Question 1

A company that makes the following journal entry at the time of sale is using which of the following inventory systems? $$\begin{array}{l}
\text { Dr. Cost of sales } \quad \mathrm { xxx }\
\text { Cr. Inventory } \quad \mathrm { xxx }
\end{array}$$
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)Specific identification system

Accepted Answer

The journal entry directly adjusting inventory and recognizing cost of sales at the time of sale is characteristic of the perpetual inventory system. This system continuously updates inventory records, including at the point of sale.

Question 2

Which of the following companies would have a relatively small amount of inventory on their balance sheet?
A)A retail bookstore
B)An automobile manufacturer
C)A forest products producer
D)A regional airline

Accepted Answer

A regional airline typically has a small amount of inventory on their balance sheet compared to a retail bookstore, an automobile manufacturer, or a forest products producer. This is because their primary assets are the planes they operate and the associated maintenance and support equipment, which are not typically classified as inventory.

Question 3

What is the correct equation to calculate the cost of sales in a periodic inventory system?
A)Beginning inventory + Purchases - Ending inventory
B)Beginning inventory + Purchases + Ending inventory
C)Beginning inventory - Purchases + Ending inventory
D)Beginning inventory - Purchases - Ending inventory

Accepted Answer

In a periodic inventory system, the cost of goods sold is calculated by subtracting the ending inventory from the sum of the beginning inventory and purchases during the period. Therefore, the correct equation is Beginning inventory + Purchases - Ending inventory.

Question 4

In most companies the flow of costs related to inventory does not match the physical flow of the goods.All of the following are reasons why the cost flow and physical flow may differ, except?
A)It is not cost effective.
B)It is not physically possible.
C)It does not provide good internal control.
D)None of the above

Accepted Answer

The reason cost flow and physical flow may differ is not related to internal control. Cost flow assumptions like FIFO, LIFO, or weighted average are used for accounting purposes and may not match the actual physical flow of goods, but they do not inherently affect internal control.

Question 5

A company uses a periodic inventory system and has the following information at the end of the accounting period: beginning inventory $40,000, purchases $135,000, and ending inventory $27,500.What was their cost of sales for the period?
A)$122,500
B)$135,000
C)$147,500
D)$202,500

Accepted Answer

Cost of Sales = Beginning Inventory + Purchases - Ending Inventory
Cost of Sales = $40,000 + $135,000 - $27,500 
Cost of Sales = $147,500

Question 6

In a perpetual inventory system what kind of entry is used to record the cost of sales?
A)A closing entry
B)A reversing entry
C)An adjusting entry
D)A transactional entry

Accepted Answer

In a perpetual inventory system, the cost of sales is recorded through a transactional entry at the time of each sale. This entry decreases inventory and records the cost of goods sold.

Question 7

A company that makes the following journal entry at the time of purchasing inventory is using which of the following inventory systems? Dr. Purchases $\quad \mathrm { xxx }$ 
Cr. Accounts Payable $\quad \mathrm { xxx }$
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)Specific identification system

Accepted Answer

The use of a "Purchases" account to record inventory acquisitions is characteristic of the periodic inventory system, where updates to inventory levels and cost of goods sold are made periodically, typically at the end of an accounting period, rather than continuously.

Question 8

If a company is using a perpetual inventory system, which of the following entries is the correct journal entry to record the purchase of $10,000 of merchandise on account? 
A. Dr. Inventory $\quad 10,000$
$\quad$ Cr. Accounts payable $\quad 10,000$
B. Dr. Inventory $\quad 10,000$ 
$\quad$Cr. Purchases $\quad 10,000$
C. Dr. Purchases $\quad 10,000$ 
$\quad$Cr. Inventory $\quad$10,000
D. Dr. Purchases $\quad 10,000$ 
$\quad$Cr. Accounts payable $\quad 10,000$
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

Under a perpetual inventory system, the purchase of inventory is directly recorded in the Inventory account. Therefore, when merchandise is purchased on account, Inventory is debited and Accounts Payable is credited, making Option A the correct choice.

