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Exam 5: Inventories and Cost of Goods Sold

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Question 91

Multiple Choice

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Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incurred. Which accounting principle or concept is applied in this example?

A) Historical cost
B) Matching
C) Cost/Benefit
D) Conservatism

E) All of the above
F) None of the above

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Question 92

Multiple Choice

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Slotkin Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from Dallas and Europe, Slotkin Company must pay freight charges to get the merchandise shipped in. Which statement is true?

A) Transportation-in, paid by Slotkin Company, is added to the inventory account under the periodic system.
B) Transportation-in, paid by Slotkin Company, is subtracted from purchases under the periodic system.
C) Freight charges are only paid by a buyer in a periodic system.
D) Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.

E) None of the above
F) B) and C)

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Question 93

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The effect of a misstatement of the year-end inventory is limited to the net income for that year.

Which inventory costing method results in the highest inventory balance during a period of rising prices?

Sales returns and allowances is a contra account.

Under the inventory system, the inventory account is updated after each purchase or sale.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Cost of materials which are not yet entered into the production process.

Gross margin as a percentage of sales is a common analytical tool for service companies.

Flores Department Store currently uses the periodic inventory system. REQUIRED: Explain what the advantages would be to Flores if it uses the perpetual inventory system. Assume that Flores can use a computer system which is linked to its cash registers and that all products have bar codes that can be read by bar code readers attached to the cash registers.

Which of the following statements is true when using the indirect method of preparing the operating activities section of the statement of cash flows?

Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the end of its accounting period. Primus shipped the shoes in January and Giant-Mart received the shoes in February. Assume that Giant-Mart's accounting period ends on January 31, while Primus' accounting period ends on May 31. Answer each independent question in the set that follows. REQUIRED: If the shoes are shipped FOB destination, when should Giant-Mart record the purchase? If the shoes are shipped FOB shipping point, when should Giant-Mart record the purchase?

Givens Corp. Givens Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: -Refer to the account information for Chen's Department Store. Calculate Chen's net sales.

School Time Corp. completed a physical inventory at the end of 2014. A review of the physical inventory procedures and records uncovered several errors that are described below. In the columns provided, indicate the effect, if any, on the four financial statement items listed. Use the following codes for your answers: O Overstatement U Understatement NE No Effect

Under the method, the amount of cash paid to suppliers of inventory is shown as a deduction in the operating activities category of the cash flow statement.

Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand. If Quan, Inc. uses the weighted average cost inventory method, how much is cost of goods sold for April?

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after the discount period has passed, what is the effect of the payment on Blenham's accounting equation?

Identify which inventory costing method LIFO or FIFO achieves the effect listed in the following items: -Which one of the following best explains the distinction between inventory and an operating asset? a. ownership b. intent c. cost d. purchase price

Identify which inventory costing method LIFO or FIFO achieves the effect listed in the following items: -Which one of the following would not be found as an asset on the balance sheet of a manufacturer?

Ending inventory is equal to the cost of items on hand plus

Maxim Company sells auto parts. The company employs a periodic inventory system. Identify all the effects on the accounting equation. -Granted a customer a credit on its balance due for goods that were returned.