FREE ACCOUNTING AND STUDY GAMES ABOUT ACCOUNT

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FREE ACCOUNTING AND STUDY GAMES ABOUT ACCOUNT

CHAPTER 5 EXAM QUESTIONS

Actual Qs and Ans Expert-Verified Explanation

This Exam contains:

-Guarantee passing score -35 Questions and Answers -format set of multiple-choice -Expert-Verified Explanation Question 1: Which statement(s) below correctly describe(s) the relationship of cost of goods sold and ending inventory?

Answer:

Cost of goods available for sale must be allocated between cost of goods sold and ending inventory.and Cost of goods sold plus ending inventory will equal the total goods available for sale.Question 2: Q-mart failed to include inventory that was kept in a separate warehouse in its end-of-the-period inventory count. Explain how this error will affect this year's balance sheet.

Answer:

This year's total assets will be understated.

This year's total equity will be understated.Question 3: Cake Mart understated its ending inventory in the current year by $5,000. The company incorrectly reported net income of $100,000. Determine the effect of the error on the financial statements.

Answer:

Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5,000.

Question 4: An error in the ending inventory balance in Year 1 will also affect:

Answer:

year 2 end. inv. and year 2 beg. inv.

Question 5: Which of the statements below explain why LCM is used? (1)

Answer:

LCM allows companies to recognize a loss in value of an asset in the period the loss occurs.Assets are not shown at an inflated value on the balance sheet, but rather at lower of cost or replacement cost.Question 6: The understatement of the beginning inventory balance causes:

Answer:

Cost of goods sold to be understated and net income to be overstated.Question 7: The kind of business that would use the specific identification method of inventory costing

Answer:

A car dealership Question 8: There are advantages to using each of the four inventory costing methods. Identify the statements below that are correct regarding these advantages.

Answer:

FIFO assigns an amount to inventory on the balance sheet that approximates its current cost.

Weighted average tends to smooth out erratic changes in costs.Question 9: Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly describe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.(1)

Answer:

Companies using LIFO will report the highest ending inventory on their balance sheets, as compared to companies using FIFO or weighted average.Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.

Question 10: A company reports merchandise inventory on December 31 at $250,000 but LCM applied to items is $200,000.

Record the journal entry to report merchandise inventory at the correct amount:

Answer:

Dr. COGS 50,000 Cr. Merchandise Inv. 50,000 Question 11: Goods in transit shipped to Abbey (purchaser) FOB Destination : included or exclude from inventory

Answer:

Exclude from inventory Question 12: Goods in transit shipped by Abbey (seller) FOB Shipping Point: included or exclude from inventory

Answer:

Exclude from inventory Question 13: If goods are shipped FOB shipping point, then the .... is responsible for paying freight charges and the .... will not include the merchandise in their inventory.

Answer:

purchaser and seller Question 14: If all units are purchased at the same unit cost, cost of goods sold will ____?

Answer:

be the same for all four methods.Question 15: A reports end. inv. in year 1 of $25,000 instead of the correct amount of $20,000.this error is (U: understated, O: overstated) End. Inv. is U and COGS is O End. Inv. is O and COGS is U End. Inv. is U and COGS is U End. Inv. is O and COGS is O

Answer:

end. inv. is overstated and COGS is understated

Question 16: company overstated its ending inventory in the current year by $5,000. The company incorrectly reported $100,000 of net income. Explain the consequences of this error on the current period's income statement.

Answer:

Cost of goods sold will be too low by $5,000.Question 17: Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly describe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.(2)

Answer:

Companies using LIFO will report the lowest cost of goods sold.Question 18: Identify the safeguards that companies implement to protect their inventory.

Answer:

Implement security measures, such as cameras.Restrict access to inventory.Match inventory received with purchase orders.Control access to inventory records.Question 19: Which statement(s) below is(are) correct regarding the purpose of taking a physical inventory count?

Answer:

The physical count is used to adjust the Inventory account balance to the actual inventory available.and The physical count is used to determine if there has been any theft, loss, damage or errors in inventory.Question 20: Review the statements below and select the ones that are correct regarding the days' sales in inventory ratio (2)

Answer:

is often viewed as a measure of the buffer against out-of-stock inventory.estimates how many days it will take to convert inventory into accounts receivable or cash.Question 21: Goods in transit shipped to Abbey (purchaser) FOB Shipping Point: included or exclude from inventory

Answer:

Include in inventory