Accounting 1 exam 3

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period.

Under a perpetual inventory system, when goods are purchased for resale by a company:

purchases on account are debited to Inventory.

Which sales accounts normally have a debit balance?

Both Sales Discounts and Sales Returns and Allowances.

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23?

$686.

To record the sale of goods for cash in a perpetual inventory system:

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Gross profit will result if:

net sales are greater than cost of goods sold.

If net sales are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit?

$90,000.

The multiple-step income statement for a merchandising company shows each of these features except:

an investing activities section.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?

$390,000.

Bufford Corporation had reported the following amounts at December 31, 2025: sales revenue $184,000, ending inventory $11,600, beginning inventory $17,200, purchases $60,400, purchase discounts $3,000, purchase returns and allowances $1,100, freight-in $600, and freight-out $900. Calculate the cost of goods available for sale.

$74,100.

Which of the following would affect the gross profit rate? (Assume sales remains constant.)

An increase in cost of goods sold.

The gross profit rate is equal to:

net sales minus cost of goods sold, divided by net sales.

During the year ended December 31, 2025, Bjornstad Corporation had the following results: net sales $267,000, cost of goods sold $107,000, net income $92,400, operating expenses $55,400, and net cash provided by operating activities $108,950. What was the company’s profit margin?

34.6%.

When goods are purchased for resale by a company using a periodic inventory system:

purchases on account are debited to Purchases.

Which of the following should not be included in the physical inventory of a company?

Goods held on consignment from another company.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2025. This count did not take into consideration the following facts. Rogers Consignment Store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

$215,000.

Kam Company has the following units and costs.

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO?

$113,000.

From the data in Question 4, what is the cost of the ending inventory under LIFO?

$100,000.

Davidson Electronics has the following:

If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average‐cost method is:

$75,250.

In periods of rising prices, LIFO will produce:

lower net income than FIFO.

The lower‐of‐cost‐or‐net realizable value rule for inventory is an example of the application of:

the conservatism convention.

Which of these would cause inventory turnover to increase the most?

Decreasing the amount of inventory on hand and increasing sales.

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Carlos’s days in inventory is:

121.7 days.

Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a net realizable value of $80 each. The ending inventory under lower‐of‐cost‐or‐net realizable value is:

$16,000.

In a perpetual inventory system:

FIFO cost of goods sold will be the same as in a periodic inventory system.

Fran Company’s ending inventory is understated by $4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are:

overstated and understated.

Each of the following companies is a merchandising company except a

moving company.

Net income will result if gross profit exceeds

operating expenses

The primary difference between a periodic and perpetual inventory system is that a periodic system

determines the inventory on hand only at the end of the accounting period

Under a perpetual inventory system, acquisition of merchandise for resale is debited to

the Inventory account.

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

Inventory.

Sandhill Company purchased merchandise inventory with an invoice price of $11700 and credit terms of 2/10, n/30. What is the net cost of the goods if Sandhill Company pays within the discount period?

$11466

A company returned goods for credit to the supplier. Which one of the following is part of the journal entry required if a perpetual inventory system is used?

Credit Inventory

Sheridan Market recorded the following events involving a recent purchase of inventory: Received goods for $81800, terms 2/12, n/30. Returned $1300 of the shipment for credit. Paid $300 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company’s inventory

increased by $79190.

Financial information is presented below:

Operating expenses $40000

Sales returns and allowances 3000

Sales discounts 9000

Sales revenue 174000

Cost of goods sold 110000

Net sales reported on the income statement would be

$162000.

At the beginning of the year, Bridgeport Athletic Supply had an inventory of $553200. During the year, the company purchased goods costing $2420000. If the company reported ending inventory of $900000 and sales of $2840000, their cost of goods sold and gross profit rate would be

$2073200 and 27%.

The following information is available for Flounder Produce Market:

Sales $223000

Freight-in $11200

Ending merchandise inventory 31500

Purchase returns and allowances 2000

Sales discounts 4200

Depreciation expense 7600

Purchases 149000

Beginning merchandise inventory 31000

How much is Flounder’s cost of goods sold?

