Question 1

What is the term for an inventory account that a manufacturer uses to record the cost of products completed and available for sale?

Accepted Answer

The term for an inventory account that a manufacturer uses to record the cost of products completed and available for sale is finished goods inventory. Raw materials inventory refers to the cost of materials yet to be used in production, work-in-process inventory refers to the cost of partially completed products, and merchandise inventory refers to finished products held for sale by retailers.

Question 2

Which of the following accounts would most likely appear on the income statement of a merchandise company but NOT on the income statement of a service company?

Accepted Answer

Cost of goods sold is an expense that is unique to merchandise companies because they purchase and sell physical goods, whereas service companies primarily provide intangible services and therefore do not have inventory or cost of goods sold. Selling expenses, administrative expenses, and income tax expense may be present on both service and merchandise company income statements.

Question 3

Which of the following plus cost of items on hand equal ending inventory?

Accepted Answer

Merchandise in transit sold to customers with terms F.O.B. destination should be included in ending inventory as the ownership of goods transfers to the buyer only upon goods reaching the destination. Therefore, the cost of such goods should be added to the cost of items on hand to determine ending inventory.

Question 4

A customer returned damaged goods for credit.Under a perpetual system,which of the seller's accounts decreases?

Accepted Answer

Under a perpetual system, when a customer returns damaged goods for credit, the seller's accounts receivable account decreases because the customer is given a credit for the returned goods.

Question 5

A manufacturing company has the following account balances: finished goods,$24,000; raw material,$30,000; merchandise inventory,$50,000; work-in-process inventory,$6000.What is the amount of inventory on the balance sheet?

Accepted Answer

$30,000 (Raw materials)+ $6,000 (Work in process)+ $24,000 (Finished goods)= $60,000

Question 6

Bihary Company has a beginning balance of $2,250 in its inventory account.The ending balance is $1,500.Cost of goods sold is $9,750.According to the cost of goods sold model,what was the amount of inventory purchased during the year?

Accepted Answer

$9,750 (Cost of goods sold)+ $1,500 (Ending inventory)- $2,250 (Beginning inventory)= $9,000

Question 7

When is the inventory account updated?

Accepted Answer

Under the perpetual inventory system, the inventory account is updated after every sale and every merchandise purchase in real-time. This ensures that the inventory balance is always up-to-date and accurate. Under the periodic inventory system, the inventory account is only updated at the end of the accounting period, which can result in inaccurate inventory balances throughout the period.

Question 8

A manufacturing company reported total inventory of $75,000 and had the following account balances: finished goods,$15,000; raw materials,$40,000; merchandise inventory,$10,000.What is this company's work-in-process inventory?

Accepted Answer

$75,000 - $40,000 (Raw materials)- $15,000 (Finished goods)= $20,000

Question 9

What is cost of goods sold equal to?

Accepted Answer

Cost of goods sold is equal to the cost of merchandise purchased plus transportation costs plus beginning inventory minus purchase returns and allowances and purchased discounts minus ending inventory. This formula takes into account all the relevant factors that impact the cost of goods sold.

Question 10

To determine inventory for its balance sheet,what system is a company using if it counts the inventory at the end of its accounting period and makes only one entry?

Accepted Answer

A company that counts inventory at the end of its accounting period and makes only one entry is using the periodic inventory system. In this system, the company determines inventory levels periodically, such as at the end of the month or year, rather than continuously like the perpetual inventory system.

Question 11

Which of the following is a requirement of just-in-time inventory management?

Accepted Answer

Just-in-time inventory management requires detailed information about order-to-delivery times, receiving-to-sales times, and inventory quantities to ensure that inventory is received and used efficiently and effectively. A perpetual inventory system and an average cost inventory costing method may be useful in this process, but they are not necessarily requirements. Detailed information about profitability and the users of the company's financial statements is also important, but it is not specifically required for just-in-time inventory management.

Question 12

What is cost of goods sold equal to?

Accepted Answer

Cost of goods sold is the cost of the products sold during the accounting period. It is calculated by subtracting the ending inventory from the cost of goods available for sale. Therefore, option C is the correct answer. Option A is the calculation of cost of goods available for sale, not cost of goods sold. Option B is the value of inventory reported on the balance sheet, not cost of goods sold. Option D is simply the ending inventory value, not cost of goods sold.

Question 13

How will the cost of inventory amount on the balance sheet ultimately be recognized?

Accepted Answer

The cost of inventory on the balance sheet will ultimately be recognized as cost of goods sold when the inventory is sold. This recognition happens during the period in which the sale is made through the income statement.

