1. The current period's ending inventory is:A) The next period's beginning inventory.B) The current period's cost of goods sold.C) The prior period's beginning inventory.D) The current period's net purchases.E) The current period's beginning inventory.2. Sales returns and allowances:A) Can provide useful information about dissatisfied customers and the possibilityof lost future sales.B) Are recorded in separate contra-revenue accounts.C) Are rarely disclosed in published financial statements.D) Are closed to the Income Summary account.E) All of the above.3. The operating cycle of a merchandising company:A) Begins with the purchase of merchandise.B) Ends with the collection of cash from the sale of merchandise.C) Can vary in length among different merchandising companies.D) Sometimes involves accounts receivable.E) All of the above.4. A merchandising company:A) Earns net income by buying and selling merchandise.B) Can buy products from manufacturers and sell to retailers.C) Can buy products from manufacturers and sell them to consumers.D) Can be a wholesaler or a retailer.E) All of the above.5. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092million, and its net income was $997 million. Its gross margin ratio equals:A) 3.5%.B) 5.2%.C) 33%.D) 67%.E) 149.3%.6. The gross margin ratio:A) Is also called the net profit ratio.B) Measures a merchandising firm's ability to earn a profit from the sale ofinventory.C) Is also called the profit margin.D) Is a measure of liquidity.E) Should be greater than 1.7. Sales less sales discounts less sales returns and allowances equals:A) Net purchases.B) Cost of goods sold.C) Net sales.D) Gross profit.E) Net income.8. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:A) Reflects an increase in amount due from a customer.B) Recognizes that a customer returned merchandise and/or received an allowance.C) Requires a debit memorandum to recognize the customer's return.D) Is recorded when a customer takes a discount.E) All of the above.9. A company purchased $1,500 of merchandise on credit with terms 3/15, n/30. Howmuch will be debited to Accounts Payable if the company pays $485 cash on thisaccount within ten days?A) $485B) $500C) Nothing will debited to Accounts Payable, the account should be credited in thissituation.D) $470.45E) $1,45510. ABC Corporation's total quick assets were $5,888,000, its current assets were$11,700,000 and its current liabilities were $8,000,000. Its acid-test ratio equals:A) 0.50.B) 0.68.C) 0.74.D) 1.50.E) 2.20.11. The amount recorded for merchandise inventory includes:A) Any purchase discounts.B) Any returns and allowances.C) Any necessary freight costs.D) Any trade discounts.E) All of the above.12. A company's gross profit was $83,750 and its net sales were $347,800. Its grossmargin ratio equals:A) 4.2%.B) 24.1%.C) 75.9%.D) $ 83,750.E) $264,050.13. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns andallowances of $1,700, and sales discounts of $3,475. Alpha's net sales for this periodequal:A) $ 94,275.B) $172,550.C) $174,250.D) $176,025.E) $177,725.14. Expenses of promoting sales by displaying and advertising merchandise, makingsales, and delivering goods to customers are:A) General and administrative expenses.B) Cost of goods sold.C) Selling expenses.D) Purchasing expenses.E) Nonoperating activities.15. Inventory shrinkage:A) Refers to the loss of inventory.B) Is determined by comparing a physical count of inventory with recordedinventory amounts.C) Is recognized by debiting Cost of Goods Sold.D) Can be caused by theft or deterioration.E) All of the above.16. On October 1, Robertson Company sold merchandise in the amount of $5,800 toAlberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.Robertson uses the perpetual inventory system. The journal entry or entries thatRobertson will make on October 1 is:A)Item AB)Item BC)Item CD)Item DE)Item E17. When preparing an unadjusted trial balance using a periodic inventory system, theamount shown for Merchandise Inventory is:A) The ending inventory amount.B) The beginning inventory amount.C) Equal to the cost of goods sold.D) Equal to the cost of goods purchased.E) Equal to the gross profit.18. Liquidity problems are likely to exist when a company's acid-test ratio:A) Is less than the current ratio.B) Is 1 to 1.C) Is higher than 1 to 1.D) Is substantially lower than 1 to 1.E) Is higher than the current ratio.19. The acid-test ratio:A) Is also called the quick ratio.B) Measures profitability.C) Measures inventory turnover.D) Is generally greater than the current ratio.E) All of the above.20. On October 1, Robertson Company sold merchandise in the amount of $5,800 toAlberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.Robertson uses the periodic inventory system. On October 4, Alberts returns someof the merchandise. The selling price of the merchandise is $500 and the cost of themerchandise returned is $350. The entry or entries that Robertson must make onOctober 4 is:A)Item AB)Item BC)Item CD)Item DE)Item E21. A company purchased $4,000 worth of merchandise. Transportation costs were anadditional $350. The company later returned $275 worth of merchandise and paidthe invoice within the 2% cash discount period. The total amount paid for thismerchandise is:A) $3,725.00.B) $3,925.00.C) $3,995.00.D) $4,000.50.E) $4,075.00.22. Multiple-step income statements:A) Are required by the FASB.B) Contain more detail than a simple listing of revenues and expenses.C) Are required for the perpetual inventory system.D) List