CH07 - interpreting and reporting cash flows PDF

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interpreting and reporting cash flows...

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) Retail

Company reported the following amounts on its 20X2 income statement: Purchases, $45,000; Beginning 20X2 inventory, $15,000; and Cost of goods sold, $50,000. What was the 20X2 ending inventory? A) $26,000 B) $27,000 C) $25,000 D) $10,000 Answer: D

2) The

20X2 records of Tom Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000. What was the purchases amount for 20X2? A) $10,000 B) $16,000 C) $9,000 D) $12,000 Answer: B

3) When

goods are sold on credit, revenue usually should be recognized on which of the following

dates? A) manufacture of the goods. B) passage of title from the seller to the buyer. C) receipt of the goods by the buyer. D) receipt of the sales order Answer: B 4) Which

of the following types of inventory usually is not held by a manufacturing business? A) Work in process inventory. B) Raw material inventory. C) Finished goods inventory. D) Merchandise inventory.

Answer: D 5) The

cost of goods sold account is which of the following? A) An expense B) A contra-asset C) An extraordinary item D) An asset

Answer: A 6) Which

of the following is not an inventory account in a manufacturing company? B) Raw materials in process C) Finished goods D) Goods available for sale A) Work

Answer: D 7) Wilburn

Company reported the following data at year-end: Sales, $100,000; Beginning inventory, $8,000; Ending inventory, $6,000; Cost of goods sold, $60,000; and Gross margin, $40,000. What was the amount of merchandise purchases for the year? A) $58,000 B) $40,000 C) $46,000 D) $68,000 Answer: A

8) The

following information was taken from the 20X2 income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses, $20,000; Sales revenue, $120,000. Compute the cost of goods sold. A) $108,000 B) $88,000 C) $112,000 D) $100,000 Answer: B 1

9) The

following information was taken from the 20X2 income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000. Compute the amount of the ending inventory. A) $88,000 B) $18,000 C) $10,000 D) $8,000 Answer: C

10) Which

of the following statements about inventory costs is true? discounts increase sales revenue to arrive at net sales. B) Net realizable value is the expected sales price plus selling costs. C) Factory overhead consists of manufacturing costs other than direct materials and direct labour. D) FIFO Reserve is a contra sales account for the excess of FIFO over weighted-average inventory. A) Purchases

Answer: C 11) Which

of the following costs would be included in the costs of inventory of a manufacturer? A) Wages for factory workers. B) Electricity for the office building. C) Wages for administrative staff. D) Sales salaries.

Answer: A 12) Which

of the following should be included in the cost of inventory? B) Receiving and inspection costs on the inventory warehouse C) The cost of keeping the inventory records D) The salesperson's commission A) Amortization

Answer: B 13) Which

of the following should be included in the cost of the inventory? paid to warehouse employees. B) The cost of shelves used to store inventory C) Advertising costs to sell the inventory D) Shipping and handling on inventory purchases A) Salaries

Answer: D 14) Richmond

Company had the following information taken from its 20X1 adjusted trial balance: Sales, $200,000; Sales Discounts, $4,000; Beginning Inventory, $10,000; and Purchases, $140,000. A physical count of the merchandise on hand at the end of the year showed $20,000. Compute the gross margin (gross profit) that would appear in the statement of earnings. A) $74,000 B) $70,000 C) $62,000 D) $66,000 Answer: D

15) On

March 10, Frazier Company received merchandise for resale from its normal supplier. The invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory. What is the unit cost that should be recorded for each of the 100 units of Part #345? A) $36.48 B) $37.56 C) $37.20 D) $36.00 Answer: A 2

16) Which

of the following equations is correct? A) Beginning Inventory + Ending Inventory - Purchases = Cost of Goods Sold. B) Income Before Taxes - Operating Expenses = Cost of Goods Sold. C) Sales + Cost of Goods Sold = Gross Margin. D) Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory.

