Choice
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A) Average cost
B) FIFO
C) LIFO
D) Periodic
Answer:

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Q68

During periods when inventory costs are rising, ending inventory will most likely be:

Multiple Choice
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A) Greater under LIFO than FIFO
B) Less under average cost than LIFO
C) Greater under average cost than FIFO
D) Greater under FIFO than LIFO
Answer:

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Q69

The LIFO conformity rule states that if LIFO is used for:

Multiple Choice
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A) One class of inventory, it must be used for all classes of inventory
B) Tax purposes, it must be used for financial reporting
C) One company in an affiliated group, it must be used by all companies in an affiliated group
D) Domestic companies, it must be used by foreign partners
Answer:

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Q70

The primary reason for the popularity of LIFO is that it gives:

Multiple Choice
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A) Better matching of physical flow and cost flow
B) A lower income tax obligation
C) Simplified recordkeeping
D) A simpler method to apply
Answer:

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Q71

Which inventory method is better described as having an income statement focus and why is it considered as such?

Multiple Choice
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A) FIFO; better approximates the value of ending inventory
B) LIFO; better approximates the value of ending inventory
C) LIFO; better approximates inventory cost necessary to generate revenue
D) FIFO; better approximates inventory cost necessary to generate revenue
Answer:

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Q72

Which inventory method is better described as having a balance sheet focus and why is it considered as such?

Multiple Choice
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A) FIFO; better approximates the value of ending inventory
B) LIFO; better approximates the value of ending inventory
C) LIFO; better approximates inventory cost necessary to generate revenue
D) FIFO; better approximates inventory cost necessary to generate revenue
Answer:

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Q73

In a perpetual inventory system, the purchase of inventory is debited to:

Multiple Choice
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A) Purchases
B) Cost of Goods Sold
C) Inventory
D) Accounts Payable
Answer:

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Q74

In a perpetual inventory system, at the time of a sale the cost of inventory sold is:

Multiple Choice
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A) Debited to Accounts Receivable
B) Credited to Cost of Goods Sold
C) Debited to Cost of Goods Sold
D) Not recorded at the time
Answer:

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Q75

Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system?

Multiple Choice
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A) No entry is required for cost of goods sold and inventory
B) Debit Cost of Goods Sold $700; credit Inventory $700
C) Debit Cost of Goods Sold $1,200; credit Inventory $1,200
D) Debit Inventory $700; credit Cost of Goods Sold $700
Answer:

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Q76

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
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Q77

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q78

Merchandise sold FOB destination indicates that:

Multiple Choice
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A) The seller holds title until the merchandise is received at the buyer's location
B) The merchandise has not yet been shipped
C) The merchandise will not be shipped until payment has been received
D) The seller transfers title to the buyer once the merchandise is shipped
Answer:

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Q79

Merchandise sold FOB shipping point indicates that:

Multiple Choice
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A) The seller holds title until the merchandise is received at the buyer's location
B) The merchandise has not yet been shipped
C) The merchandise will not be shipped until payment has been received
D) The seller transfers title to the buyer once the merchandise is shipped
Answer:

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Q80

If A sells to B, and B obtains title while goods are in transit, the goods were shipped. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped.

Multiple Choice
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A) FOB shipping point, FOB destination
B) FOB destination, FOB shipping point
C) FOB destination, FOB destination
D) FOB shipping point, FOB shipping point
Answer:

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Q81

Ending inventory is equal to the cost of items on hand plus:

Multiple Choice
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A) Items in transit sold FOB shipping point
B) Sales discounts
C) Items in transit sold FOB destination
D) Advertising expense
Answer:

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Q82

Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A?

Multiple Choice
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A) May 12
B) May 14
C) May 19
D) May 17
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Q83

The distinction between operating and nonoperating income relates to:

Multiple Choice
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A) Continuity of income
B) Principal activities of the reporting entity
C) Consistency of income stream
D) Reliability of measurements
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Q84

Given the information below, what is the gross profit?

