Q&A Hero

Q: Lower of cost or market can be applied on an item or product category basis.

Q: A lower of cost or market write-down would be recorded with a debit to Inventory Expense.

Q: When the periodic inventory system is in use, the choice of an inventory costing method usually has no impact on gross profit or cost of goods sold.

Q: A company can use LIFO to prepare its U.S. tax return and FIFO to prepare its financial statements.

Q: A company can use different methods for inventories that differ in nature or use.

Q: In each accounting period, a manager can select the inventory costing method that yields the highest net income.

Q: When costs per unit are increasing, the inventory costing method that results in the higher income tax expense is the FIFO method.

Q: Assume the periodic inventory method is used. When LIFO is used, costs are assigned to cost of goods sold using the most recent purchase at the time of the sale.

Q: Inventory is reported on the balance sheet as a current asset. Answer: True Feedback: Because inventory will be used or converted into cash within one year, it is reported on the balance sheet as a current asset. 10. Cost of goods sold = Beginning inventory + Purchases Ending inventory Answer: True Feedback: Cost of goods sold = Beginning inventory + Purchases Ending inventory 11. Ending inventory = Beginning inventory + Purchases + Cost of goods sold Answer: False Feedback: Ending inventory = Beginning inventory + Purchases Cost of goods sold

Q: When a company sells goods, it removes their cost from the Inventory account and reports the cost on the income statement as Selling Expense

Q: Goods placed in inventory are initially recorded at market value.

Q: Consignment inventory is reported on the balance sheet of the company holding the inventory.

Q: Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them on behalf of the owner.

Q: Manufacturers have three types of inventory, which include raw materials, work in process, and finished goods, whereas merchandisers have only raw materials inventory.

Q: If inventory is sold with terms of FOB shipping point, the goods belong to the customer while in transit.

Q: If inventory is sold with terms of FOB destination, the goods belong to the seller while in transit.

Q: The primary goals of inventory managers are to maintain a sufficient quantity of inventory to meet customers needs, ensure inventory quality meets customers expectations and company standards, and minimize the cost of acquiring and carrying inventory.

Q: Purrfect Pets uses the perpetual inventory system. At the beginning of the quarter, Purrfect Pets has $30,000 in inventory. During the quarter the company purchases $7,900 of new inventory from a vendor, returned $700 of inventory to the vendor, and took advantage of discounts from the vendor of $200. At the end of the quarter the balance in inventory is $26,500. What is the cost of goods sold? A) $10,500 B) $11,400 C) $3,500 D) $11,900

Q: Your company purchases $50,000 of inventory from a wholesaler who allows you 45 days to pay. In addition, the wholesaler offers a 3% discount if payment is made within 12 days. These payment terms would be expressed as: A) 0.03/12, n/45. B) n/45, 3/12. C) n/45, 0.03/12. D) 3/12, n/45.

Q: Companies using a perpetual inventory system: A) never physically count their inventory. B) must count their inventory at least once a week. C) still need to count the inventory at the end of the period. D) always know the actual amount in inventory from their accounting records.

Q: Which of the following statements regarding inventory counts is not correct? A) Companies need to perform a physical count of their inventory at least yearly regardless of which inventory system is being used. B) A perpetual inventory system does not require a physical count during the accounting period to determine cost of goods sold. C) In a perpetual inventory system, the inventory count is compared to the inventory account balance to reveal shrinkage. D) If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account, there must have been shrinkage.

Q: Which of the following statements regarding periodic and perpetual inventory systems is correct? A) Perpetual inventory systems are inferior for determining optimal times to reorder inventory. B) Periodic inventory systems require a greater investment in technology. C) Perpetual inventory systems may assist in determining inventory lost due to shrinkage. D) Periodic inventory systems allow sales personnel to provide more immediate information regarding availability of inventory.

Q: Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory. During the month, the company bought $45,000 of inventory and sold inventory that had cost $30,000. At the end of the month, the physical count of inventory shows $510,000 on hand. How much shrinkage occurred during the month? A) $35,000 B) $25,000 C) $5,000 D) $10,000

Q: The Tuck Shop began the current month with inventory costing $10,000, then purchased inventory at a cost of $35,000. The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000. If an inventory count shows that inventory costing $14,500 is actually on hand at month-end, what amount of shrinkage occurred during the month? A) $500 B) $5,000 C) $14,495 D) $15,000

Q: In order to calculate shrinkage: A) both periodic and perpetual inventory systems are needed. B) a periodic inventory system is more effective. C) a perpetual inventory system requires an occasional count of actual inventory. D) it does not matter which system one uses.