cost of goods sold as an operating expense.E) Can only be used in perpetual inventory systems.23. Merchandising companies must account for:A) Sales.B) Sales discounts.C) Sales returns and allowances.D) Cost of merchandise sold.E) All of the above.24. Cost of goods sold:A) Is another term for merchandise sales.B) Is the term used for the cost of buying and preparing merchandise for sale.C) Is another term for revenue.D) Is also called gross margin.E) Is a term only used by service firms.25. An account used in the perpetual inventory system that is not used in the periodicinventory system isA) Merchandise InventoryB) SalesC) Sales Returns and AllowancesD) Accounts PayableE) Purchases26. Incidental and necessary costs of inventory:A) Can be assigned to each inventory unit.B) May be immaterial.C) Can be allocated to cost of goods sold.D) Are subject to the cost-to-benefit constraint when deciding how to account for them.E) All of the above.27. Which inventory valuation method assigns a value to the inventory on the balancesheet that approximates current cost and also mimics the actual flow of goods formost businesses?A) FIFO.B) Weighted average.C) LIFO.D) Specific identification.E) All of the above.28. A company had inventory of 5 units at a cost of $20 each on November 1. OnNovember 2, they purchased 10 units at $22 each. On November 6 they purchased 6units at $25 each. On November 8, they sold 18 units for $54 each. Using the LIFOperpetual inventory method, what was the cost of the 18 units sold?A) $395.B) $410.C) $450.D) $510.E) $520.29. Acme-Jones Corporation uses a weighted-average perpetual inventory system.August 2, 10 units were purchased at $12 per unit.August 18, 15 units were purchased at $14 per unit.August 29, 12 units were sold.What was the amount of the cost of goods sold for this sale?A) $148.00.B) $150.50.C) $158.40.D) $210.00.E) $330.00.30. A company has the following per unit original costs and replacement costs for itsinventory:Part A: 10 units with a cost of $3, and replacement cost of $2.50Part B: 40 units with a cost of $9, and replacement cost of $9.50Part C: 75 units with a cost of $8, and replacement cost of $7.50Under the lower of cost or market method, the total value of this company's endinginventory is:A) $990.00.B) $947.50.C) $967.50 or $947.50, depending upon whether LCM is applied to individual items or theinventory as a whole.D) $967.50.E) $990.00 or $947.50, depending upon whether LCM is applied to individual items or tothe inventory as a whole.31. The inventory turnover ratio is calculated as:A) Cost of goods sold divided by average merchandise inventory.B) Sales divided by cost of goods sold.C) Ending inventory divided by cost of goods sold.D) Cost of goods sold divided by ending inventory.E) Cost of goods sold divided by ending inventory times 365.32. The inventory valuation method that results in the lowest taxable income in a periodof inflation is:A) LIFO method.B) FIFO method.C) Weighted-average cost method.D) Specific identification method.E) Gross profit method.33. The full disclosure principle:A) Requires that when a change in inventory valuation method is made, the notes tothe financial statements report the type of change, its justification and its effecton net income.B) Requires that companies use the same accounting method for inventory valuationperiod after period.C) Is not subject to the materiality principle.D) Is only applied to retailers.E) Is also called the consistency principle.34. An overstatement of ending inventory will causeA) An overstatement of assets and equity on the balance sheet.B) An understatement of assets and equity on the balance sheet.C) An overstatement of assets and an understatement of equity on the balance sheet.D) An understatement of assets and an overstatement of equity on the balance sheet.E.) No effect on the balance sheet.35. Use the following information to estimate the third quarter ending inventory underthe gross profit method. This company's gross profit ratio is 20%.Third quarter beginning inventory: $54,000Net sales for third quarter: $85,000Net purchases for third quarter:A) $101,000.B) $ 58,000.C) $ 35,000.D) $ 7,000.E) $ 14,000.36. A company has inventory of 15 units at a cost of $12 each on August 1. On August5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at$14 per unit. On August 15, they sold 30 units. Using the FIFO perpetual inventorymethod, what is the value of the inventory at August 12 after the sale?A) $140.B) $160.C) $210.D) $380.E) $590.37. A company has the following per unit original costs and replacement costs for itsinventory:Part A: 50 units with a cost of $5, and replacement cost of $4.50Part B: 75 units with a cost of $6, and replacement cost of $6.50Part C: 160 units with a cost of $3, and replacement cost of $2.50Under the lower of cost or market method, the total value of this company's endinginventory is:A) $1,180.00.B) $1,075.00.C) $1,112.50 or $1075.00, depending upon whether LCM is applied to individual items orthe inventory as a whole.D) $1,112.50.E) $1180.00 or $1075.00, depending upon whether LCM is applied to individual items orto the inventory as a whole.38. Given the following items and costs as of the balance sheet date, determine the valueof Faltron Company's merchandise inventory.- $1,000 goods sold by Faltron to another company. The goods are in transit andshipping terms are FOB destination.- $2,000 goods sold by another company to Faltron. The goods are in transit andshipping terms are FOB destination.