ACC 304 WEEK 2 QUIZ 1
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ACC 304 WEEK 2 QUIZ 1
ACC 304 Week 2 Quiz 1 – STR NEW
ACC 304 Week 2 Quiz 1
All Questions Included.
TRUE FALSE—Conceptual
1. A manufacturing concern would report
the cost of units only partially processed as inventory in the balance sheet.
2. Both merchandising and manufacturing
companies normally have multiple inventory accounts.
3. When using a perpetual inventory
system, freight charges on goods purchased are debited to Freight-In.
4. If a supplier ships goods f.o.b.
destination, title passes to the buyer when the supplier delivers the goods to
the common carrier.
5. If ending inventory is understated,
then net income is understated.
6. If both purchases and ending
inventory are overstated by the same amount, net income is not affected.
7. Freight charges on goods purchased
are considered a period cost and therefore are not part of the cost of the
inventory.
8. Purchase Discounts Lost is a
financial expense and is reported in the “other expenses and losses” section of
the income statement.
9. The cost flow assumption adopted must
be consistent with the physical movement of the goods.
10. In all cases when FIFO is used, the
cost of goods sold would be the same whether a perpetual or periodic system is
used.
11. The change in the LIFO Reserve from
one period to the next is recorded as an adjustment to Cost of Goods Sold.
12. Many companies use LIFO for both tax
and internal reporting purposes.
13. LIFO liquidation often distorts net
income, but usually leads to substantial tax savings.
14. LIFO liquidations can occur
frequently when using a specific-goods approach.
15. Dollar-value LIFO techniques help
protect LIFO layers from erosion.
16. The dollar-value LIFO method measures
any increases and decreases in a pool in terms of total dollar value and
physical quantity of the goods.
17. A disadvantage of LIFO is that it
does not match more recent costs against current revenues as well as FIFO.
18. The LIFO conformity rule requires
that if a company uses LIFO for tax purposes, it must also use LIFO for
financial accounting purposes.
19. Use of LIFO provides a tax benefit
in an industry where unit costs tend to decrease as production increases.
20. LIFO is inappropriate where unit
costs tend to decrease as production increases.
MULTIPLE CHOICE—Conceptual
21. Which of the following inventories
carried by a manufacturer is similar to the merchandise inventory of a
retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be
classified on the balance sheet?
a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is
not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the
computation of net income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation
of net income.
25. Which of the following is a
characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a Purchases
account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of
purchases less the change in inventory.
26. How is a significant amount of
consignment inventory reported in the balance sheet?
a. The inventory is reported separately on the
consignor’s balance sheet.
b. The inventory is combined with other inventory on
the consignor’s balance sheet.
c. The inventory is reported separately on the
consignee’s balance sheet.
d. The inventory is combined with other inventory on
the consignee’s balance sheet.
27. Where should goods in transit that
were recently purchased f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
28. If a company uses the periodic
inventory system, what is the impact on net income of including goods in
transit f.o.b. shipping point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on
net income.
29. If a company uses the periodic
inventory system, what is the impact on the current ratio of including goods in
transit f.o.b. shipping point in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on
the current ratio.
30. What is consigned inventory?
a. Goods that are shipped, but title transfers to
the receiver.
b. Goods that are sold, but payment is not required
until the goods are sold.
c. Goods that are shipped, but title remains with
the shipper.
d. Goods that have been segregated for shipment to a
customer.
31. When using a perpetual inventory
system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
32. Goods in transit which are shipped
f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping
company.
d. none of these.
33. Goods in transit which are shipped
f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping
company.
d. none of these.
34. Which of the following items should
be included in a company’s inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b.
destination.
b. Goods received from another company for sale on
consignment.
c. Goods sold to a customer which are being held for
the customer to call for at his or her convenience.
d. None of these.
Use the following information for questions 35 and 36.
During 2012 Carne Corporation transferred inventory to Nolan
Corporation and agreed to repurchase the merchandise early in 2013. Nolan then
used the inventory as collateral to borrow from Norwalk Bank, remitting the
proceeds to Carne. In 2013 when Carne repurchased the inventory, Nolan used the
proceeds to repay its bank loan.
35. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
36. On whose books should the cost of
the inventory appear at the December 31, 2012 balance sheet date?
a. Carne Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Carne making appropriate
note disclosure of the transaction
37. Goods on consignment are
a. included in the consignee’s inventory.
b. recorded in a Consignment Out account which is an
inventory account.
c. recorded in a Consignment In account which is an
inventory account.
d. all of these
S38. Valuation of inventories requires
the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other
companies.
d. the cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales
Company is preparing the income statement for 2012 and the balance sheet at
December 31, 2012. Pryor uses the periodic inventory system. The January 1,
2012 merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the
income statement.
c. as a deduction in the cost of goods sold section
of the income statement and as a current asset on the balance sheet.
d. as an addition in the cost of goods sold section
of the income statement and as a current asset on the balance sheet.