Q: Which of the following statements regarding shrinkage is not correct? A) Perpetual inventory systems can help managers detect shrinkage. B) Shrinkage is another term for inventory loss due to theft, error, or fraud. C) Shrinkage is detected by comparing the balance in the inventory ledger account and the results of the physical inventory count. D) It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory system.

Q: On December 31, 2014, you count 300 tie clips in inventory. During the next quarter, you carefully record the effect of each purchase and sale transaction on inventory. You buy 128 tie clips during the next quarter. On March 31, 2015, you count 288 tie clips in inventory. Which of the following is not correct? A) Ending inventory on March 31, 2015 should be 288 tie clips. B) Your company uses the perpetual inventory method. C) Your company's records would show that 140 tie clips were sold during the quarter. D) The amount of shrinkage cannot be determined with this type of inventory system.

Q: The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method: A) makes calculations easier and less technology can be deployed. B) tells what inventory a company should have at any point in time. C) saves a company from ever having to count the goods in inventory. D) is more consistent with how companies calculated inventory in the past.

Q: In a retail business that uses a perpetual inventory system, scanning a bar code does not: A) calculate the amount owed by the customer. B) identify the item sold to be removed from the Inventory account. C) identify the item sold to be recorded in the Cost of Goods Sold account. D) calculate the gross profit.

Q: A company starts the period with 100 computers in inventory, purchases 30 more, returns 4 of them to suppliers, and has 83 in inventory at the end of the period. If there is no shrinkage, how many computers were sold? A) 47 B) 43 C) 17 D) 83

Q: Under the periodic inventory system: A) inventory records are updated immediately after each purchase. B) inventory must be counted at the end of each accounting period. C) inventory does not have to be counted. (It can be taken from the accounting records.) D) inventory levels must be counted every day.

Q: A firms beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000. What is the amount of its ending inventory? A) $45,000 B) $20,000 C) $25,000 D) $15,000

Q: Thompson Company had beginning inventory of $6,000, cost of goods sold of $14,000, and ending inventory of $8,000. Purchases were: A) $12,000. B) $10,000. C) $9,000. D) $16,000.

Q: Shockglass Company had a beginning inventory of $15,000. During the year, the company recorded inventory purchases of $45,000 and cost of goods sold of $50,000. The ending inventory must equal: A) $10,000. B) $25,000. C) $26,000. D) $27,000.

Q: Beginning inventory plus purchases minus ending inventory equals: A) net sales. B) cost of goods sold. C) goods available for sale. D) net purchases.

Q: Beginning inventory plus purchases equals: A) ending inventory. B) cost of goods sold. C) goods available for sale. D) net purchases.

Q: Which of the following is the equation for cost of goods sold? A) Beginning inventory + Purchases Ending inventory B) Beginning inventory + Purchases + Ending inventory C) Net purchases Ending inventory D) Ending inventory + Purchases Beginning inventory

Q: If a companys ending inventory count was $50,000, cost of goods sold was $27,000, and purchases were $56,000, its beginning inventory must have been: A) $33,000. B) $133,000. C) $79,000. D) $21,000.

Q: The receipt of cash is one of the operating activities of: A) companies that sell goods but not companies that sell services. B) companies that sell to consumers but do not sell to other companies. C) merchandising, manufacturing, and service companies. D) companies that sell goods they bought from others but not of companies that make the goods they sell.

Q: A company buys footwear and clothing from manufacturers, which it resells to discount stores in a large urban area. This company is an example of a: A) wholesale merchandising company. B) service company. C) retail merchandising company. D) secondary service company.

Q: Which of the following is an activity in the operations of a manufacturer, but not in the operations of a merchandising or service company? A) Selling the good to consumers B) Receiving cash C) Selling the good to other firms D) Buying raw materials

Q: Which of the following is an activity common to the operations of merchandising, manufacturing, and service companies? A) Producing the product B) Incurring operating expenses C) Buying goods or raw materials D) Selling a physical product

Q: BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers. BetterBuy is a: A) merchandising company at the retail level. B) service company. C) merchandising company at the wholesale level. D) manufacturer.

Q: Intel makes microchips from raw materials acquired from suppliers. Intel is a: A) service company. B) retail company. C) manufacturer. D) merchandising company.

Q: When a periodic inventory system is in use, the Inventory account is updated only at the end of the period.