- $3,000 owned by Faltron but in the possession of another company the consignee.- Damaged goods owned by Faltron which originally cost $4,000 but which nowhave a $500 net realizable value.A) $10,000.B) $6,500.C) $5,500.D) $5,000.E) $4,500.39. A company had the following purchases during the current year:On December 31, there were 26 units remaining in ending inventory. These 26 unitsconsisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 fromNovember. Using the specific identification method, what is the cost of the endinginventory?A)$3,500.B)$3,800.C)$3,960.D)$3,280.E)$3,640.40. Acme-Jones Company uses a weighted-average perpetual inventory system.August 2: 10 units were purchased at $12 per unit.August 18: 15 units were purchased at $15 per unit.August 29: 20 units were sold.August 31: 14 units were purchased at $16 per unit.What is the per-unit value of ending inventory on August 31?A) $12.00.B) $13.80.C) $15.42.D) $16.00.E) $17.74.41. In applying the lower of cost or market method to inventory valuation, market isdefined as:A) Historical cost.B) Current replacement cost.C) Current sales price.D) FIFO.E) LIFO.42. Which of the following are acceptable for a given company's inventory costingmethods?A) FIFO used for financial reporting, LIFO used for tax reporting.B) LIFO used for financial reporting, FIFO used for tax reporting.C) LIFO used for financial reporting, LIFO used for tax reporting.D) A and CE) B and C43. Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089million, and average inventory of $1,965 million. Its inventory turnover equals:A) 0.21.B) 4.51C) 4.79.D) 76.1 days.E) 80.9 days.44. Given the following events, what is the per-unit value of ending inventory onNovember 30 if this company uses a weighted-average perpetual inventory system?November 1: 5 units were purchased at $6 per unit.November 12: 10 units were purchased at $7.50 per unit.November 14: 7 units were sold for $14 per unit.November 24: 12 units were purchased at $10 per unit.What is the per-unit value of ending inventory on November 30?A) $6.00.B) $7.00.C) $8.80.D) $13.00.E) $21.80.45. A company has inventory of 15 units at a cost of $12 each on August 1. On August5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at$14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventorymethod, what is the value of the inventory at August 12 after the sale?A) $140.B) $160.C) $210.D) $380.E) $590.46. A company uses the periodic inventory system and had the following activity duringthe current monthly period.Using the weighted-average inventory method, the company's ending inventory would bereported at:A)$2,000.B)$2,200.C)$2,250.D)$2,400.E)$4,400.47. Management must confront which of the following considerations when accountingfor inventory:A) Costing (valuation) method.B) Inventory system (perpetual or periodic).C) Items to be included and their cost.D) Use of lower of cost or market or other estimate.E) All of the above.48. The conservatism principle:A) Requires that when more than one estimate of amounts to be received or paid inthe future are equally likely, then the less optimistic amount should be used.B) Requires that a company use the same accounting methods period after period.C) Requires that revenues and expenses be reported in the period in which they are earnedor incurred.D) Requires that all items of a material nature be included in financial statements.E) Requires that all inventory items be reported at full cost.49. During a period of steadily rising costs, the inventory valuation method that yieldsthe lowest reported net income is:A) Specific identification method.B) Average cost method.C) Weighted-average method.D) FIFO method.E) LIFO method.50. Assume that the custodian of a $450 petty cash fund has $62.50 in coins andcurrency plus $382.50 in receipts at the end of the month. The entry to replenish thepetty cash fund will include:A) A debit to Cash for $377.50.B) A credit to Cash Over and Short for $5.00.C) A debit to Petty Cash for $382.50.D) A credit to Cash for $387.50.E) A debit to Cash for $387.50.51. When a petty cash fund is in use:A) Expenses paid with petty cash are recorded when the fund is replenished.B) Petty Cash is debited when funds are replenished.C) Petty Cash is credited when funds are replenished.D) Expenses are not recorded.E) Cash is debited when funds are replenished.52. A set of procedures and approvals that is designed to control cash disbursements andthe acceptance of obligations is referred to as a(n):A) Internal cash system.B) Petty cash system.C) Cash disbursement system.D) Voucher system.E) Cash control system.53. An analysis that explains any differences between the checking account balanceaccording to the depositor's records and the balance reported on the bank statement isa(n):A) Internal audit.B) Bank reconciliation.C) Bank audit.D) Trial reconciliation.E) Analysis of debits and credits.54. The entry necessary to establish a petty cash fund should include:A) A debit to Cash and a credit to Petty Cash.B) A debit to Cash and a credit to Cash Over and Short.C) A debit to Petty Cash and a credit to Cash.D) A debit to Petty Cash and a credit to Accounts Receivable.E) A debit to Cash and a credit to Petty Cash Over and Short.55. Cash equivalents:A) Include savings accounts.B) Include checking accounts.C) Are short-term investments sufficiently close to their maturity date that theirvalue is not sensitive to interest rate changes.D) Include time deposits.E) Have no immediate value.