Multiple Choice
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A) $250,000
B) $70,000
C) $220,000
D) $50,000
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Q85

Check attached image

Multiple Choice
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A) $200,000
B) $210,000
C) $380,000
D) $120,000
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Q86

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q87

On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit A was $650, and the

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
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Q88

Consider the following information pertaining to OldWest's inventory: At what amount should OldWest report its inventory?

Multiple Choice
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A) $3,213
B) $3,386
C) $2,996
D) $2,906
Answer:

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Q89

Company A is identical to Company B in every regard except that Company A uses FIFO and Company

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
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Q90

Nu Company reported the following data for its first year of operations: What is Nu's gross profit ratio?

Multiple Choice
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A) 80%
B) 49%
C) 40%
D) 5%
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Q91

Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of goods sold 138,000 Average inventory 50,000 Anthony's inventory turnover ratio is:

Multiple Choice
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A) 2
B) 2
C) 3
D) 2
Answer:

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Q92

Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of goods sold 138,000 Average inventory 50,000 Anthony's average days in inventory is:

Multiple Choice
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A) 170 days
B) 114 days
C) 132 days
D) 151 days
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Q93

Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of goods sold 138,000 Average inventory 50,000 Anthony's gross profit ratio is:

Multiple Choice
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A) 53
B) 51
C) 50
D) 46
Answer:

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Q94

In a periodic inventory system, the purchase of inventory is debited to:

Multiple Choice
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A) Purchases
B) Cost of goods sold
C) Inventory
D) Accounts payable
Answer:

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Q95

Northwest Fur Co. started the year with $94,000 of merchandise inventory on hand. During the year, $400,000 in merchandise was purchased on account with credit terms of 1/15 ,n/45. All discounts were taken. Northwest paid freight-in charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. What is ending inventory?

Multiple Choice
expand_more
A) $112,490
B) $112,550
C) $116,500
D) $120,300
Answer:

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Q96

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

Multiple Choice
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A) FIFO
B) LIFO
C) Weighted average
D) Each method always produces a different amount
Answer:

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Q97

If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

Multiple Choice
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A) Net income is overstated in year 2
B) Cost of goods sold is overstated in year 1
C) Net income is understated in year 1
D) Retained earnings is overstated in year 1
Answer:

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Q98

If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

Multiple Choice
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A) Net income is overstated in year 1
B) Cost of goods sold is overstated in year 2
C) Net income is understated in year 2
D) Retained earnings is understated in year 2
Answer:

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Q99

If a company understates its count of ending inventory in Year 1, which of the following is true?

Multiple Choice
expand_more
A) Costs of good sold is understated at the end of Year 1
B) Profit is correct in Year 2
C) The balance of retained earnings is overstated at the end of Year 1
D) The balance of retained earnings is correct at the end of Year 2
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At the beginning of 2012, Calston Incorporated reports inventory of $9,000. During 2012, the company purchases additional inventory for $25,000. At the end of 2012, the cost of inventory remaining is $8,000. Calculate cost of goods sold for 2012.

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During 2012, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses FIFO with a periodic inventory system.

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During 2012, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses LIFO with a periodic inventory system.

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During 2012, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses weighted-average cost with a periodic inventory system.

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During 2012, a company sells 300 units of inventory for $85 each. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses FIFO with a periodic inventory system.

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During 2012, a company sells 400 units of inventory for $85 each. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses LIFO with a periodic inventory system.

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During 2012, a company sells 500 units of inventory for $90 each. The company has the following inventory purchase transactions for 2012: Calculate cost of goods sold and ending inventory for 2012 assuming the company uses weighted-average cost with a periodic inventory system (round weighted-average unit cost to four decimals if necessary).

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During 2012, a company sells 200 units of inventory for $50 each. The company has the following inventory purchase transactions for 2012: Actual sales by the company include its entire beginning inventory, 80 units of inventory from the May 5 purchase, and 70 units from the November 3 purchase. Calculate cost of goods sold and ending inventory for 2012 assuming the company uses specific identification.

