Unit Three Review

28 Questions | Total Attempts: 464

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Trade Quizzes & Trivia

A quiz to help you practice for unit 3


Questions and Answers
  • 1. 
    An overstatement of beginning inventory will __________________ cost of goods sold, and _________________ net income.
  • 2. 
    Cost of goods sold represents the cost of buying and preparing merchandise for sale.
    • A. 

      True

    • B. 

      False

  • 3. 
    Z-Mart had net sales of $545,000. Its cost of goods was $345,000. Its gross margin was $200,000.
    • A. 

      True

    • B. 

      False

  • 4. 
    When the ______________ cost flow assumption is used with a periodic system, cost of goods sold is assigned costs from the earliest purchases for the period.
  • 5. 
    Cost of goods sold is reported on both the income statement and the balance sheet.
    • A. 

      True

    • B. 

      False

  • 6. 
    On December 5, Z-Mart purchased $1,800 worth of merchandise. On December 7, Z-Mart returned $200 worth of merchandise. On December 8, the company paid the balance in full, taking a 2% discount. The amount of the payment was:
    • A. 

      $ 200.

    • B. 

      $1,564.

    • C. 

      $1,568.

    • D. 

      $1,600.

    • E. 

      $1,800.

  • 7. 
    An advantage of the _____________________ method of inventory valuation is that it tends to smooth out price changes
  • 8. 
    The terms 2/10, n/30 means that the seller offers the purchaser a 2% cash discount if the amount is paid in full within 10 days. Otherwise, the full amount is due in 30 days.
    • A. 

      True

    • B. 

      False

  • 9. 
    The merchandise turnover ratio:
    • A. 

      Is used to analyze profitability.

    • B. 

      Is used to measure solvency.

    • C. 

      Measures how quickly a firm sells its merchandise inventory.

    • D. 

      Validates the acid-test ratio.

    • E. 

      Depends on the type of inventory valuation method.

  • 10. 
    Toys "R" Us had cost of goods sold of $6,000 million, ending inventory of $2,500 million, and average inventory of $2,000 million.  The merchandise turnover is:
    • A. 

      2.40.

    • B. 

      3.

    • C. 

      .33.

    • D. 

      .42.

    • E. 

      12.

  • 11. 
    A perpetual inventory system:
    • A. 

      Gives a continuous record of the amount of inventory on hand.

    • B. 

      Uses a Purchases account for the cost of new merchandise purchased.

    • C. 

      Was historically used by companies that sold large quantities of low-balance items.

    • D. 

      Is not widely used in practice.

    • E. 

      All of these answers are correct.

  • 12. 
    A debit to Sales Returns and Allowances and a credit to Accounts Receivable mean that a customer returned merchandise.
    • A. 

      True

    • B. 

      False

  • 13. 
    The full disclosure principle
    • A. 

      Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the type of change.

    • B. 

      Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the justification for the change.

    • C. 

      Requires that any change in net income due to changes in the inventory cost assumption be disclosed.

    • D. 

      Does not require a company to use one cost flow assumption exclusively.

    • E. 

      All of these answers are correct.

  • 14. 
    The adjustment to reflect shrinkage is a debit to Income Summary and a credit to Shrinkage  Expense.
    • A. 

      True

    • B. 

      False

  • 15. 
    A merchandising company:
    • A. 

      Earns net income from buying and selling merchandise.

    • B. 

      Buys products from manufacturers and sells to retailers.

    • C. 

      Buys products from manufacturers and sells them to consumers.

    • D. 

      Reports cost of goods sold on the income statement.

    • E. 

      All of these answers are correct.

  • 16. 
    82.  Trekking Company markets a climbing kit and uses a perpetual inventory system to account for its merchandise.  The beginning balance of the inventory and transactions during January were as follows: January 1: Balance:  18 units at $13 January 12: Purchased 30 units at $14 January 19: Sold 24 units at $17 January 20: Purchased 24 units at $17 January 27: Sold 27 units If the ending inventory is valued at $357, what inventory cost flow assumption was used?  
    • A. 

      Average costing.

    • B. 

      FIFO.

    • C. 

      Weighted-average

    • D. 

      Specific identification.

    • E. 

      Retail

  • 17. 
    106.  Trekking Company had the following purchases during the year: January 1: 10 units at $120 February 1: 20 units at $130 May 1: 15 units at $140 September 1: 12 units at $150 November 1: 10 units at $160 On December 31, there were 26 units in ending inventory.  These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November.  Using the specific identification method, what is the cost of the ending inventory?
    • A. 

      $3,500.

    • B. 

      $3,800.

    • C. 

      $3,960.

    • D. 

      $3,280.

    • E. 

      $3,640.

  • 18. 
    An inventory error carried forward into the next period causes misstatements in:  
    • A. 

      Cost of goods sold.

    • B. 

      Gross profit.

    • C. 

      Net income.

    • D. 

      All of these answers are correct.

    • E. 

      Gross profit and net income.

  • 19. 
    Under the _______________ system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in the _______________ account.
  • 20. 
    Type question here
    • A. 

      Answer option 1

    • B. 

      Answer option 2

    • C. 

      Answer option 3

    • D. 

      Answer option 4

  • 21. 
    Errors in inventory valuation only affect the current period's records and financial statements
    • A. 

      True

    • B. 

      False

  • 22. 
    The advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and better matches current costs with revenues on the income statement.
    • A. 

      True

    • B. 

      False

  • 23. 
    During a period of steadily falling prices, which inventory cost flow assumption results in reporting the lowest net income?
    • A. 

      Specific identification.

    • B. 

      Average cost.

    • C. 

      Weighted-average.

    • D. 

      Retail Cost

  • 24. 
    A business that has inventory items that are ordinarily interchangeable is required to use the specific identification method of assigning costs to inventory.
    • A. 

      True

    • B. 

      False

  • 25. 
    The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale
    • A. 

      True

    • B. 

      False

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