Question 14

Which of the following statements is characteristic of inventory systems?

Accepted Answer

The perpetual system allows for continuous tracking of inventory levels and provides real-time inventory data, making it easier to identify and control inventory. The periodic system requires a physical inventory count at the end of an accounting period to determine inventory levels, which can be time-consuming and may result in inaccuracies. The other statements are incorrect: inventory can be sold at any time under both systems, the cost to implement a perpetual system is often higher due to the need for technology and training, and while the perpetual system reduces the need for physical inventory counts, it does not eliminate them entirely.

Question 15

Which of the following types of inventory accounts would a wholesaler or retailer use?

Accepted Answer

Merchandise inventory is used by wholesalers and retailers to account for goods that are purchased for resale.

Question 16

Which of the following is NOT a reason why inventory costs are recorded as expenses when sold rather than when incurred?

Accepted Answer

Inventory costs are recorded as expenses when sold rather than when incurred to achieve a better matching of expenses with related revenues, give users of the company's financial statements a clearer picture of profitability, and because inventory is considered an asset at the time it is acquired. The timing of recording inventory transactions does not affect the amount of inventory costs that need to be recorded as expenses eventually, but it does affect the timing of those expenses in the financial statements. Therefore, recording inventory costs as expenses when sold rather than when incurred helps ensure that expenses are recognized in the appropriate period, regardless of when the transaction is recorded. It does not give accounting personnel more time to record inventory transactions, as inventory must be tracked and recorded on an ongoing basis regardless of when the costs associated with it are recognized as expenses.

Question 17

What effects on a retail store's accounting equation occur when it records merchandise purchased for cash,assuming the use of a perpetual inventory system?

Accepted Answer

In a perpetual inventory system, when merchandise is purchased for cash, one asset (inventory) increases while another asset (cash) decreases by the same amount, resulting in no net effect on the accounting equation.

Question 18

In a periodic inventory system,what is the cost of purchases recognized as?

Accepted Answer

In a periodic inventory system, the cost of purchases is recognized as an integral part of the calculation of cost of goods sold, as it is used to determine the ending inventory and cost of goods sold at the end of the period.

Question 19

Which of these items should be included as part of the company's inventory?

Accepted Answer

Items purchased from a creditor, even if not paid for by year end, are part of the company's inventory as they are owned by the company and intended for sale.

Question 20

Which of the following best describes "cost of goods available for sale"?

Accepted Answer

Cost of goods available for sale is the total cost of beginning inventory and the cost of purchases made during the period. This cost is then allocated between cost of ending inventory (inventory that is still on hand at the end of the period) and cost of goods sold (inventory that was sold during the period). Therefore, choice D is the correct answer.

Quiz 6: Cost of Goods Sold and Inventory

What is the term for an inventory account that a manufacturer uses to record the cost of products completed and available for sale?

Which of the following accounts would most likely appear on the income statement of a merchandise company but NOT on the income statement of a service company?

Which of the following plus cost of items on hand equal ending inventory?

A customer returned damaged goods for credit.Under a perpetual system,which of the seller's accounts decreases?

A manufacturing company has the following account balances: finished goods,$24,000; raw material,$30,000; merchandise inventory,$50,000; work-in-process inventory,$6000.What is the amount of inventory on the balance sheet?

Bihary Company has a beginning balance of $2,250 in its inventory account.The ending balance is $1,500.Cost of goods sold is $9,750.According to the cost of goods sold model,what was the amount of inventory purchased during the year?

When is the inventory account updated?

A manufacturing company reported total inventory of $75,000 and had the following account balances: finished goods,$15,000; raw materials,$40,000; merchandise inventory,$10,000.What is this company's work-in-process inventory?

What is cost of goods sold equal to?

To determine inventory for its balance sheet,what system is a company using if it counts the inventory at the end of its accounting period and makes only one entry?

Which of the following is a requirement of just-in-time inventory management?

What is cost of goods sold equal to?

How will the cost of inventory amount on the balance sheet ultimately be recognized?

Which of the following statements is characteristic of inventory systems?

Which of the following types of inventory accounts would a wholesaler or retailer use?

Which of the following is NOT a reason why inventory costs are recorded as expenses when sold rather than when incurred?

What effects on a retail store's accounting equation occur when it records merchandise purchased for cash,assuming the use of a perpetual inventory system?

In a periodic inventory system,what is the cost of purchases recognized as?

Which of these items should be included as part of the company's inventory?

Which of the following best describes "cost of goods available for sale"?