Chapter 6 Quiz

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Question #1

Using a periodic inventory system, recording the sale of inventory on account would include:

A Debit Sales Revenue; credit Accounts Receivable.

B Debit Inventory; credit Accounts Receivable.

C Debit Inventory; credit Sales Revenue.

D Debit Accounts Receivable; credit Sales Revenue.

Question #2

At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a net realizable value of $5,800. The adjustment to write down inventory to net realizable value would include:

A A credit to inventory for $700.

B A debit to cost of goods sold for $5,800.

C A credit to cost of goods sold for $700.

D A debit to inventory for $5,800.

Question #3

Fan Company purchases inventory on account. The entry to record this purchase using a periodic inventory system would include a debit to:

A Cost of Goods Sold.

B Accounts Payable.

C Purchases.

D Inventory.

Question #4

A company’s inventory turnover ratio measures:

A The number of times the company sells its average inventory balance during the year.

B The profitability on sales of inventory during the year.

C The quantity of inventory remaining at the end of the year.

D The average cost at which inventory was purchased during the year.

Question #5

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

A Last-in, first-out (LIFO).

B Specific identification.

C Average cost.

D First-in, first-out (FIFO).

Question #6

If a company understates its ending inventory in the current period, what effect will this have on cost of goods sold in the following period?

A Understate cost of goods sold.

B Have no effect on cost of goods sold.

C Not possible to determine with information given.

D Overstate cost of goods sold.

Question #7

If a company understates its ending inventory in the current period, what effect will this have on the balance of Retained Earnings at the end of the following period?

A Overstate retained earnings.

B Have no effect on retained earnings.

D Not possible to determine with information given.

E Understate retained earnings.

Question #8

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value?

A Decrease in net income.

B Increase in net income.

C No effect on net income or ending inventory.

E Increase in cost of ending inventory.

Question #9

At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

A $8,200

B $20,000

C $17,800

D $22,200

Question #10

Fan Company sells inventory on account. The entry to record this sale using a periodic inventory system would include a:

A Credit to Inventory, Debit to Cost of Goods Sold and Credit to Sales Revenue.

B Credit to Inventory.

C Debit to Cost of Goods Sold.

D Credit to Sales Revenue.

Question #11

Inventory is defined as:

A The cost of goods sold to customers during the year.

B Any assets of the company that can be sold.

C Items a company intends for sale to customers.

D The amount of cash received from the sale of goods to customers during the year.

Question #12

Which of following best describes a merchandising company?

A A company that provides services to its customers.

B A company that produces products from raw materials, labor, and overhead.

C A company whose revenues exceed expenses.

D A company that purchases products that are primarily in finished form for resale to customers.

Question #13

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

A FIFO.

B LIFO.

C Weighted-average.

D Any assumption can be used regardless of the tax reporting.

Question #14

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy’s gross profit ratio?

A 25%

B 20%

C 10%

D 30%

Question #15

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a:

A Debit to Accounts Receivable.

B Credit to Sales Revenue

C Debit to Cost of Goods Sold.

D Credit to Sales Revenue, Debit to Cost of Goods Sold and Debit to Accounts Receivable.

Question #16

A multiple-step income statement provides the advantage of:

A Excluding the effects of income taxes in the calculation of net income.

B Placing all revenues before all expenses.

C Placing all revenues after all expenses.

D Separating revenues and expenses based on their different types of activities.

Question #17

Gross profit is defined as:

A Income before Income Tax Expense.

B All revenues minus all expenses.

C Sales Revenue minus Operating Expenses.

D Sales Revenue minus Cost of Goods Sold.

Question #18

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

A Income will be the same under each assumption.

B FIFO.

C Weighted-average.

D LIFO.

Question #19

Which of the following levels of profitability in a multiple-step income statement represents all revenues less all expenses?

A Gross profit.

B Income before income taxes.

C Net income.

D Operating income.

Question #20

Net income is defined as:

A Income before Income Tax Expense.

B All revenues minus all expenses.

C Gross Profit minus Operating Expenses.

D Sales Revenue minus Cost of Goods Sold.

Question #21

The entry to write down inventory from cost to net realizable value at the end of the year includes a:

A Debit to Inventory.

B Credit to Sales Revenue.

C Credit to Accounts Payable.

D Debit to Cost of Goods Sold.

Question #22

Under a perpetual inventory system:

A Purchase discounts are not recorded.

B Inventory purchases are recorded only at the end of the period.

C Cost of good sold is recorded with a period-end adjusting entry.

D Cost of goods sold is recorded with each sale.

Question #23

A company’s gross profit ratio measures:

A The number of times the company sells its average inventory balance during the year.

B The number of days the average inventory is held.

C The amount by which the sale of inventory exceeds its cost per dollar of sales.

D The average amount of sales revenue per unit of inventory sold during the year

Question #24

Which of the following represents the balance of Cost of Goods Sold at the end of the year?

A The cost of inventory purchased during the year.

B The cost of inventory sold during the year.

C The cost of inventory at the beginning of the year.

D The cost of inventory not yet sold by the end of the year.

Question #25

Operating income is defined as:

A Gross Profit minus Operating Expenses.

B Sales Revenue minus Cost of Goods Sold.

C All revenues minus all expenses.

D Income before Income Tax Expense.

Question #26

Fan Company purchases inventory on account. The entry to record this purchase using a perpetual inventory system would include a debit to:

A Inventory.

B Cost of Goods Sold.

C Purchases.

D Accounts Payable.

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