ACC 304 WEEK 5 MIDTERM EXAM
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ACC 304 WEEK 5 MIDTERM EXAM
ACC 304 Week 5 Midterm Exam – STR NEW Our Products >> ACC 304 >>
ACC 304 Week 5 Midterm Exam – Strayer University NEW ACC 304 Week 5 Midterm
Exam 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 61. In situations where there is a rapid turnover, an
inventory method which produces a balance sheet valuation similar to the
first-in, first-out method is a. average cost. b. base stock. c. joint cost. d.
prime cost. 62. The pricing of issues from inventory must be deferred until the
end of the accounting period under the following method of inventory valuation:
a. moving average. b. weighted-average. c. LIFO perpetual. d. FIFO. 63. An
inventory pricing procedure in which the oldest costs incurred rarely have an
effect on the ending inventory valuation is a. FIFO. b. LIFO. c. base stock. d.
weighted-average. 64. Which method of inventory pricing best approximates
specific identification of the actual flow of costs and units in most
manufacturing situations? a. Average cost b. First-in, first-out c. Last-in,
first-out d. Base stock 65. Assuming no beginning inventory, what can be said
about the trend of inventory prices if cost of goods sold computed when
inventory is valued using the FIFO method exceeds cost of goods sold when
inventory is valued using the LIFO method? a. Prices decreased. b. Prices
remained unchanged. c. Prices increased. d. Price trend cannot be determined
from information given. 66. In a period of rising prices, the inventory method
which tends to give the highest reported net income is a. base stock. b.
first-in, first-out. c. last-in, first-out. d. weighted-average. 67. In a
period of rising prices, the inventory method which tends to give the highest
reported inventory is a. FIFO. b. moving average. c. LIFO. d. weighted-average.
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