Q: When a periodic inventory system is in use, an entry is made at year-end to transfer beginning inventory and net purchases to cost of goods sold.

Q: In a periodic inventory system, the cost of goods sold is recorded as each sale occurs.

Q: The periodic inventory system uses the Purchases account to keep track of the amount of inventory that is purchased.

Q: The periodic inventory system uses the Inventory account to keep track of the amount of inventory that is purchased.

Q: The gross profit percentage is computed by dividing operating income by net sales.

Q: Gross profit is not a ledger account name.

Q: Most companies report sales revenue, sales returns and allowances, and sales discounts, as well as net sales on their externally reported income statements.

Q: Because it is an expense account, the Sales Returns & Allowances account balance is deducted from the Sales Revenue account balance in determining net sales.

Q: In a perpetual inventory system, only one journal entry is required to record the sale of inventory.

Q: Sales discounts are discounts that consumers get from buying clearance items at a reduced price.

Q: If a merchandiser offers a sales discount of 2/10, net/30 on a sale of $1,000, the amount due in 30 days is the net amount of $980.

Q: FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.

Q: Generally, a physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

Q: Inventory shrinkage is the difference between inventory recorded and inventory counted.

Q: A merchandising companys operating cycle begins with the sale of inventory and ends with the cash collection from sales.

Q: A retailer is a company that buys products from manufacturers and sells them to wholesalers.

Q: A company performs a service, sells inventory that it purchases from others, or manufacturers a product; it cannot serve more than one of these functions.

Q: With a ____ funding strategy, investment decisions are made with the objective of generating cash flows that match planned outflow payments. a. matched b. mixed c. projective d. None of these are correct.

Q: ​To reduce interest rate risk, pension fund managers can a. ​shift from variable-rate to fixed-rate bonds. b. ​increase the average maturity on fixed-rate bonds. c. ​sell bond futures contracts. d. ​reduce the investment in money market securities.

Q: Choose the appropriate letter to match the term and the definition. There are more definitions than terms. Term 1. ____ Inventory 2. ____ Purchase Discount 3. ____ Purchase Returns and Allowances 4. ____ Sales Discount 5. ____ Sales Returns & Allowances 6. ____ Shrinkage Definition A. The sum of beginning inventory and purchases for the period. B. The cost of inventory lost to theft, fraud, and error. C. A reduction in the cost of inventory purchases associated with unsatisfactory goods. D. A cash discount received for prompt payment of a purchase on account. E. Refunds and price reductions given to customers after goods have been sold and found unsatisfactory. F. Assets acquired for resale to customers. G. A sales price reduction given to customers for prompt payment of their account balance. H. Presents important subtotals, such as gross profit, to help distinguish core operating results from other, less significant items that affect net income. I. Net sales minus cost of goods sold. It is a subtotal, not an account. J. A ratio indicating the percentage of profit earned on each dollar of sales, after considering the cost of products sold.

Q: Pension funds managed by life insurance companies are normally referred to as a. trust portfolios. b. insured plans. c. matched plans. d. projective plans.

Q: Choose the appropriate letter to match the term and the definition. There are more definitions than terms. Term 1. ____ FOB Destination 2. ____ FOB Shipping Point 3. ____ Merchandising Company 4. ____ Periodic Inventory System 5. ____ Perpetual Inventory System 6. ____ Service Company Definition A. Sells services rather than physical goods. B. Assets acquired for resale to customers. C. Inventory records are updated every time inventory is bought, sold, or returned. D. A term of sale indicating that goods are owned by the seller until they are delivered to the buyer. E. Sells goods that have been obtained from a supplier. F. The sum of beginning inventory and purchases for the period. G. Inventory records are updated at the end of the accounting period. To determine how much merchandise has been sold, periodic systems require that inventory be physically counted at the end of the period. H. A term of sale indicating that goods are owned by the buyer the moment they leave the sellers premises. I. A sales price reduction given to customers for prompt payment of their account balance. J. Presents important subtotals, such as gross profit, to help distinguish core operating results from other, less significant items that affect net income.