Question 9

A company that makes the following journal entry at the time of purchasing inventory is using which of the following inventory systems? Dr. Inventory $\quad \mathrm { xxx }$ 
Cr. Accounts Payable $\quad \mathrm { xxx }$
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)Specific identification system

Accepted Answer

The journal entry directly records the purchase of inventory to the Inventory account, which is characteristic of the perpetual inventory system. This system continuously updates inventory and cost of goods sold records after each transaction.

Question 10

In which of the following situations would the car be classified as inventory?
A)A car in a showroom of a car dealership.
B)A car used to deliver pizza at a pizza restaurant.
C)A vintage 1957 Chevy bought by the president of a manufacturing company.
D)The car driven by the sales manager and paid for by the company.

Accepted Answer

The car in a showroom of a car dealership would be classified as inventory because it is being held for sale to customers. The other options involve cars that are being used for other purposes, such as delivery or personal use, and would not be classified as inventory.

Question 11

If management wanted to keep track of inventory that was stolen or damaged separately from their cost of sales, which inventory system should they use?
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)No inventory system separates stolen goods from the cost of sales.

Accepted Answer

A perpetual inventory system keeps a continuous record of inventory levels and transactions, making it easier to track stolen or damaged inventory separately from the cost of sales. In contrast, a periodic inventory system only takes periodic physical counts and calculates cost of goods sold using a formula, making it more difficult to separate out stolen or damaged inventory. The just-in-time system and the lack of an inventory system do not address the need to separately track stolen or damaged inventory.

Question 12

In a periodic inventory system, what kind of entry is necessary to record the cost of sales?
A)A closing entry
B)A reversing entry
C)An adjusting entry
D)A transactional entry

Accepted Answer

In a periodic inventory system, an adjusting entry is necessary to record the cost of sales at the end of the accounting period. This adjusts the inventory account to its ending balance and records the cost of goods sold for the period.

Question 13

Which of the following should be included in the cost of the inventory?
A)Salaries paid to warehouse employees.
B)The construction cost of shelves used to store inventory.
C)Shipping and handling on inventory purchases.
D)Advertising of inventory for sale.

Accepted Answer

Shipping and handling costs on inventory purchases should be included in the cost of inventory because these costs are necessary to get the inventory to the business's location and ready for sale. Salaries paid to warehouse employees (A) and the construction cost of shelves (B) should be considered as operating expenses of the warehouse, rather than the cost of the inventory. Advertising of inventory for sale (D) should also be considered as a separate expense, rather than part of the inventory cost.

Question 14

If a company is using a periodic inventory system, which of the following entries is the correct journal entry to record the purchase of $10,000 of merchandise on account? 
A. Dr. Inventory $\quad 10,000$
$\quad$Cr. Accounts payable $\quad 10,000$
B. Dr. Inventory$\quad$10,000
$\quad$Cr. Purchases$\quad$10,000
C. Dr. Purchases $\quad 10,000$
$\quad$Cr. Inventory$\quad$10,000
D. Dr. Purchases $\quad 10,000$
$\quad$Cr. Accounts payable$\quad$10,000
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

In a periodic inventory system, purchases are recorded in a Purchases account rather than directly to the Inventory account. The correct entry to record a purchase of merchandise on account is to debit Purchases and credit Accounts Payable.

Question 15

According to IFRS, how should inventory be measured on the balance sheet?
A)Historical cost
B)Market value
C)Lower of cost or Net realizable value
D)Net realizable value

Accepted Answer

According to IFRS, inventory should be measured at lower of cost or net realizable value. This means that inventory should be reported on the balance sheet at its historical cost or its net realizable value, whichever is lower. This conservative approach results in a lower reported value of inventory and reduces the risk of overstating assets on the balance sheet.

Question 16

Which of the following inventory systems uses an adjusting entry to record the cost of sales?
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)No system uses an adjusting entry to record the cost of sales.