Answer: D 17) Marsden

Company purchased a significant amount of raw materials inventory for a new product it is manufacturing. Marsden purchased insurance on these raw materials while they were in transit from the supplier. How should Marsden account for the insurance costs? A) As a prepaid expense until the inventory arrives B) As part of the cost of the raw materials inventory C) As an operating expense of the period D) As a contra-asset account to inventory Answer: B

18) Which

of the following costs would not be part of product inventory costs for a manufacturer such as Harley Davidson? A) Costs to store finished motorcycles until they are sold. B) The wages and benefits of an employee in the welding department. C) The factory manager's salary and benefits. D) Kickstands purchased for use in manufacturing the motorcycles. Answer: A

19) Which

of the following businesses would not have cost of goods sold? B) A movie theatre grocery store C) A jewelry store D) A manufacturer of batteries A) A

Answer: B 20) The

inventory of a retail company is comparable to which type of inventory of a manufacturing company? A) Supplies B) Work in process C) Finished goods D) Raw materials Answer: C

21) Halles

Medical Instruments has net sales and gross profit of $1,841,000 and $971,000 respectively. Assuming the cost of goods available were $1,584,000, what was the cost of Halle's ending inventory? A) $460,000 B) $714,000 C) $747,000 D) $350,000 Answer: B

22) Smithers

Amusement Machines has cost of goods sold of $100,000 and ending inventory of $150,000. If Smithers had no purchases and no returns, what was the cost of its beginning inventory? A) $250,000 B) $150,000 C) $50,000 D) $100,000 Answer: A 3

23) If

ABC's statement of earnings showed cost of goods sold at $78,000, purchases of $80,000, freight-in at $300, purchases returns of $500 and end-of-the period inventory at $11,900, its beginning-of-the-period-inventory must have been: A) $9,200 B) $10,400 C) $9,900 D) $10,100 Answer: D

24) A

company reports its 20X2 cost of goods sold at $20.0 billion. Its ending inventory for 20X2 is $1.8 billion and for 20X1, ending inventory was $1.5 billion. How much inventory did the company purchase during 20X2? A) $21.8 billion B) $19.7 billion C) $18.5 billion D) $20.3 billion Answer: D

25) Which

of the following is true under the perpetual inventory system? separate account for purchases is required. B) Two entries are required to record a sale. C) Cost of goods sold cannot be determined unless a physical inventory is taken. D) One entry is required to record a sales return. A) A

Answer: B 26) Which

inventory system keeps an ongoing record of purchases and sales of inventory with adjustments that reflect changes as they occur A) Just-in-time system B) Periodic system C) Specific identification system D) Perpetual system Answer: D

27) On

February 20, 20X1, Ross Sound Company purchased $10,000 of stereo equipment for resale on credit, subject to the terms 3/15, n/30. The periodic inventory system is used. If the company paid for these goods on March 20, the entry made to record the payment should include which of the following? A) A $300 debit to Purchases discounts. B) An $8,500 credit to Cash. C) A $10,000 debit to Trade payables. D) A $9,700 debit to Purchases. Answer: C

28) Two

systems are used in accounting for inventory-perpetual and periodic. Which of the following statements is correct? A) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period. B) In a periodic inventory system, the inventory account is increased for each purchase during the accounting period. C) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only. D) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. Answer: D

4

29) If

merchandise for resale is purchased for $2,000, terms 2/10, n/30, the entry to record the purchase s which of the following (assuming a periodic inventory system)? Debit Inventory Accounts payable Inventory Purchases

A B C D

A) Choice

A

$2,000 1,960 1,960 2,000

Credit Trade payables Inventory Trade payables Trade payables

B) Choice

B

1,960 1,960 2,000 2,000 C) Choice

C

D) Choice

D

Answer: D 30) Which

one of the following statements concerning the periodic and perpetual inventory systems is

true? A) Due

to advances in computers, many businesses recently have begun to use the periodic inventory system. B) The periodic system uses a purchases account. C) Inventory controls are only needed for the periodic inventory systems. D) None of the accounting entries vary between the two systems. Answer: B 31) When

a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true? A) Purchases are recorded in the cost of goods sold account. B) The inventory account is updated after each sale. C) The inventory account is updated throughout the year as purchases are made. D) Cost of goods sold is computed at the end of the accounting periods rather than at each sale. Answer: D

