Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.
T
An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.
T
The periodic inventory system provides an up to date amount of inventory on hand. (
F
When the terms of sale are FOB shipping point, legal title to the goods remains with the seller until the goods reach the buyer
F
In accounting for inventory, the assumed flow of costs must match the physical flow of goods.
F
1. Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system.
b. periodic inventory system.
c. double entry accounting system.
d. single entry accounting system.
b
2. When using the periodic system the physical inventory count is used to determine
a. only the sales value of goods in the ending inventory.
b. both the cost of the goods in ending inventory and the sales value of goods sold during the period.
c. both the cost of the goods sold and the cost of ending inventory.
d. only the cost of merchandise sold during the period.
c
3. Under the perpetual inventory system, which of the following accounts would not be used?
a. Sales Revenue
b. Purchases
c. Cost of Goods Sold
d. Inventory
b
4. Goods held on consignment are
a. never owned by the consignee.
b. included in the consignee’s ending inventory.
c. kept for sale on the premises of the consignor.
d. included as part of no one’s ending inventory.
a
5. The LIFO inventory method assumes that the cost of the latest units purchased are
a. the last to be allocated to cost of goods sold.
b. the first to be allocated to ending inventory.
c. the first to be allocated to cost of goods sold.
d. not allocated to cost of goods sold or ending inventory
c
6. Which of the following terms best describes the assumption made in applying the four inventory methods?
a. Goods flow
b. Cost flow
c. Asset flow
d. Physical flow
b
7. Given equal circumstances, which inventory method would probably be the most time consuming?
a. FIFO
b. LIFO
c. Average cost
d. Specific identification.
d
8. In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
a. Average cost method
b. LIFO method
c. FIFO method
d. Need more information to answer
c
Whitman Corporation sells six different products. The following information is available on December 31: Inventory Item Units Cost per unit Market value per unit Estimated Selling Price Tin 30 $ 500 $ 505 $ 515 Titanium 10 5,000 4,950 5,100 Stainless Steel 40 2,000 1,910 1,985 Aluminum 40 350 285 290 Iron 20 400 410 425 Fiberglass 20 300 295 310 When applying the lower of cost or market rule to each item, what will Whitman's total ending inventory balance be?
a. $173,000
b. $166,200
c. $166,550
d. $166,400
b
10. An overstatement of ending inventory in one period results in
a. no effect on net income of the next period.
b. an overstatement of net income of the next period.
c. an understatement of net income of the next period.
d. an overstatement of the ending inventory of the next period.
c
Depreciation is a process of asset valuation, not cost allocation.
False. Depreciation is a process of cost allocation, not asset valuation
Depreciation provides for the proper matching of expenses with revenues.
True.
The book value of a plant asset should approximate its fair value.
False. The book value of a plant asset may be quite different from its market value.
Depreciation applies to three classes of plant assets: land, buildings, and equipment.
False. Depreciation applies to three classes of plant assets: land improvements, building, and equipment.
Depreciation does not apply to a building because its usefulness and
revenue-producing
ability generally remain intact over time.
.
False. Depreciation does not apply to land because its usefulness and revenue-producing ability generally remain intact over time
The revenue-producing ability of a depreciable asset will decline due
to wear and tear
and to obsolescence.
True.
Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset.
False. Recognizing depreciation on an asset does not result in an accumulation of cash for replacement of the asset.
The balance in accumulated depreciation represents the total cost
that has been
charged to expense since placing the asset in service.
True.
Depreciation expense and accumulated depreciation are reported on the
income
statement.
False. Depreciation expense is reported on the income statement, and accumulated depreciation is reported as a deduction from plant assets on the balance sheet.
Four factors affect the computation of depreciation: cost, useful
life, salvage value,
and residual value.
False. Three factors affect the computation of depreciation: cost, useful life, and salvage value (also called residual value).
When using the allowance method bad debt expense is recorded when an individual customer defaults.
F
The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debt adjusting entry is recorded.
F
Under the allowance method, the cash (net) realizable value of receivables is the same both before and after an account has been written off.
T
The book value of a plant asset is always equal to its fair market value.
F
A loss on disposal of a plant asset occurs if the proceeds received from the asset sale are less than the asset's book value.
T
Under the allowance method, Bad Debt Expense is recorded
a.when an individual account is written off.
b.when the loss amount is known.
c.for an amount that the company estimates it will not collect.
d.when the company knows that specific customer will not be able to make the payment.
c
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Bad Debts Accounts has a $1,600 credit balance, the adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $4,500.
b. debit to Bad Debt Expense for $6,100.
c. debit to Bad Debt Expense for $2,900.
d. credit to Allowance for Doubtful Accounts for $4,500.
c
The account Allowance for Bad Debts Accounts is classified as a(n)
a. liability.
b. contra expense account
c. expense.
d. contra asset account
d
Kinsler Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Kinsler Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
a. Bad Debt Expense 14,000 Allowance for Doubtful Accounts 14,000
b. Bad Debt Expense 12,000 Allowance for Doubtful Accounts 12,000
c. Bad Debt Expense 10,000 Allowance for Doubtful Accounts 10,000
d. Bad Debt Expense 8,000 Accounts Receivable 8,000
c
The interest on a $6,000, 6%, 90-day note receivable is
a. $360.
b. $180
c. $90.
d. $270.
c
A company purchased land for $350,000 cash. Real estate brokers' commission was $25,000 and $35,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at
a. $385,000.
b. $350,000.
c. $375,000.
d. $410,000
d
Which of the following assets does not decline in service potential over the course of its useful life?
a. Equipment.
b. Furnishings.
c. Land.
d. Fixtures.
c
Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
a. Salvage value.
b. Estimated useful life.
c. Cash needed to replace the plant asset.
d. Asset’s book value on balance sheet.
c
The balance in the Accumulated Depreciation account represents the
a. cash fund to be used to replace plant assets.
b. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
c. amount charged to expense in the current period.
d. amount charged to expense since the acquisition of the plant asset.
d
Cost allocation of an intangible asset is referred to as
a. amortization.
b. depreciation.
c. accretion.
d. capitalization.
a