P40. If the beginning inventory for 2012
is overstated, the effects of this error on cost of goods sold for 2012, net
income for 2012, and assets at December 31, 2013, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
S41. The failure to record a purchase of
merchandise on account even though the goods are properly included in the
physical inventory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and
liabilities and an overstatement of assets.
d. an understatement of liabilities and an
overstatement of owners’ equity.
42. Dolan Co. received merchandise on
consignment. As of March 31, Dolan had recorded the transaction as a purchase
and included the goods in inventory. The effect of this on its financial
statements for March 31 would be
a. no effect.
b. net income was correct and current assets and
current liabilities were overstated.
c. net income, current assets, and current
liabilities were overstated.
d. net income and current liabilities were
overstated.
43. Green Co. received merchandise on
consignment. As of January 31, Green included the goods in inventory, but did
not record the transaction. The effect of this on its financial statements for
January 31 would be
a. net income, current assets, and retained earnings
were overstated.
b. net income was correct and current assets were
understated.
c. net income and current assets were overstated and
current liabilities were understated.
d. net income, current assets, and retained earnings
were understated.
44. Feine Co. accepted delivery of
merchandise which it purchased on account. As of December 31, Feine had
recorded the transaction, but did not include the merchandise in its inventory.
The effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings
were understated.
b. net income was correct and current assets were
understated.
c. net income was understated and current
liabilities were overstated.
d. net income was overstated and current assets were
understated.
45. On June 15, 2012, Wynne Corporation
accepted delivery of merchandise which it pur-chased on account. As of June 30,
Wynne had not recorded the transaction or included the merchandise in its
inventory. The effect of this on its balance sheet for June 30, 2012 would be
a. assets and stockholders’ equity were overstated
but liabilities were not affected.
b. stockholders’ equity was the only item affected
by the omission.
c. assets, liabilities, and stockholders’ equity
were understated.
d. none of these.
46. What is the effect of a $50,000
overstatement of last year’s inventory on current years ending retained earning
balance?
a. Understated by $50,000.
b. No effect.
c. Overstated by $50,000.
d. Need more information to determine.
47. Which of the following is a product
cost as it relates to inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
48. Which of the following is a period
cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
49. Which method may be used to record
cash discounts a company receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.
d. a and b.
50. Which of the following is included
in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs.
51. Which of the following is correct?
a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are
product costs.
d. All of these.
52. All of the following costs should be
charged against revenue in the period in which costs are incurredexcept for
a. manufacturing overhead costs for a product
manufactured and sold in the same accounting period.
b. costs which will not benefit any future period.
c. costs from idle manufacturing capacity resulting
from an unexpected plant shutdown.
d. costs of normal shrinkage and scrap incurred for
the manufacture of a product in ending inventory.
53. Which of the following types of
interest cost incurred in connection with the purchase or manufacture of
inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of
discrete projects such as ships or real estate projects
c. Interest incurred on notes payable to vendors for
routine purchases made on a repetitive basis
d. All of these should be capitalized.
54. The use of a Discounts Lost account
implies that the recorded cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount
allowable whether taken or not.
55. The use of a Purchase Discounts
account implies that the recorded cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount
allowable whether taken or not.
Use the following information for questions 56 and 57.
During 2012, which was the first year of operations, Oswald
Company had merchandise purchases of $985,000 before cash discounts. All
purchases were made on terms of 2/10, n/30. Three-fourths of the items
purchased were paid for within 10 days of purchase. All of the goods
available had been sold at year end.
56. Which of the following recording
procedures would result in the highest cost of goods sold for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of
discounts not taken shown under “other expenses” in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost
of goods sold.
d. Cannot be determined from the information
provided.
57. Which of the following recording
procedures would result in the highest net income for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the
amount of discounts not taken shown under “other expenses” in the income
statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information
provided.
58. When using the periodic inventory
system, which of the following generally would not be separately accounted for in the
computation of cost of goods sold?
a. Trade discounts applicable to purchases during
the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise
during the period
d. Cost of transportation-in for merchandise
purchased during the period
S59. Costs which are inventoriable
include all of the following except
a. costs that are directly connected with the
bringing of goods to the place of business of the buyer.
b. costs that are directly connected with the
converting of goods to a salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
P60. Which inventory costing method most
closely approximates current cost for each of the following:
Ending Inventory Cost of
Goods Sold
a.
FIFO
FIFO
b.
FIFO
LIFO
c.
LIFO
FIFO
d.
LIFO
LIFO
Apex
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