Accepted Answer

In a periodic inventory system, the cost of goods sold is recorded through an adjusting entry at the end of the period based on physical inventory counts. In contrast, a perpetual system continuously updates the cost of goods sold with each sale transaction and does not require an adjusting entry. Just-in-time systems do not rely on traditional inventory tracking methods and may not even have a formal record of the cost of sales.

Question 17

All of the following are types of inventory except?
A)Capital goods inventory
B)Raw materials inventory
C)Work-in-process inventory
D)Finished goods inventory

Accepted Answer

Capital goods inventory is not a type of inventory. It refers to long-term assets that are used in the production process, such as machinery or equipment, and are not held as inventory for sale.

Question 18

According to IFRS, all of the following costs should be included in the cost of inventory except:
A)cost of materials for a special order.
B)direct labour involved in manufacturing the product.
C)supervisors' salaries in the plant.
D)storage costs.

Accepted Answer

Storage costs are generally considered as a period cost rather than a product cost and should not be included in the cost of inventory according to IFRS, unless those costs are necessary in the production process before a further production stage.

Question 19

Which cost flow assumption assumes that the goods purchased first are sold first?
A)FIFO
B)LIFO
C)Average cost
D)Specific identification

Accepted Answer

FIFO, or first-in, first-out, assumes that the first goods purchased are the first goods sold. This means that the inventory on hand and cost of goods sold will reflect the most recent purchases, which can be beneficial in times of inflation when older, lower cost inventory is sold.

Question 20

Which inventory system keeps an ongoing tally of purchases and sales of inventory with adjustments that reflect changes as they occur?
A)Periodic system
B)Perpetual system
C)Just-in-time system
D)Specific identification system

Accepted Answer

The perpetual system keeps an ongoing tally of purchases and sales of inventory with adjustments that reflect changes as they occur. The periodic system, on the other hand, only updates inventory records at predetermined intervals, such as at the end of each month. The just-in-time system is a method of inventory management focused on minimizing inventory levels, and the specific identification system is a method of inventory tracking that involves assigning a specific cost to each individual item in inventory.

Quiz 7: Inventory

A company that makes the following journal entry at the time of sale is using which of the following inventory systems? $\begin{array}{l}\text { Dr. Cost of sales } \quad \mathrm { xxx }\\\text { Cr. Inventory } \quad \mathrm { xxx }\end{array}$

Which of the following companies would have a relatively small amount of inventory on their balance sheet?

What is the correct equation to calculate the cost of sales in a periodic inventory system?

In most companies the flow of costs related to inventory does not match the physical flow of the goods.All of the following are reasons why the cost flow and physical flow may differ, except?

A company uses a periodic inventory system and has the following information at the end of the accounting period: beginning inventory $40,000, purchases $135,000, and ending inventory $27,500.What was their cost of sales for the period?

In a perpetual inventory system what kind of entry is used to record the cost of sales?

A company that makes the following journal entry at the time of purchasing inventory is using which of the following inventory systems? Dr. Purchases $\quad \mathrm { xxx }$ Cr. Accounts Payable $\quad \mathrm { xxx }$

A company that makes the following journal entry at the time of purchasing inventory is using which of the following inventory systems? Dr. Inventory $\quad \mathrm { xxx }$ Cr. Accounts Payable $\quad \mathrm { xxx }$

In which of the following situations would the car be classified as inventory?

If management wanted to keep track of inventory that was stolen or damaged separately from their cost of sales, which inventory system should they use?

In a periodic inventory system, what kind of entry is necessary to record the cost of sales?

Which of the following should be included in the cost of the inventory?

According to IFRS, how should inventory be measured on the balance sheet?

Which of the following inventory systems uses an adjusting entry to record the cost of sales?

All of the following are types of inventory except?

According to IFRS, all of the following costs should be included in the cost of inventory except:

Which cost flow assumption assumes that the goods purchased first are sold first?

Which inventory system keeps an ongoing tally of purchases and sales of inventory with adjustments that reflect changes as they occur?