$157700.

Financial information is presented below:

Operating expenses $25480

Net sales 196000

Cost of goods sold 168560

The gross profit rate would be

0.14

Financial information is presented below:

Operating expenses $60520

Net Sales 172000

Cost of goods sold 96000

The profit margin would be

0.09.

Cullumber Retail Corporation purchases $480 of merchandise on credit. Using the periodic inventory system, Cullumber would record this transaction as:

Purchases 480

Accounts Payable 480

Which account is used by the purchaser to record freight costs using the periodic inventory system?

Freight-In

Suppose that Amazon's goods in transit to customers at December 31 include sales made under the following terms.

(1) FOB destination

(2) FOB shipping point

Which items should be included in Amazon's inventory at December 31?

(1) only

Goods held on consignment are

goods held by one party for sale on behalf of the owner

At December 31, 2025, suppose that Crane Company's inventory records indicated a balance of $882000. Upon further investigation it was determined that this amount included the following:

▪ $188000 in inventory purchases made by Crane shipped from the seller December 31, 2025 terms FOB destination, but not due to be received until January 2, 2026

▪ $117000 in goods sold by Crane with terms FOB destination on December 27, 2025. The goods are not expected to reach their destination until January 6, 2026

▪ $12100 of goods received on consignment from Patricia Company

What is Crane's correct ending inventory balance at December 31, 2025?

$681900

Assume that Sheridan City purchased inventory as follows:

220 units at $6.60

330 units at $7.30

The weighted-average unit cost for inventory is

$7.02.

Suppose that Ivanhoe has the following inventory data:

The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 150 units on hand. Using the average-cost method, the value of ending inventory is

$3000

Assume that Sunland has the following inventory data:

The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 80 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

$3152

Suppose that Wildhorse Depot Inc. has the following inventory data:

The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 110 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is

$2266.

Suppose that Sheridan Hardware has the following inventory data:

The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 70 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is

$2842.

Assume that Sandhill Company has the following inventory data:

The company uses a periodic inventory system. A physical count of merchandise inventory on July 31 reveals that there are 56 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

$1085.

Ivanhoe Industries had the following inventory transactions occur during 2025:

The company sold 318 units at $66 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using LIFO?(rounded to the nearest dollar)

$5132

Crane Industries had the following inventory transactions occur during 2025:

The company sold 373 units at $77 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2196, what is the company’s net income using LIFO?(rounded to the nearest dollar)

$3347

In periods of rising prices, the inventory cost flow assumption which results in the inventory value on the balance sheet that is closest to current cost is the

FIFO method

In a period of declining prices, which of the following inventory cost flow assumptions generally results in the lowest balance sheet value for inventory?

FIFO method

Suppose that Blossom Depot developed the following information about its inventories in applying the lower-of-cost-or-net-realizable-value (LCNRV) basis in valuing inventories:

After Blossom Depot applies the LCNRV rule, the value of the inventory reported on the balance sheet will be

$336000.

Suppose that Wildhorse has the following inventory data:

Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for July?

$1294.20

Suppose that Sunland has the following inventory data:

Assuming that a perpetual inventory system is used, what is the value of ending inventory on a LIFO basis for July?

$585.80

Suppose that Tamarisk has the following inventory data:

Assuming that a perpetual inventory system is used, what is ending inventory under the averagecost method for July?(Round intermediate calculationsto 3 decimal places, e.g. 12.531.)

$5869

An error in the physical count of goods on hand at the end of a period resulted in a $10800 overstatement of the ending inventory. The effect of this error in the current period is

Cost of Goods Sold Net Income

Understated Overstated

An overstatement of the beginning inventory results in

an understatement of net income.

Ace Inc. made an error in the physical count of goods on hand at the end of June which resulted in a $1,200 understatement of the ending inventory. Which of the following is one effect of the error?

Net income will be understated.