Q: ​If pension fund investment decisions are made with the objective of generating cash flows at the same time as planned outflow payments, the fund follows a ____ strategy. When comparing matched funding and projective funding, ____ is more flexible for portfolio managers. a. ​matched funding; matched funding b. ​projective funding; matched funding c. ​projective funding; projective funding d. ​matched funding; projective funding

Q: Choose the appropriate letter to match the term and the definition. There are more definitions than terms. Term 1. ____ Cost of Goods Sold Equation 2. ____ Goods Available for Sale 3. ____ Gross Profit (or Gross Margin) 4. ____ Gross Profit Percentage 5. ____ Multistep Income Statement Definition A. The sum of beginning inventory and purchases for the period. B. Expresses the relationship between inventory on hand, purchased, and sold; shown as either BI + P EI = CGS or BI + P CGS = EI. C. The cost of inventory lost to theft, fraud, and error. D. A reduction in the cost of inventory purchases associated with unsatisfactory goods. E. A cash discount received for prompt payment of a purchase on account. F. Refunds and price reductions given to customers after goods have been sold and found unsatisfactory. G. A sales price reduction given to customers for prompt payment of their account balance. H. Presents important subtotals, such as gross profit, to help distinguish core operating results from other, less significant items that affect net income. I. Net sales minus cost of goods sold. It is a subtotal, not an account. J. A ratio indicating the percentage of profit earned on each dollar of sales, after considering the cost of products sold.

Q: Pension funds managed by life insurance companies concentrate on a. common stock. b. bonds and mortgages. c. preferred stock. d. money market instruments.

Q: Sinton Inc. uses a periodic inventory system. During the current year, its beginning inventory was $5,200 and net purchases amounted to $24,600. At the end of the year, after counting its inventory, the company determined that the dollar valuation of its ending inventory was $4,100. Required: Prepare the two journal entries that will be recorded on Stintons books on the last day of the year. Include explanations.

Q: ​Investing in a bond index portfolio is an example of a(n) ____ approach. Investing in an equity portfolio that mirrors the stock market is an example of a(n) ____ approach. a. ​passive; active b. ​active; active c. ​active; passive d. ​passive; passive

Q: Sinton Inc. uses a periodic inventory system. During the current year, its beginning inventory was $5,200 and net purchases amounted to $24,600. At the end of the year, after counting its inventory, the company determined that the dollar valuation of its ending inventory was $4,100. Required: Part a. Calculate cost of goods available for sale. Part a. Calculate cost of goods sold.

Q: The government agency that guarantees that participants in defined-benefit plans will receive their benefits upon retirement is the a. Federal Pension Insurance Corporation. b. Pension Benefit Guaranty Corporation. c. Office of Pension Insurance. d. Employee Pension Protection Bureau.

Q: Steve's Skateboards uses the periodic inventory system and had the following sales transactions during April: April 2 Sold inventory to Happy Hobby Shop on credit for $4,800, terms 1/15, n/60. The items sold had a cost of $2,700. April 4 Happy Hobby Shop returned inventory that had a selling price of $200. The cost of the inventory returned was $110. April 13 Happy Hobby Shop paid for the inventory sold on April 2, taking any appropriate discount earned Required: Prepare the journal entries to record these transactions on the books of Stevens Skateboards.

Q: Neutron uses a periodic inventory system. On June 10, the company purchased inventory on credit from Proton for $9,000, terms 2/10, n/30. Required: Prepare the journal entry to record the June 10 transactions on the books of Neutron

Q: ​A pension plan that provides benefits that are determined by the accumulated contributions and return on the fund's investment performance is called a ____ plan. a. ​defined-benefit b. ​defined-contribution c. ​beneficiary d. ​guarantor-insured

Q: The following is a listing of all of the income statement accounts for Mulberry Street Sportswear as they appear on the adjusted trial balance as of December 31. Advertising Expense $ 12,000 Cost of Goods Sold 89,000 Delivery Expense 6,000 Insurance Expense 1,000 Income Tax Expense 2,000 Rent Expense 12,000 Interest Expense 5,000 Sales Revenue 160,000 Sales Discounts 11,000 Sales Returns & Allowances 19,000 Required: Part a. Prepare a multistep income statement. Part b. Compute the gross profit percentage.

Q: To deal with the problem of underfunded pension plans, Congress passed the ____________ of 2006. a. Pension Protection Act b. Employee Retirement Income Security Act c. Retirement Reform Act d. Pension Benefit Guaranty Corporation Act

Q: A ____ plan allows a firm to know with certainty the amount of funds to contribute. A ____ plan allows a firm to know with certainty the amount of benefits that must be provided. a. defined-benefit; defined-benefit b. defined-contribution; defined-contribution c. defined-contribution; defined-benefit d. defined-benefit; defined-contribution