Question 1

Alphabet Company buys different letters for resale. It buys A thru J on January 1 at $4 per letter, and sells C on January 15. On February 1, it buys K and L at $6 per letter and sells A and K on February 9. It then buys M thru O on March 1 at $7 per letter and sells F, L, M, N, and O on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of goods sold for the three months ended March 31 (rounded to the nearest dollar)?

Accepted Answer

The answer of Alphabet Company buys different letters for resale....

Question 2

Which of the following statements is true?

Accepted Answer

Valuing inventory under LIFO (last-in, first-out) can produce different results depending on whether a perpetual or periodic inventory system is used. This is because LIFO assumes that the most recent items purchased will be the first ones sold, so when inventory levels fluctuate, different costs will be assigned to the items sold depending on whether the system is perpetual (which updates inventory records continuously) or periodic (which only updates inventory at the end of a period). Valuing inventory under FIFO (first-in, first-out) can also produce different results depending on the inventory system used, but this is not always the case with the weighted average cost method. Using the specific identification method means that the exact cost of each item sold is tracked, so the inventory system used will not impact the results.

Question 3

Company X uses LIFO while its main competitor, Company Y, uses FIFO. Which of the following statements is true?

Accepted Answer

Company X, using LIFO, is required to disclose in the notes what the inventory balance would have been under FIFO, known as the LIFO reserve.

Question 4

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO, LIFO, weighted average, and specific identification)?

Accepted Answer

Net sales are not affected by the choice of inventory costing method as it is purely a result of sales revenue.

The best choice(s) would be:
Answer: A
 Net sales are not affected by the choice of inventory costing method.

Question 5

A retailer using a periodic inventory system returned $3,000 of defective merchandise which was purchased on account from one of its wholesale suppliers. The entry to record this transaction on the retailer's books would include a debit to

Accepted Answer

The answer of A retailer using a periodic inventory system...

Question 6

What is the journal entry to be recorded by

Accepted Answer

Option B represents the correct journal entry. This is because it correctly records the receipt of $2,000 from a customer as cash and the reduction of the customer's accounts receivable balance by $2,000. Option A is incorrect because it fails to record the reduction of the accounts receivable balance. Option C is incorrect because the use of the suspense account is not necessary in this case. Option D is incorrect because it records the receipt of cash twice, which would overstate the company's cash balance.

Question 7

One of the most common sources of misstatement in financial statements is the:

Accepted Answer

Failing to accurately estimate the market value of inventory can lead to either overstating or understating the value of the inventory, which can result in significant misstatement in the financial statements. This misstatement can affect the balance sheet, income statement, and cash flow statement, and may also impact key financial ratios.

Question 8

Which of the following companies would be least concerned about a low inventory turnover ratio?

Accepted Answer

Companies with inventories that are perishable (such as fish or butter and milk)or may quickly become obsolete (such as microchips)would be more concerned about a low inventory turnover ratio.

Question 9

Because LIFO uses older costs for inventory, in times of rising prices:

Accepted Answer

LIFO uses newer costs for COGS, resulting in lower ending inventory and a lower book value. This also leads to a higher inventory turnover ratio as the inventory is being sold at a faster rate. Therefore, the correct choice is D.

Question 10

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 financial statements?

Accepted Answer

The overstatement of ending inventory leads to an overstatement of current assets and net income because ending inventory is a component of both the balance sheet (as a current asset) and the income statement (affecting cost of goods sold and thus net income).

Question 11

A company purchased $6,000 of merchandise. Transportation costs were an additional $100. The company later returned $250 of the merchandise and paid the invoice within the 2% discount period. What is the total amount of cash paid?

Accepted Answer

The total amount of merchandise purchased, including transportation costs, is:

$6,000 + $100 = $6,100

After returning merchandise, the balance becomes:

$6,100 - $250 = $5,850

If the company paid within the discount period, they would receive 2% off:

$5,850 x 0.98 = $5,733

Therefore, the total amount of cash paid is $5,733. Choice C is the correct answer.

Question 12

Which of the following accounts would normally have a credit balance?

Accepted Answer

The answer of Which of the following accounts would normally...

Question 13

Alphabet Company buys different letters for resale. It buys A thru G on January 1 at $4 per letter, and sells A and E on January 15. On February 1, it buys H thru L at $6 per letter and sells D, H and J on February 9. It then buys M thru R on March 1 at $7 per letter and sells N on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of its ending inventory (rounded to the nearest dollar)?

Accepted Answer

The answer of Alphabet Company buys different letters for resale....

Question 14

An increasing inventory turnover ratio indicates:

Accepted Answer

Inventory turnover ratio is calculated as cost of goods sold divided by average inventory. It indicates the number of times inventory is sold and replaced during a given period. An increasing inventory turnover ratio means that inventory is sold more quickly, which implies a shorter time span between the purchase and sale of inventory. Option C is the correct choice.

Question 15

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

Accepted Answer

By decreasing the amount of inventory on hand while unit sales are increasing, the company is able to sell through their inventory more quickly, leading to a higher inventory turnover ratio. This means that the company is able to generate more revenue without having excess inventory sitting idle.

Question 16

What is the journal entry to be recorded by

Accepted Answer

The answer of What is the journal entry to be...

Question 17

What is the journal entry to be recorded by

Accepted Answer

The answer of What is the journal entry to be...

Question 18

The most commonly used inventory costing method in the U.S. is:

Accepted Answer

Nearly half of all U.S.companies use FIFO.

Question 19

A one-time error in the application of the lower of cost or market (LCM) rule in the current period distorts financial results for the current accounting period

Accepted Answer

The answer of A one-time error in the application of...

Question 20

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Quiz 7: Reporting and Interpreting Inventories and Cost of Goods Sold

Which of the following statements is true?

Company X uses LIFO while its main competitor, Company Y, uses FIFO. Which of the following statements is true?

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO, LIFO, weighted average, and specific identification) ?

A retailer using a periodic inventory system returned $3,000 of defective merchandise which was purchased on account from one of its wholesale suppliers. The entry to record this transaction on the retailer's books would include a debit to

What is the journal entry to be recorded by

One of the most common sources of misstatement in financial statements is the:

Which of the following companies would be least concerned about a low inventory turnover ratio?

Because LIFO uses older costs for inventory, in times of rising prices:

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 financial statements?

A company purchased $6,000 of merchandise. Transportation costs were an additional $100. The company later returned $250 of the merchandise and paid the invoice within the 2% discount period. What is the total amount of cash paid?

Which of the following accounts would normally have a credit balance?

An increasing inventory turnover ratio indicates:

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

What is the journal entry to be recorded by

What is the journal entry to be recorded by

The most commonly used inventory costing method in the U.S. is:

A one-time error in the application of the lower of cost or market (LCM) rule in the current period distorts financial results for the current accounting period

Which of the following statements is true?