Unit Three Review
A quiz to help you practice for unit 3
- 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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