201 Ch 4 - 5 Test

Purchase/Sales

100

A company uses the perpetual inventory system and recorded the following entry:

DR Accounts Payable $2,500

CR Merchandise Inventory $50

CR Cash $2,250

This entry reflects a:

Payment of the account payable and recognition of a cash discount taken

200

#2 A company purchased $1,800 of merchandise on December 5.

On December 7, it returned $200 worth of merchandise.

On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 is:

$1,568 ($1,800 - $200) x .98

300

#3 A company purchased $1,500 of merchandise on credit with terms 3/15, n/30. How much will be debited to Accounts Payable if the company pays $485 cash on this account within 10 days?

$500 (485/.97)

400

#4 A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Recognizes that a customer returned merchandise and/or received an allowance.

500

#5 On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the perpetual inventory system. Alberts pays the invoice on October 8 and takes the appropriate discount. The journal entry that Robertson makes on October 8 is:

DR Cash 5,684

DR Sales Discount 116 ($5,800 x .02 = $116)

CR Accounts Receivable 5,800

Adjusting/Closing

100

#6 Beginning inventory plus net cost of purchases is:

Merchandise available for sale

200

#7 Which of the following accounts would be closed with a debit?

Sales

300

#8 What new accounts are closed for a merchandiser?

Sales Discounts, Sales Returns and Allowances, and Cost of Goods sold should all be credited during closing.

400

#9 In a perpetual inventory system, the merchandise inventory account must be closed at the end of the accounting period.

False

500

#9a Adjusting entries are done because of

The passage of time

Statement Formats and Ratios

100

#9b On a classified balance sheet, merchandise inventory is classified as:

a current asset

200

#10 An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Single-step income statement.

300

#11 The asset section of a classified balance sheet usually includes:

Current assets, investments, plant assets, and intangible assets.

400

#12 Quick assets are defined as:

Cash, short-term investments, and current receivables.

500

#13 The acid-test ratio differs from the current ratio in that:

Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.

Costing Methods

100

#14 A company had inventory on November 1 of 5 units at a cost of $20 each.

On November 2, they purchased 10 units at $22 each.

On November 6, they purchased 6 units at $25 each.

On November 8, 8 units were sold for $55 each.

Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

$276

Nov 1: 5 @ $20

Nov 2: 10 @ $22

Nov 6: 6 @ $25

Nov 8: Sold: 6 @ $25, 2 @ $22

End Inv: 5 @ $20 = $100, 8 @ $22 = $176

200

#15 A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the FIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

$304

Nov 1: 5 @ $20

Nov 2: 10 @ $22

Nov 6: 6 @ $25

Nov 8: Sold: 5 @ $20, 3 @ $22

End Inv: 7 @ $22 = $154, 6 @ $25 = $150

300

#16 Acme-Jones Corporation uses a weighted-average perpetual inventory system. August 2, 10 units were purchased at $12 per unit. August 18, 15 units were purchased at $14 per unit. August 29, 12 units were sold. What was the amount of the cost of goods sold for this sale?

$158.40 (10 x $12) + (15 x $14) = $330 goods available for sale $330/(10 + 15) = $13.20 weighted-average cost per unit $13.20 x 12 = $158.40 cost of goods sold

400

#17 Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?

FIFO

500

#18 During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

LIFO method.

LCM/Errors

100

#19 The understatement of the ending inventory balance causes:

Cost of goods sold to be overstated and net income to be understated.

200

#20 In applying the lower of cost or market method to inventory valuation, market is defined as:

Current replacement cost

300

#21 Generally accepted accounting principles require that the inventory of a company be reported at:

Lower of cost or market.

400

#22 A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

$2,600 (200 units @ $13 per unit)

500

#23 A company's cost of inventory was $317,500. Due to phenomenal demand for this product, the market value of its inventory increased to $323,000. According to the consistency principle, this company should write up the value of its inventory

False