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For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling.

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A company begins the year with inventory of $50,000 and ends the year with inventory of $55,000. During the year, the following amounts are recorded: Calculate cost of goods sold for the year.

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When inventory costs are rising, __________ generally results in a higher amount of reported net income. ________________________________________

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When inventory costs are declining, __________ generally results in a lower amount of reported cost of goods sold. ________________________________________

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When inventory costs are declining, __________ generally results in a lower amount of reported inventory. ________________________________________

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When inventory costs are rising, __________ generally results in a lower amount of reported cost of goods sold. ________________________________________

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When inventory costs are declining, __________ generally results in a higher amount of reported net income. ________________________________________

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__________ is commonly referred to as the balance sheet approach. ________________________________________

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__________ is commonly referred to as the income statement approach. ________________________________________

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When inventory costs are rising, __________ generally results in a lower income tax obligation. ________________________________________

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A company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 9, 2012, for $50,000 and then sells this inventory on account on March 7, 2012, for $70,000. Record the transactions for the purchase and sale of the inventory.

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A company has the following transactions during March: March 3 Purchases inventory on account for $3,500, terms 2/10, n/30. March 5 Pays freight costs of $200 on inventory purchased on March 3. March 6 Returns inventory with a cost of $500. March 12 Pays the full amount due on March 3 purchase. March 29 Sells all inventory purchased on March 3 (less those returned on March 6) for $5,000 on account. Record all transactions, assuming the company uses a perpetual inventory system.

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For each company, calculate the missing amount.

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Below are some of the items found in a multiple-step income statement: a. Sales revenue b. Net income c. Operating income d. Income before income taxes e. Gross profit Place these items in the order they would appear from first to last.

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Beasley, Inc. reports the following amounts in its December 31, 2012, income statement. Sales revenue $300,000 Income tax expense $38,000 Interest expense 12,000 Cost of goods sold 125,000 Salaries expense 35,000 Advertising expense 24,000 Utilities expense 41,000 Prepare a multiple-step income statement.

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A company reports inventory using lower-of-cost-or-market. Below is information related to its year-end

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A company reports inventory using the lower-of-cost-or-market method. Below is information related to its year-end inventory: Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

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A company reports inventory using lower-of-cost-or-market. Below is information related to its year-end inventory: Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

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A company reports the following amounts for 2012: Calculate cost of goods sold, the inventory turnover ratio, and the average days in inventory for 2012.

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A company reports the following amounts at the end of the year: Sales revenue $300,000 Cost of goods sold 225,000 Net income 50,000 Compute the company's gross profit ratio.

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A company uses a periodic system to record inventory transactions. The company purchases inventory on account on February 9, 2012, for $50,000 and then sells this inventory on account on March 7, 2012, for $70,000. Record the transactions for the purchase and sale of the inventory.

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A company has the following transactions during March: March 3 Purchases inventory on account for $3,500, terms 2/10, n/30. March 5 Pays freight costs of $200 on inventory purchased on March 3. March 6 Returns inventory with a cost of $500. March 12 Pays the full amount due on March 3 purchase. March 29 Sells all inventory purchased on March 3 (less those returned on March 6) for $5,000 on account. Record all transactions, including the month-end adjustment to cost of goods sold, assuming the company uses a periodic inventory system and has no beginning inventory.

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A company understated its ending inventory balance by $8,000 in 2012. What impact will this error have on cost of goods sold and gross profit in 2012 and 2013?

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A company overstated its ending inventory balance by $6,000 in 2012. What impact will this error have on cost of goods sold and gross profit in 2012 and 2013?

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A company understated its ending inventory balance by $5,000 in 2012. What impact will this error have on total assets and retained earnings in 2012 and 2013 (ignoring tax effects)?

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A company overstated its ending inventory balance by $9,000 in 2012. What impact will this error have on total assets and retained earnings in 2012 and 2013 (ignoring tax effects)?

