Question 1

The cost of goods sold section under a periodic inventory system generally reports

Accepted Answer

A

Question 2

The Freight-in account

Accepted Answer

The Freight-in account is used to record the cost of shipping and transportation to bring merchandise purchased to the buyer's location. This increases the cost of the merchandise purchased and is therefore added to the total cost of the goods. Therefore, the Freight-in account has a normal debit balance.

Question 3

The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be

Accepted Answer

Purchases Returns and Allowances is a contra account to Purchases, which is used to record merchandise returns. Accounts Payable is debited to reflect the reduction in the amount owed to the vendor.

Question 4

Farley Foods had beginning inventory of $15,000 at March 1, 2008.During the month, the company made purchases of $40,000.The inventory at the end of the month is $17,300.What is cost of goods sold for the month of March?

Accepted Answer

The answer of Farley Foods had beginning inventory of $15,000...

Question 5

The income statement for a merchandiser contains three sections:

Accepted Answer

The answer of The income statement for a merchandiser contains...

Question 6

The cost of goods sold section of an income statement prepared under a periodic inventory system will contain more detail than under a perpetual inventory system.

Accepted Answer

Under a periodic inventory system, the cost of goods sold is calculated at the end of the period and does not provide detailed transaction-level information, unlike a perpetual inventory system which continuously updates inventory records.

Question 7

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Accepted Answer

This statement is true. The choice of inventory costing method (such as FIFO, LIFO, or weighted average) should reflect the actual flow of goods in the company to ensure consistency between the cost of goods sold and the physical movement of inventory.

Question 8

Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Accepted Answer

Freight-in is a cost incurred to transport goods from the supplier to the purchaser. It is typically added to the cost of the purchased goods to arrive at the total cost of goods purchased. Therefore, it is subtracted from the Purchases account to arrive at cost of goods purchased.

Question 9

Barnett Restaurant Equipment has a beginning merchandise inventory of $20,000.During the period, purchases were $60,000; purchase returns, $2,000; and freight-in $5,000.A physical count of inventory at the end of the period revealed that $10,000 was still on hand.The cost of goods available for sale was

Accepted Answer

The cost of goods available for sale can be calculated by adding the beginning inventory to the purchases and freight-in and then subtracting purchase returns. 
Cost of goods available for sale = $20,000 + $60,000 + $5,000 - $2,000 = $83,000. 
Since the physical count of inventory at the end of the period was $10,000, the cost of goods sold can be calculated by subtracting the ending inventory from the cost of goods available for sale:
Cost of goods sold = $83,000 - $10,000 = $73,000. 
Therefore, the correct answer is C.

Question 10

Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.

Accepted Answer

Transactions that affect inventories on hand, such as purchases and sales, impact the balance sheet by changing the value of inventory reported as an asset. These transactions also impact the income statement by affecting the cost of goods sold, which is an expense. Therefore, inventory transactions have an effect on both the balance sheet and the income statement.

Question 11

Under a periodic inventory system, acquisition of merchandise is debited to the

Accepted Answer

Under a periodic inventory system, the purchases made by a company are recorded in the Purchases account instead of directly debiting the Merchandise Inventory account. The Merchandise Inventory account is only updated at the end of the accounting period after a physical inventory count is taken, and the cost of goods sold is calculated as the difference between the beginning inventory and the ending inventory, adjusted for any purchases made during the period.

Question 12

If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet.

Accepted Answer

Inventories valued using the LIFO cost assumption can still be classified as a current asset on the balance sheet, but their value may not accurately reflect their current market value.

Question 13

Independent internal verification of the physical inventory process occurs when

Accepted Answer

Independent internal verification involves a second party (in this case, a second employee) reviewing or checking the work performed by the first party to ensure accuracy and reliability. In this context, having a second employee count the inventory and compare the results with the first employee's count is an example of independent internal verification. This process helps in detecting errors or fraud that might have occurred during the initial count.

Question 14

The factor which determines whether or not goods should be included in a physical count of inventory is

Accepted Answer

Legal title determines whether or not goods should be included in a physical count of inventory because it indicates the ownership of the goods. Ownership is crucial for inventory accounting, regardless of physical possession or payment status.

Question 15

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Accepted Answer

According to generally accepted accounting principles (GAAP), a company must disclose the effect of any change in accounting principle, such as a change in inventory valuation method, on its financial statements. This is typically done through a disclosure note accompanying the financial statements.

Question 16

Consigned goods are goods held for sale by one party although ownership of the goods is retained by another party.

Accepted Answer

Consigned goods are held for sale by one party, typically a retailer or distributor, but ownership of the goods remains with the original owner or supplier until they are sold. The retailer or distributor acts as a consignee, selling the goods on behalf of the owner and receiving a commission or percentage of the sale as compensation.

Question 17

Merchandise inventory is

Accepted Answer

Merchandise inventory is a current asset because it is expected to be converted into cash within a year. It is reported on the balance sheet at its cost, which is the price paid to acquire the inventory, and not the price for which the goods can be sold.

Question 18

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Accepted Answer

LIFO (Last In, First Out) inventory valuation method primarily affects the cost of goods sold and inventory valuation on the balance sheet, rather than directly creating paper or phantom profits. It can lead to higher cost of goods sold during inflationary periods, potentially lowering reported profits, not inflating them with phantom profits.

Question 19

The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Accepted Answer

The FIFO inventory method results in an ending inventory valued at the oldest cost, not the most recent cost. The most recent cost is used to value the items sold or used during the period.

Question 20

Items waiting to be used in production are considered to be

Accepted Answer

Raw materials are items that are waiting to be used in the production process. They have not yet been processed or incorporated into a final product.

Quiz 9: Inventories and Cost of Goodscalculation