ACCY 111: Accounting Exam! Quiz

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ACCY 111: Accounting Exam! Quiz - Quiz

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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

    Correct Answer
    C. Debited to Cost of Goods Sold
    Explanation
    In a perpetual inventory system, the cost of inventory sold is debited to the Cost of Goods Sold account. This means that the cost of the goods that were sold is recorded as an expense in the accounting records. By debiting the Cost of Goods Sold account, the company is able to accurately track the cost of the goods that were sold and calculate its gross profit. This information is important for financial reporting and decision-making purposes.

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  • 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

    Correct Answer
    A. Not recorded at the time of sale
    Explanation
    In a periodic inventory system, the cost of inventories sold is not recorded at the time of sale. This is because in a periodic inventory system, the cost of goods sold is determined at the end of the accounting period through a physical count of inventory. Therefore, the cost of inventories sold is not immediately debited to any specific account at the time of sale. Instead, it is recorded later when the physical count is conducted and the cost of goods sold is calculated.

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  • 3. 

    The inventory method that will always produce the same amount for the 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

    Correct Answer
    A. FIFO
    Explanation
    FIFO (First-In, First-Out) is the inventory method that will always produce the same amount for the cost of goods sold in a periodic inventory system as in a perpetual inventory system. This is because FIFO assumes that the first items purchased are the first ones sold, regardless of the actual order of sales. In both periodic and perpetual systems, the cost of goods sold is calculated by multiplying the cost of the oldest inventory items by the quantity sold. Therefore, FIFO will yield the same result in both inventory systems.

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  • 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

    Correct Answer
    C. Usually provides a better match of expenses with revenues
    Explanation
    The use of LIFO (Last-In, First-Out) in accounting for a firm's inventory usually provides a better match of expenses with revenues. This is because under the LIFO method, the most recent or last inventory purchases are assumed to be sold first. As a result, the cost of goods sold reflects the current or recent costs, which better aligns with the revenues generated from the sale of those goods. This helps in accurately matching the expenses incurred in producing the goods with the corresponding revenues earned from their sale.

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  • 5. 

    The primary reason 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

    Correct Answer
    B. Saves income taxes currently
    Explanation
    The popularity of LIFO is primarily due to its ability to save income taxes currently. LIFO, or Last-In, First-Out, assumes that the most recently acquired inventory is sold first. This results in higher costs being matched with current revenues, which reduces taxable income and ultimately lowers the amount of income tax owed. This tax-saving advantage makes LIFO an attractive choice for businesses, especially those with fluctuating inventory costs.

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  • 6. 

    When reported in financial statements, a LIFO allowance account 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

    Correct Answer
    C. Is added to LIFO cost to indicate what the inventory would cost on a FIFO bases
    Explanation
    The LIFO allowance account is used to adjust the LIFO (last-in, first-out) cost of inventory to reflect what it would cost on a FIFO (first-in, first-out) basis. This adjustment is necessary because LIFO assumes that the most recently acquired inventory is sold first, which can result in a lower cost of goods sold and higher ending inventory. By adding the LIFO allowance to the LIFO cost, the financial statements can show what the inventory would have cost if it was sold on a FIFO basis, providing a more accurate representation of the company's financial position.

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  • 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

    Correct Answer
    C. When inventory purchase costs are rising
    Explanation
    When inventory purchase costs are rising, a LIFO liquidation becomes problematic for a company's income taxes. This is because LIFO (Last-In, First-Out) assumes that the most recently purchased inventory is sold first. In a rising cost environment, this means that older, lower-cost inventory is being sold, resulting in higher profits and higher taxable income. However, if a LIFO liquidation occurs, it means that the company is selling its older inventory that was purchased at lower costs. This leads to a reduction in the cost of goods sold and artificially inflates the profits, resulting in higher taxable income and potentially higher taxes for the company.

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  • 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

    Correct Answer
    C. $6,014
    Explanation
    $6,200 × 97% = $6,014

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  • 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

    Correct Answer
    D. $163,130
    Explanation
    Beginning inventory $97,000
    Inventory purchased 440,000
    Freight 9,500
    Merchandise returned (3,000 )
    Discounts [($440,000 – 3,000) × 1%)] (4,370 )
    Cost of goods available for sale $539,130
    Cost of goods sold 376,000
    Ending inventory $163,130

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  • 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

    Correct Answer
    A. $1,424.
    Explanation
    [(45 × $106) + (75 × $72) + (175 × $51)] = $19,095 ÷ 295 units = $64.73 per unit
    22 units × $64.73 = $1,424 (rounded)

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  • 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

    Correct Answer
    C. $540
    Explanation
    9 units × $60 = $540.

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  • 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

    Correct Answer
    C. $1,210
    Explanation
    11 units × $110 = $1,210.

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  • 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

    Correct Answer
    C. $560
    Explanation
    Feedback: Net sales $2,810
    Cost of goods sold ($2,370 – $1,160) 1,210
    Gross profit 1,600
    Operating expenses 800
    Income before taxes 800
    Income tax ($800 × 30%) 240
    Net income $560

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  • 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

    Correct Answer
    A. $287
    Explanation
    Feedback: Net sales $2,820
    Cost of goods sold ($2,490 – 820) 1,670
    Gross profit 1,150
    Operating expenses 740
    Income before taxes 410
    Income tax ($410 × 30%) 123
    Net income $287

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  • 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%

    Correct Answer
    C. 54%
    Explanation
    Net sales $2,990
    Cost of goods sold ($2,330 – $950) 1,380
    Gross profit 1,610
    Gross profit ratio:
    $1,610/$2,990 = 54%

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  • 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%

    Correct Answer
    D. 33.9%
    Explanation
    Net sales $7,380
    Cost of goods sold ($5,690 – $812) 4,878
    Gross profit 2,502
    Gross profit ratio:
    $2,502/$7,380 = 33.9%

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  • 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%

    Correct Answer
    D. 32%
    Explanation
    $134,000 ÷ $424,000 = 32%

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  • 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

    Correct Answer
    C. 3.95
    Explanation
    $318,000 ÷ [($75,000 + 86,000) ÷ 2] = 3.95

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  • 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

    Correct Answer
    D. 132 days
    Explanation
    The average days inventory for ATC in 2009 is 132 days. This means that, on average, it takes ATC 132 days to sell its inventory. This is an important metric for businesses as it indicates the efficiency of their inventory management. A lower number of days indicates that the company is able to sell its inventory quickly, while a higher number suggests that it takes longer for the company to sell its products. In this case, 132 days falls within a reasonable range and suggests that ATC is able to effectively manage its inventory.

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  • 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

    • A.

      $356,660

    • B.

      $350,000

    • C.

      $351,760

    • D.

      None of these

    Correct Answer
    A. $356,660
    Explanation
    Base layer: $303,500 × 1 = $303,500
    2009 layer: $22,000 × 1.08 = 23,760
    2010 layer: $24,500 × 1.2 = 29,400
    =$356,660

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  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 17, 2010
    Quiz Created by
    Mehleezah
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