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What does the balance of cost of goods sold in the income statement represent? What does the balance of inventory in the balance sheet represent?

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What are the three primary cost flow assumptions? How does the specific identification method differ from these three primary cost flow assumptions?

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What does it mean that FIFO has a balance sheet focus and LIFO has an income statement focus?

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What is a multiple-step income statement? What information does it provide beyond "bottom-line" net income?

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What is meant by the assertion that the lower-of-cost-or-market method is an example of conservatism in accounting? Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: a. Work-in-process inventory b. Merchandising companies c. Finished goods d. Raw materials e. Manufacturing companies

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_____ Products that have started the production process but are not yet complete at the end of the period.

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_____ Inventory items for which the manufacturing process is complete.

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_____ Companies that produce the inventories they sell, rather than buying them from suppliers in finished form.

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_____ Companies that purchase inventories that are primarily in finished form for resale to customers.

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_____ Cost of components that will become part of the finished product but have not yet been used in production.

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_____ Inventory costing method that matches each unit of inventory with its actual cost.

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_____ Cost of inventory sold during the period.

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_____ Additional amount of inventory a company would report if it used FIFO instead of LIFO.

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_____ Cost of freight included in inventory.

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_____ Cost flow assumption that assumes last units purchased are sold first.

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_____ Cost of inventory not sold by the end of the period.

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_____ Cost flow assumption that assumes first units purchased are sold first.

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_____ Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

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_____ LIFO must be used for financial reporting if elected for taxes.

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_____ Cost of freight not included in inventory.

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_____ Requires a debit to cost of goods sold when inventory is sold.

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_____ Indicates that title to inventory transfers from the seller to the buyer at the point it is shipped.

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_____ Requires a year-end adjustment for inventory.

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_____ Indicates that title to inventory transfers from the seller to the buyer once it reaches the buyer.

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_____ Equals operating income plus nonoperating revenues less nonoperating expenses.

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_____ Equals income before income taxes less income taxes.

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_____ Equals sales revenue minus cost of goods sold.

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_____ Equals gross profit less operating expenses.

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_____ Equals cost of goods sold divided by average inventory.

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Given the information in the table below, what is the company's gross profit? a. $280,000. b. $170,000. c. $50,000. d. $100,000.

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What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the company's financial statements? a. An increase to assets. b. An increase to stockholders' equity. c. A decrease to revenue. d. An increase to expense.

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Bill Inc.'s correct ending balance for the inventory account at the end of 2012 should be $5,000, but the company incorrectly stated it as $3,000. In 2013, Bill correctly recorded its ending balance of the inventory

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The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles? a. Matching principle. b. Revenue recognition. c. Conservatism. d. Materiality.

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Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling? a. FIFO. b. LIFO. c. Weighted-average cost. d. Straight-line.

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The primary difference between the periodic and perpetual inventory systems is: a. The reported amount of ending inventory is higher under the periodic system. b. The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period. c. The reported amount of sales revenue is higher under the periodic inventory system. d. The reported amount of cost of goods sold is higher under the perpetual inventory system.

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At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000. What would be the effect(s) of the adjustment to write down inventory to market value? a. Decrease total assets. b. Decrease net income. c. Increase retained earnings. d. a and b.

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Suppose that Hastings Corporation overstates its ending inventory for 2012. What effect will this have on the reported amount of cost of goods sold for 2012? a. Overstate cost of goods sold. b. Understate cost of goods sold. c. Have no effect on cost of goods sold. d. Cannot be determined given the information provided.

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LeGrand Corporation reported the following amounts in its income statement: Sales revenue$440,000 Advertising expense 60,000 Interest expense 10,000 Salaries expense 55,000 Utilities expense 25,000 Income tax expense 45,000 Cost of goods sold 180,000 What was LeGrand's gross profit? a. $260,000. b. $180,000. c. $220,000. d. $120,000.