32) Joe

Company sold merchandise at an invoice price of $1,000 to Gibbs, Inc., with terms of 2/10, n/30. the following is the correct entry to record the purchase by Gibbs if the company uses the periodic inv system and the gross method to record purchases? A Purchases Cash B Inventory Trade Payables C Purchases Trade Payables D Purchases Trade Payables A) Choice

A

1,000 1,000 1,000 1,000 980 980 1,000 1,000 B) Choice

B

C) Choice

Answer: D

5

C

D) Choice

D

33) In

order to determine cost of goods sold in a periodic inventory system we A) subtract ending inventory from beginning inventory. B) subtract purchases from ending inventory. C) subtract ending inventory from cost of goods available for sale. D) add purchases to beginning inventory.

Answer: C 34) A

company that makes the following journal entry at the time of purchasing inventory is using which following inventory systems? Dr. Inventory Cr. Accounts Payable A) Just

xxx xxx

in time system identification method

B)

C) Specific

Periodic system system

D) Perpetual

Answer: D 35) If

a company were using a perpetual inventory system, which of the following entries is the correct jo entry to record the purchase of $20,000 of merchandise on account? A. Dr. Inventory Cr. Accounts payable

20,000

B. Dr. Inventory Cr. Purchases

20,000

C. Dr. Purchases Cr. Inventory

20,000

D. Dr. Purchases Cr. Accounts payable

20,000

A) Choice

A

20,000

20,000

20,000

20,000

B) Choice

B

C) Choice

C

D) Choice

Answer: A 36) Which

of the following items will increase the cost of inventory for the buyer of goods? A) Freight charges paid by the purchaser B) Purchase returns and allowances granted by the seller C) Freight charges paid by the seller D) Purchase discounts taken by the purchase

Answer: A

6

D

37) IFRS

standards require that a firm select the cost flow assumption that: A) most clearly reflects current income. B) most closely matches the physical flow of inventory. C) provides the most conservative inventory cost. D) maximizes income.

Answer: A 38) In

20X2, Landings, Inc. provided the following items in their footnotes. Their cost of goods available for sale was $4.5 billion under FIFO costing and their ending inventory value under FIFO costing was $2.1 billion. Their purchases were $4.1 billion. What was their opening inventory? A) $0.4 billion B) $2.4 billion C) $2.0 billion D) $6.2 billion Answer: A

39) In

20X2, Landings Inc. provided the following items in their footnotes. Its cost of goods available for sale was $6.2 billion under FIFO costing and its ending inventory value under FIFO costing was $2.1 billion. Its opening inventory was $2.5 billion. What was its purchases? A) $4.1 billion B) $8.3 billion C) $4.6 billion D) $3.7 billion Answer: D

40) Which

of the following statements regarding inventories is correct? A) Under FIFO, the ending inventory is based on the latest units purchased. B) FIFO assumes that the costs of the earliest goods acquired are the last to be sold. C) It is generally good business management to sell the most recently acquired goods first. D) FIFO seldom coincides with the actual physical flow of inventory.

Answer: A 41) Which

of the following businesses would be most likely to use the specific identification method? A) bookstore B) grocery store C) car dealership D) shoe store

Answer: C 42) Which

cost determination method smooths the effects of price changes? A) Lower of cost and net realizable value. B) Specific identification. C) FIFO. D) Average cost.

Answer: D 43) During

a period of inflation, which cost formula will result in the highest net income? A) FIFO. B) Both FIFO and average cost. C) Average cost. D) Lower of cost and net realizable value.

