Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year

• Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year.  The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000.  Calculate the ratio of sales to total assets.

	a.	0.29
	b.	3.00
	c.	0.26
	d.	3.80

Answer = d

• If merchandise sells for $3,500, with terms of 3/15, n/45 and the cost of the inventory sold is $2,100, the amount charged to sales is

	a.	$3,395
	b.	$3,500
	c.	$2,037
	d.	$2,100

Answer = a

• If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

	a.	FOB buyer
	b.	FOB shipping point
	c.	FOB destination
	d.	FOB n/30

Answer = b

Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the entry is made in the buyer's accounts on November 20.  The credit period begins with what date?

	a.	November 10
	b.	November 18
	c.	November 13
	d.	November 20

Answer = c

• When the perpetual inventory system is used, the inventory sold is shown on the income statement as

	a.	net purchases
	b.	purchases returns and allowances
	c.	purchases
	d.	cost of merchandise sold

Answer = d

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique

1. Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

	a.	average
	b.	specific identification
	c.	FIFO
	d.	LIFO

Answer = b

1. Merchandise inventory at the end of the year was inadvertently Which of the following statements correctly states the effect of the error on net income, assets, and owner's equity?

	a.	net income is overstated, assets are overstated, and owner's equity is understated
	b.	net income is understated, assets are understated, and owner's equity is overstated
	c.	net income is overstated, assets are overstated, and owner's equity is overstated
	d.	net income is understated, assets are understated, and owner's equity is understated

Answer = c

1. All of the following are documents used for inventory control except

	a.	a receiving report
	b.	a petty cash voucher
	c.	a vendor's invoice
	d.	a purchase order

Answer = b

If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30

1. If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30, based on the following data?

Sep. 1	Merchandise inventory (at cost)	$125,000
Sep. 1-30	Purchases, net (at cost)	300,000
Sep. 1-30	Sales	150,000

	a.	$105,000
	b.	$320,000
	c.	$192,500
	d.	$275,000

Answer = b

1. The following lots of a particular commodity were available for sale during the year:

Beginning inventory	10 units at $30
First purchase	25 units at $32
Second purchase	30 units at $34
Third purchase	10 units at $35

5. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the FIFO method?

	a.	$655
	b.	$620
	c.	$659
	d.	$690

Answer = d

1. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

	a.	only gross profit will be affected
	b.	no change to net income
	c.	net income will be understated
	d.	net income will be overstated

Answer = d

Under a periodic inventory system

1. Under a periodic inventory system

	a.	a physical inventory is taken at the end of the period
	b.	merchandise inventory is debited when goods are returned to vendors
	c.	accounting records continuously disclose the amount of inventory
	d.	a separate account for each type of merchandise is maintained in a subsidiary ledger

Answer = a

1. The inventory costing method that reports the most current prices in ending inventory is

	a.	LIFO
	b.	average cost
	c.	specific identification
	d.	FIFO

Answer = d

1. FIFO reports higher gross profit and net income than the LIFO method when

	a.	prices are reduced by 50%
	b.	prices are decreasing
	c.	prices are increasing
	d.	prices remain stable

Answer = c

1. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?

	a.	FIFO
	b.	average cost
	c.	LIFO
	d.	weighted average

Answer = c

Taking a physical count of inventory

1. Taking a physical count of inventory

	a.	is not necessary when a perpetual inventory system is used
	b.	is not necessary when a periodic inventory system is used
	c.	has no internal control relevance
	d.	should be done near year-end

Answer = d

1. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31 inventory.  Which of the following would notbe included in the year-end inventory?

	a.	Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin’s Boutique as of December 31.
	b.	Kristin has sent merchandise to various retailers on a consignment basis.
	c.	Kristin has merchandise on hand which has been returned by customers because of wrong size.
	d.	Kristin has in its warehouse merchandise on consignment from Abby Co.

Answer = d

1. The two most widely used methods for determining the cost of inventory are

	a.	FIFO and LIFO
	b.	gross profit and average cost
	c.	FIFO and average cost
	d.	LIFO and average cost

Answer = a

Under the _____ inventory method, accounting records maintain a continuously updated inventory value

Under the _____ inventory method, accounting records maintain a continuously updated inventory value.

	a.	periodic
	b.	retail
	c.	physical
	d.	perpetual

Answer = d

Addison, Inc. uses a perpetual inventory system.  The following is information about one inventory item for the month of September:

Sep.  1	Inventory	20 units at $20
4	Sold	10 units
10	Purchased	30 units at $25
17	Sold	20 units
30	Purchased	10 units at $30

If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is

	a.	$800
	b.	$750
	c.	$700
	d.	$650

Answer = b

Which of the following is not an example for safeguarding inventory?

	a.	Physical devices such as two-way mirrors, cameras, and alarms.
	b.	Storing inventory in restricted areas.
	c.	Returning inventory that is defective or broken.
	d.	Matching receiving documents, purchase orders, and vendor’s invoice.

Answer = c

Determine the total value of the merchandise using net realizable value.

Item			Quantity	Selling Price	Commission
Doll			10	$7	$2
Horse			5	9	3
		a.	$35
		b.	$80
		c.	$25
		d.	$115

Answer = b

The method of estimating inventory that uses records of the selling prices of the merchandise is called

	a.	gross profit method
	b.	average cost method
	c.	retail method
	d.	inventory turnover method

Answer = c

If a manufacturer ships merchandise to a retailer on consignment

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

	a.	shipper
	b.	consignee
	c.	retailer
	d.	manufacturer

Answer = d

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

	a.	Understated
	b.	Overstated
	c.	no change
	d.	only inventory will be affected

Answer = b

During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000.   The effect on the balance sheet and income statement would be

	a.	assets and retained earnings overstated by $70,000; and net income understated by $70,000
	b.	assets overstated by $70,000; retained earnings understated by $70,000;  and net income statement understated by $70,000
	c.	assets overstated by $70,000; retained earnings understated by $70,000;  and no effect on the income statement
	d.	assets, retained earnings, and net income all overstated by $70,000

Answer = d