Accy 111- Chapter 8

20 Questions | By Mehleezah

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Choose the right answer

Questions and Answers

1.

In a perpetual inventory system, the cost of inventory sold is
- A.
  
  Credit to Cost of Goods Sold
- B.
  
  Debited to Accounts Receivable
- C.
  
  Debited to Cost of Goods Sold
- D.
  
  Not recorded at the time
2.

In a periodic inventory system, the cost of inventories sold is
- A.
  
  Not recorded at the time of sale
- B.
  
  Debited to cost of goods sold
- C.
  
  Debited to accounts receivable
- D.
  
  Credited to cost of goods sold
3.

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:
- A.
  
  FIFO
- B.
  
  LIFO
- C.
  
  Weighted Average
- D.
  
  None of these
4.

THe use of LIFO in accounting for a firm's inventory
- A.
  
  Usually matches the physical flow of goods through the business
- B.
  
  Is usually used for internal mgmt purposes
- C.
  
  Usually provides a better match of expenses with revenues
- D.
  
  None of these is correct
5.

THe primary reasin for the popularity of LIFO is that it
- A.
  
  Simplifies record keeping
- B.
  
  Saves income taxes currently
- C.
  
  Provides better matching of physical flow and cost flow
- D.
  
  Provides a permanent reduction of income taxes
6.

When reported in financial statements, a LIFO allowance accoint usually:
- A.
  
  Indicates the effect on insome if LIFO were not used
- B.
  
  Is shown in the firm's income statement
- C.
  
  Is added to LIFO cost to indicate what the inventory would cost on a FIFO bases
- D.
  
  Shows the current rate of inflation for tha asset
7.

If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes
- A.
  
  Whether inventory purchase costs are declining or rising
- B.
  
  LIFO liquidations are not problematic for a company's income taxes
- C.
  
  When inventory purchase costs are rising
- D.
  
  When inventory purchase costs are declining
8.

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17, and received an invoice with a list price amount of $6,200 and payment terms of 3/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:
- A.
  
  $3,007
- B.
  
  $6,386
- C.
  
  $6,014
- D.
  
  $6,200
9.

Northwest Fur Co. started 2009 with $97,000 of merchandise inventory on hand. During 2009, $440,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $9,500. Merchandise with an invoice amount of $3,000 was returned for credit. Cost of goods sold for the year was $376,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases?
- A.
  
  $163,070
- B.
  
  $167,500
- C.
  
  $170,500
- D.
  
  $163,130
10.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): • 45 units at $106 • 75 units at $72 • 175 units at $51 Sales for the year totaled 273 units, leaving 22 units on hand at the end of the year. Ending inventory using the average cost method is
- A.
  
  $1,424.
- B.
  
  $1,172
- C.
  
  $1,122
- D.
  
  $2,332
11.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): • 40 units at $90 • 70 units at $83 • 171 units at $60 Sales for the year totaled 272 units, leaving 9 units on hand at the end of the year. Ending inventory using the FIFO method is:
- A.
  
  $590
- B.
  
  $810
- C.
  
  $540
- D.
  
  $630
12.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): • 40 units at $110 • 72 units at $78 • 170 units at $56 Sales for the year totaled 271 units, leaving 11 units on hand at the end of the year. Ending inventory using the LIFO method is
- A.
  
  $666.
- B.
  
  $616
- C.
  
  $1,210
- D.
  
  $762

13.

Nu Company reported the following pretax data for its first year of operations.

Net sales	2,810
Cost of goods available for sale	2,370
Operating expenses	800
Effective tax rate	30%
Ending inventories:
If LIFO is elected	930
If FIFO is elected	1,160

What is Nu's net income if it elects FIFO?

A.

$1,600
B.

$399
C.

$560
D.

$800

14.

Nu Company reported the following pretax data for its first year of operations.

Net sales	2,820
Cost of goods available for sale	2,490
Operating expenses	740
Effective tax rate	30%
Ending inventories:
If LIFO is elected	820
If FIFO is elected	1,080

A.

$287
B.

$469
C.

$410.
D.

$670

15.

Nu Company reported the following pretax data for its first year of operations.

Net sales	2,990
Cost of goods available for sale	2,330
Operating expenses	860
Effective tax rate	40%
Ending inventories:
If LIFO is elected	950
If FIFO is elected	1,160

What is Nu's gross profit ratio if it elects LIFO? (Round your answer to the nearest whole percentage.)

A.

19%
B.

61%
C.

54%
D.

66%

16.

Nueva Company reported the following pretax data for its first year of operations.

Net sales	7,380
Cost of goods available for sale	5,690
Operating expenses	1,708
Effective tax rate	40%
Ending inventories:
If LIFO is elected	618
If FIFO is elected	812

What is Nueva's gross profit ratio if it elects FIFO? (Round your answer to two decimal places e.g., .1234 as 12.34%.)

A.

62.54%
B.

31.27%
C.

57.05%
D.

33.9%

17.

Thompson TV and Appliance reported the following in its 2009 financial statements:

	2009
Sales	$424,000
Cost of goods sold:
Inventory, January 1	62,000
Net purchases	330,000
Goods available for sale	392,000
Inventory, December 31	102,000
Cost of goods sold	290,000
Gross profit	$134,000

Thompson's 2009 gross profit ratio is

A.

None of these is correct
B.

22%
C.

31%
D.

32%

18.

Thompson TV and Appliance reported the following in its 2009 financial statements:

	2009
Sales	$436,000
Cost of goods sold:
Inventory, January 1	75,000
Net purchases	329,000
Goods available for sale	404,000
Inventory, December 31	86,000
Cost of goods sold	318,000
Gross profit	$118,000

Thompson's 2009 inventory turnover ratio is

A.

3.7
B.

5.07
C.

3.95
D.

5.42

19.

Anthony Thomas Candies (ATC) reported the following financial data for 2009 and 2008: The average days inventory for ATC for 2009 is:
- A.
  
  151 days
- B.
  
  Less than 100 days
- C.
  
  114 days
- D.
  
  132 days
20.

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2009. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

Ending Inventory

At Current At Base

Year Cost Year Cost Cost index

1/1/09 $303,500 $303,500 1

12/31/09 351,540 325,500 1.08

12/31/10 420,000 350,000 1.2
Under the dollar-value LIFO method the inventory at December 31, 2010, should be

Discuss
- A.
  
  $356,660
- B.
  
  $350,000
- C.
  
  $351,760
- D.
  
  None of these

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Ending Inventory
At Current		At Base
Year	Cost	Year Cost	Cost index
1/1/09	$303,500	$303,500	1
12/31/09	351,540	325,500	1.08
12/31/10	420,000	350,000	1.2