Answer: A

7

Reference: 07-01 Shillings had the following inventory activity during April:

Beginning inventory Purchase: April 4 Sale: April 8 Purchase: April 12 Sales: April 24

Units 800 1,400 (1,500) 900 (900)

Unit cost $10.00 11.00

Total cost $8,000 15,400

10.50

9,450

44) If

Shillings is using a perpetual system and the FIFO costing assumption, what is the ending inventory closest to? A) $7,350 B) $7,310 C) $7,500 D) $7,880 Answer: A

45) If

Shillings is using a perpetual system and the weighted average costing assumption, what is the ending inventory closest to? A) $7,588 B) $7,460 C) $7,392 D) $8,470 Answer: C

46) If

Shillings is using a perpetual system and the FIFO costing assumption, what is the cost of goods sold closest to? A) $25,700 B) $25,930 C) $25,500 D) $22,400 Answer: C

47) If

Shillings is using a perpetual system and the weighted average costing assumption, what is the cost of goods sold closest to? A) $25,458 B) $25,012 C) $24,683 D) $24,777 Answer: A

48) A

company purchased inventory as follows:

March 3 300 units at $9.00 March 4 200 units at $10.00 On March 5, it sold 400 units for $17 each. The weighted- average unit cost to be used for the cost of sold on March 5, in a perpetual inventory system, is A) $9.60. B) $10.00. C) $9.40. D) $9.00. Answer: C 49) During

a period of rising costs, the owners of a company wishing to minimize the company's tax burden would select which of the following cost flow assumptions? A) Weighted-average cost. B) Lower of cost and net realizable value. C) FIFO. D) Specific identification. Answer: A 8

50) During

a period of rising costs, the manager of a company wishing to maximize her bonus would select which of the following cost flow assumptions? A) Weighted-average cost. B) Specific identification. C) Lower of cost and net realizable value. D) FIFO. Answer: D

51) Selection

of an inventory cost formula by management should be influenced most by the: A) income tax effects. B) fiscal year end. C) goal of reporting inventory at its lowest cost. D) physical flow of goods.

Answer: D 52) The

consistent application of an inventory cost formula is essential for A) neutrality. B) relevance. C) accuracy.

D) comparability.

Answer: D 53) Nutone

values its inventory on the lower of cost and market basis. The following data came from the inventory, which consisted of two items:

Original cost Selling price Estimated selling costs Normal profit margin

Components $12,000 15,000 5,000 1,500

Cables $15,000 26,000 10,000 1,000

What would be the value of inventory on Nutone's statement of financial position? A) $27,000 B) $25,000 C) $29,000 D) $24,000 Answer: B 54) Why

would high technology firms probably choose FIFO as their inventory valuation method? A) FIFO would cause reported earnings to be lower due to the deflationary nature of its ending inventory causing taxes to also be lower. B) FIFO is the easiest method to use. C) FIFO would cause reported earnings to be higher. D) FIFO would ensure that inventory would not become obsolete.

Answer: A 55) Which

of the following should be assessed when analyzing the quality of the cost of goods sold amount: A) The method used to depreciate inventory. B) The method used to count physical inventory C) The amount of discretionary expenses included in the cost of goods sold amount. D) The cost flow assumption for inventory Answer: D 9

56) The

lower of cost and net realizable value basis of valuing inventories is a departure from the A) historical cost principle. B) valuation principle. C) matching principle. D) prudence principle.

Answer: A 57) Inventory that

originally cost $20,000 was written down to its net realizable value of $18,500 in the last accounting period. At the end of the current accounting period, the net realizable value is determined to be $23,000. At what amount should the inventory be reported on the current period's statement of financial position? A) $18,500. B) $20,000. C) $23,00000. D) $16,000. Answer: B

58) Under

the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a A) debit to the Cost of Goods Sold account. B) credit to the Cost of Goods Sold account. C) debit to the Inventory account. D) credit to the Sales account. Answer: A

59) The

lower of cost and net realizable value basis of valuing inventories ensures that inventories are B) valued at their current cost. under-valued. C) not over-valued. D) valued at their selling price. A) not

Answer: C 60) Tuba

Inc. is a wholesaler of electronics. It purchased 1,000 units of Product X for $500 each during 2013. The selling price during the y...