Questions -
Question 1 - A company that uses the perpetual inventory system purchases inventory for $61,000 on account, with terms of 3/10, n/30. Which of the following is the journal entry to record the payment made within 10 days?
1. A debit to Accounts Payable for $61,000, a credit to Cash for $59,170, and a debit to Merchandise Inventory for $1,830
2. A debit to Accounts Payable for $61,000, a credit to Merchandise Inventory for $1,830, and a credit to Cash for $59,170
3. A debit to Merchandise Inventory for $1,830, a debit to Accounts Payable for $61,000, and a credit to Cash for $62,830
4. A debit to Accounts Payable for $59,170, a debit to Merchandise Inventory for $1,830, and a credit to Cash for $61,000
Question 2 - The term "freight out" refers to __________.
1. transportation costs on purchases
2. cost of inventory purchased
3. costs that are not actually paid in cash
4. transportation costs on sales
Question 3 - What does "2/10" mean, with respect to "credit terms of 2/10, n/30"?
1. A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.
2. Interest of 2 percent will be charged if the invoice is paid after 10 days from the date on the invoice.
3. A discount of 10 percent will be allowed if the invoice is paid within two days of the invoice date.
4. Interest of 10 percent will be charged if invoice is paid after two days.
Question 4 - Which of the following is not recorded in a modern perpetual inventory system?
1. Units purchased and cost amount
2. Units sold and sales and cost amounts
3. Customer account numbers and balances owed from the sale of merchandise inventory
4. The quantity of merchandise inventory on hand and its cost
Question 5 - A company using the perpetual inventory system purchased inventory worth $21,000 on account with terms of 3/10, n/30. Defective inventory of $1,000 was returned two days later, and the accounts were appropriately adjusted. If the invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is ________.
1. $600
2. $660
3. $630
4. $620
Question 6 - Which of the following is true of freight in?
1. It is an administrative expense.
2. It is a selling expense.
3. It is the transportation cost on purchases.
4. It is the transportation cost on sales.
Question 7 - Which of the following is true of freight in?
1. It is an administrative expense.
2. It is a selling expense.
3. It is the transportation cost on purchases.
4. It is the transportation cost on sales.
Question 8 - Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of __________.
1. conservatism
2. consistency
3. disclosure
4. materiality
Question 9 - If goods are sold on terms free on board (FOB) shipping point, the __________.
1. seller normally pays the transportation costs
2. buyer normally pays the transportation costs
3. buyer and the seller split the transportation costs
4. shipping company bears the transportation cost
Question 10 - The ending merchandise inventory for the current year is overstated by $25,000. What effect will this error have on the following year's net income?
1. The net income will be overstated by $50,000.
2. The net income will be overstated by $25,000.
3. The net income will be understated by $25,000.
4. The net income will be understated by $50,000.
Question 11 - A company purchased 100 units for $30 each on January 31. It purchased 400 units for $20 each on February 28. It sold a total of 470 units for $110 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.)
1. $600
2. $2,400
3. $900
4. $30
Question 12 - Under the weighted-average method for inventory costing, the cost per unit is determined by __________.
1. dividing the cost of goods available for sale by the number of units available
2. dividing the cost of goods available for sale by the number of units in beginning inventory
3. multiplying the number of units purchased with the weighted-average cost
4. multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period
Question 13 - A company decides to ignore a very small error in its inventory balance. This is an example of the application of the __________.
1. conservatism
2. materiality concept
3. disclosure principle
4. consistency principle
Question 14 - A company purchased 400 units for $20 each on January 31. It purchased 520 units for $26 each on February 28. It sold a total of 560 units for $40 each from March 1 through December 31. What is the amount of ending inventory on December 31 if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)
1. $9,360
2. $4,960
3. $7,200
4. $2,240
Question 15 - Misty, Inc. had 24,000 units of ending inventory that were recorded at the cost of $8.00 per unit using the FIFO method. The current replacement cost is $4.50 per unit. Which of the following amounts would be reported as Ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?
1. $192,000
2. $300,000
3. $216,000
4. $108,000
Question 16 - Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?
1. Specific identification
2. Weighted-average
3. Last-in, first-out
4. First-in, first-out