ACCT 2001 Exam 2 - Professor Peters

Multiple Choice Questions From Practice Tests

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

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

Morrow Snowboards announced that it would implement a periodic inventory count in addition to implementing a perpetual inventory system because

a periodic count helps in identifying any shrinkages or damages to inventory that cannot be sold.

Which of the following statements is correct?

A perpetual inventory system provides better control over inventories than does a periodic inventory system.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

Which of the following items does not result in an entry to the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer

Jason Company purchases $4520 of merchandise on March 1, with credit terms of 3/10, n/30. If Jason pays on March 10, what is the cost of this purchase?

$4384

Marigold Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Marigold pays the shipping charges of $280?

A debit to Inventory for $280

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

Freight-out account

On what amount is a sales discount based?

Invoice price less returns and allowances

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $51 is granted on June 16. What amount is received as payment in full on June 23? (Round answer to 0 decimal places, e.g. 5,275.)

$685

Ayayai and Company sold $2450 of merchandise on account to Blue, Inc. on March 1 with credit terms of 2/10, n/30. Blue returned $690 of the merchandise due to poor quality on March 3. If Blue pays for the purchase on March 11, what entry does Ayayai make to record receipt of the payment? (Round answer to 0 decimal places, e.g. 5,275.)

Cash	1725
Sales Discount	35
Accounts Receivable	1760

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

Which of the following will be shown on the income statement for a merchandising company?

All of the answer choices are correct

Which of the following would appear on both a single-step and a multiple-step income statement?

Cost of goods sold

Assume that sales revenue is $450100, sales discounts are $10700, net income is $35700, and cost of goods sold is $320000. How much are gross profit and operating expenses, respectively?

$119400 and $83700

Which of the following is classified in an income statement as a nonoperating activity?

Receiving dividend revenue from an investment

If beginning inventory is $63100, cost of goods purchased is $380700, sales revenue is $804800 and ending inventory is $52300, how much is cost of goods sold under a periodic system?

$391500

Which factor would not affect the gross profit rate?

An increase in the cost of heating the store

A company has the following balances: sales revenue $315000, sales returns and allowances $3460, sales discounts $4450, cost of goods sold $185700, and operating expenses $87500. How much is the profit margin?

11.0%

Which of the following is not an inventory account?

Equipment

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped

FOB destination

Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?

Cecil

Which one of the following is not a consideration that affects the selection of an inventory cost flow method?

Perpetual versus periodic inventory system

Hall Electronics has the following:

		Units Unit Cost
Inventory, Jan. 1	6100	$8
Purchase, April 2 18300		10
Purchase, Aug. 28 24400		12

If Hall has 8540 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?

$91805

Cost of goods purchased is $432000, ending inventory is $16000, and cost of goods sold is $448000. How much is beginning inventory?

$32000

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true?

The company using FIFO will have the highest ending inventory.

Which of the following statements is true?

Specific identification requires physical flow of goods to be representative of the cost flow.

What is the LIFO reserve?

The difference between the cost of the inventory under LIFO and the cost under FIFO

Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods?

LIFO reserve

The following information came from the income statement of the Martinez Company at December 31, 2025: sales revenue $2332000; beginning inventory $169600; ending inventory $254400; and gross profit $636000. What is Martinez' inventory turnover for 2025?

8.00 times

For what purpose are physical controls used in a business?

To enhance the accuracy and reliability of its accounting records and to safeguard its assets.

If an employee is not supervised or does not report to anyone else, or if employees report to one another

all of these are true.

Internal auditors

evaluate the system of internal controls for the companies that employ them.

Which one of the following is not a physical control?

Independent bank reconciliations

Under which of the following do computer programs that limit unauthorized access to certain files fall?

Physical controls

Which of the following is not an element of the fraud triangle?

Segregation of duties

Which is the adjusting entry Blue Company would prepare when the bank collects a $430 note receivable from one of Blue's customers?

Cash 430

Notes Receivable 430

For which item below might a bank issue a credit memorandum to a depositor's account?

Interest Earned

Which of the following is the correct adjusting entry for the account holder when the bank submits a debit memorandum for a monthly service charge of $270?

Bank Charge Expense                   270
           Cash                                                   270

Which one of the statements below is true?

The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Which statement correctly describes the reporting of cash?

Cash is listed first in the current assets section of the balance sheet.

Morrow Snowboards announced that it would implement a periodic inventory count in addition to implementing a perpetual inventory system because?

a periodic count helps in identifying any shrinkages or damages to inventory that cannot be sold.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

Which is true about a wholesaler?

It sells to another business, which will sell to a consuming customer.

Which of the following is a merchandiser that sells directly to consumers?

Retailer

John Company purchases $4220 of merchandise on March 1, with credit terms of 3/10, n/30. If John pays on March 10, what is the cost of this purchase?

$4,093

Monty Corporation, which uses a perpetual inventory system, purchased $2100 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $420 of the merchandise on July 9. Which of the following is one effect when Monty pays its bill on July 21?

Credit to Cash for $1680

Which of the following items does not result in an entry to the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer

Cheyenne Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Cheyenne pays the shipping charges of $250?

A debit to Inventory for $250

A retailer makes a $106 sale with terms of 2/10, n/30 on the first of the month. The customer returns $26 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

Debit Cash → $78.40

Debit Sales Discounts → $1.60

Credit Accounts Receivable → $80.00

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

Accounts Receivable and Cost of Goods Sold

Which one of the following statements is correct?