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LeGrand Corporation reported the following amounts in its income statement: Sales revenue$440,000 Advertising expense 60,000 Interest expense 10,000 Salaries expense 55,000 Utilities expense 25,000 Income tax expense 45,000 Cost of goods sold 180,000 What was LeGrand's operating income? a. $120,000. b. $260,000. c. $110,000. d. $65,000.

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LeGrand Corporation reported the following amounts in its income statement: Sales revenue$440,000 Advertising expense 60,000 Interest expense 10,000 Salaries expense 55,000 Utilities expense 25,000 Income tax expense 45,000 Cost of goods sold 180,000 What was LeGrand's net income? a. $120,000. b. $60,000. c. $110,000. d. $65,000.

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Using the information below, determine the ending inventory value applying the lower-of-cost-or-market method. Cutlets200 $12 $14 Chops400$16 $14 Shanks300 $15 $12 a. $13,300. b. $12,000. c. $11,600. d. $13,700.

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After applying the lower-of-cost-or-market method, the accountant prepares a year-end adjustment. That adjustment would: a. Decrease the company's cost of goods sold. b. Reduce the company's stockholders' equity. c. Increase the company's inventory. d. Increase the company's total assets.

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Consider the following inventory data for two companies: Nichols, Inc.Winters, Inc. Beginning inventory$120,000 $150,000 Ending inventory 80,000 100,000 Purchases 240,000 310,000 Which of these companies had the higher inventory turnover ratio? a. Nichols. b. Winters. c. The ratios are the same for both companies. d. Cannot determine with the information given.

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Consider the following inventory data: Beginning inventory$150,000 Ending inventory 100,000 Purchases 310,000 What is the average days in inventory for the year? a. 126.7 days. b. 101.4 days. c. 152.0 days. d. 111.7 days.

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The following information relates to inventory for Shoeless Joe Inc. At what amount would Shoeless report gross profit using LIFO cost flow assumptions? a. $105. b. $80. c. $175. d. $120.

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The following information relates to inventory for Shoeless Joe Inc. At what amount would Shoeless report ending inventory using FIFO cost flow assumptions? a. $55. b. $170. c. $110. d. $70.

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Wildwood, an outdoors clothing store, reports the following information for June: What is Wildwood's gross profit for June? a. $18,000. b. $39,000. c. $104,00. d. $17,000.

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Which of the following is true concerning inventory cost flow assumptions? a. LIFO produces higher net income than FIFO in a period of rising prices. b. FIFO is an income statement focus. c. LIFO is a balance sheet focus. d. None of the above are true.

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The following information relates to inventory for Shoeless Joe Inc. At what amount would Shoeless report cost of goods sold using the weighted-average cost flow assumption? (Round your answer to the nearest dollar) a. $110. b. $73. c. $70. d. $105.

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Northern Town Equipment has four types of products in its inventory. Northern applies the rules under lower-of-cost or market (LCM) to its inventory at the end of each year as shown below: The year-end adjustment based upon the information above would include a: a. Debit to Cost of Goods Sold $65. b. Credit to Inventory $50. c. Debit to Inventory $65. d. Debit to Cost of Goods Sold $50.

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Davis Hardware Company uses a perpetual inventory system. How should Davis record the return of inventory previously purchased on account for $200? a. Option a b. Option b c. Option c d. Option d

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Davis Hardware Company uses a periodic inventory system. How should Davis record the return of inventory previously purchased on account for $200? a. Option a b. Option b c. Option c d. Option d

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In a periodic inventory system, at the time of a sale the cost of inventory sold is: a. Debited to Accounts Receivable. b. Credited to Cost of Goods Sold. c. Debited to Cost of Goods Sold. d. Not recorded at this time.

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Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a periodic inventory system? a. No entry is required for cost of goods sold and inventory. b. Debit Cost of Goods Sold $700; credit Inventory $700. c. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. d. Debit Inventory $700; credit Cost of Goods Sold $700.

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Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account? a. Option a b. Option b c. Option c d. Option d

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Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system? a. Option a b. Option b c. Option c d. Option d

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/

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