A company which uses a perpetual inventory system needs two journal entries when it sells merchandise.

Ayayai and Company sold $2450 of merchandise on account to Blue, Inc. on March 1 with credit terms of 2/10, n/30. Blue returned $690 of the merchandise due to poor quality on March 3. If Blue pays for the purchase on March 11, what entry does Ayayai make to record receipt of the payment? (Round answer to 0 decimal places, e.g. 5,275.)

Debit Cash → $1,725

Debit Sales Discounts → $35

Credit Accounts Receivable → $1,760

Which of the following is classified in an income statement as a nonoperating activity?

Interest expense

Net income is $16700, operating expenses are $22200, and net sales total $76500. How much is cost of goods sold?

$37,600

Which of the following is classified in an income statement as a nonoperating activity?

Receiving dividend revenue from an investment

Which of the following would appear on both a single-step and a multiple-step income statement?

Cost of Goods Sold

If beginning inventory is $60700, cost of goods purchased is $381500, sales revenue is $801800 and ending inventory is $51100, how much is cost of goods sold under a periodic system?

$391100

During the year ended December 31, 2025, Grouper Street Corporation had the following results: net sales revenue $268400: cost of goods sold $109600, net income $92200, operating expenses $66600, and net cash provided by operating activities $109500. How much is the company's profit margin?

34.4%

Net income is $15300, operating expenses are $20400, and net sales total $76700. How much is the gross profit rate?

46.5%

Which of the following is not a legitimate business reason for taking a physical inventory?

to verify the profitability of individual inventory items

As a result of a thorough physical inventory, Martinez Company determined that it had inventory of $190800 at December 31, 2025. This count did not take into consideration the following transactions:

• Riverbed Consignment store currently has goods with a cost of $37100 on its sales floor that belong to Martinez but are being sold on consignment by Riverbed. The selling price of these goods is $53000.

• Martinez purchased $13780 of goods that were shipped on December 27, FOB destination, that will be received by Martinez on January 3. Determine the correct amount of inventory that Martinez should report.

$227,900

Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped

FOB shipping point

Concord Company has the following units and costs:

	Units	Unit Cost
Inventory, Jan. 1	7200	$11
Purchase, June 19 11700		12
Purchase, Nov. 8	4500	13

If 8100 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory

$101,700

Which of the following statements is true?

Company management selects the inventory costing method a company will use for accounting purposes.

In a period of falling prices, which of the following methods will give the largest net income?

LIFO

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true?

The company using FIFO will have the highest ending inventory.

In a period of rising prices which inventory method will result in the greatest amount of income tax expense?

FIFO

Which situation requires a departure from the cost basis of accounting to write down the inventory to the lower-of-cost-or-

A decline in the value of the inventory

If Sony were to carry a large number of days of sales in TV inventory, it would

minimize the probability of losing sales due to lack of product availability.

What is the underlying rationale for the lower-of-cost-or-net realizable value rule?

The conservatism convention

Which one of the following is not one of the principles of internal control?

Financial performance measures

Which one of the following statements is correct? control on a continuous basis.

Internal auditors are company employees who evaluate the effectiveness of the company's system of internal control on a continuous basis.

Of which of the following is obtaining insurance protection against dishonest employees an example?

Bonding

For what purpose are physical controls used in a business?

To enhance the accuracy and reliability of its accounting records and to safeguard its assets.

Which of the following is a reason why an organization establishes a system for internal control?

All of these answer choices are correct

If an employee is not supervised or does not report to anyone else, or if employees report to one another

all of these are true.

For which of the following might a bank issue a debit memorandum to a depositor's account?

Monthly service charges

For which of the following will an adjusting entry be required as the result of a bank reconciliation?

NSF checks

Which one of the statements below is true?

The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Which is the adjusting entry Martinez Company would prepare when the bank collects a $340 note receivable from one of

Cash           340

      Notes Receivable       340

If cash is restricted as to its use, and is expected to be used within the next year, how is it reported?

Reported as a current asset separate from Cash and Cash Equivalents on the balance sheet.

Concord Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Concord pays the shipping charges of $380?

A debit to Inventory fro $380

When credit terms of 1/15, n/60 are offered, how long is the discount period?

15 days

Which of the following items does not result in an entry to the Inventory account under a

perpetual system?

Payment of freight costs for goods shipped to a customer

Pina and Company sold $2650 of merchandise on account to Novak, Inc. on March 1 with credit terms of 2/10, n/30. Novak returned $740 of the merchandise due to poor quality on March 3. If Novak pays for the purchase on March 11, what entry does Pina make to record receipt of the payment? (Round answer to 0 decimal places, e.g. 5,275.)

Cash 1872
Sales Discount 38

Accounts Receivable 1910

On what amount is a sales discount based?

Invoice price less returns and allowances

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

Which of these accounts normally has a debit balance?

Both Sales Discounts and Sales Revenues and Allowances

Sales revenue total to $11600. Sales returns and allowances are $750 and sales discounts are $1500. How much is net sales?

$9350

Assume that sales revenue is $454600, sales discounts are $10700, net income is $35500, and cost of goods sold is $320000. How much are gross profit and operating expenses, respectively?

$123900 and $88400

Which of the following will be shown on the income statement for a merchandising company?

All of the answer choices are correct

Which of the following is classified in an income statement as a nonoperating activity?

Interest expense

Ending inventory is $13400, beginning inventory is $24200, and the cost of goods purchased is $29500. How much is cost of goods sold?

$40300