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Managerial Accounting Exam Answers 4

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?
ANSWER: Breyer Company should include the $4,000 in its inventory

Berkeley company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale during the period will ___________.
ANSWER: be split between cost of goods sold and ending inventory

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale will ______
ANSWER: Be split between cost of goods sold and ending inventory

Broyer company bought inventory FOB shipping point from cellar company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc. in transit between Broyer and Cellar. Which company should include these goods in its December 31st inventory?
ANSWER: Broyer should include the 4,000 in its inventory

Angus company agreed to sell goods for Longhorn company on consignment, but wasn't willing to take ownership of the goods, in case they do not sell. Which of the following statements is true?
ANSWER: Longhorn owns the inventory and should report it on the balance sheet.

Alpha company bought inventory from Omega company, FOB shipping point. On December 31st, the last day of accounting year, the goods were on the truck owned by Theta, Inc. in transit exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?
ANSWER: Alpha

On May 3, Botit Inc. purchased merchandise on account of $1,000, FOB shipping point, in terms of 1/10,n/30 from Cellar, Inc. On May 6, Botit received the merchandise, along with an invoice of $1,000. In addition, $100 in shipping costs was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to ______
ANSWER: $1,090

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, _______
ANSWER: Assets will be overstated, Liabilities will be overstated

Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms of 2/10,n/30. The journal entry to record the initial sale gross of any discounts will include _______
ANSWER: A credit to Sales Revenue of $2,000. a debit to Accounts Receivable of $2,000

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was ______
ANSWER: $10,000

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to:
ANSWER: Compare one company with another, make comparisons over time

In a perpetual system, the ______ account is debited when a company purchases merchandise on account
ANSWER: Inventory

Acme Inc, had cost of goods sold for $2,000. If beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been ______
ANSWER: $400

Acme had a cost of goods sold at $2000. If beginning inventory was $2100, and ending inventory was $500, Acme's new purchases must have been $_________.
ANSWER: 400

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?
ANSWER: 52%

Company has Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sales equals ______
ANSWER: $23,000

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3rd, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, cost of goods sold for the month ended May 31st is _____________.
ANSWER: $132

Boopsie Agin, the company's bookkeepper, recorded the purchase of merchandise on account with a debit to Cost of goods sold, and a Credit to Cash, as a result, ______
ANSWER: liabilities are understated, assets are understated, stockholders' equity is understated

If a company days to sell equals 73 days based on a 365-day a year, then its inventory turnover ratio equals ___ times.
ANSWER: 5

If Barry Bee's Inc, days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals ____________ times.
ANSWER: 5

If a company has an inventory turnover ratio of 5 times, then it decays to sell must be ______________.
ANSWER: 73 days

In which company would you rather invest?
ANSWER: A company with high gross profit percentage and high sales volume

A company's balance sheet shows three inventory accounts- raw materials, work in process, and finished goods. this company must be _________.
ANSWER: manufacturer

Raw materials that have been moved into the production process become _________ inventory.
ANSWER: work in progress

which company is most likely to have a higher inventory turnover than its competitors within the same industry?
ANSWER: a company with lower-priced goods and lower gross profit

Purchase transactions affect the ______
ANSWER: Balance sheet and not the income statement

Company sold merchandise for $5,000, with payment terms of 2/10, n/30. IF the customer pays within the discount period and takes the discount, company will receive...
ANSWER: $4,900

Blog inc, has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. it's gross profit is ____________.
ANSWER: $20,000

The Income Statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and cost of goods sold of $216,000. What is net sales revenue?
ANSWER: $360,000

when analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare ratio with ______________.
ANSWER: prior year's ratios for the company

Which line item would be found on a merchandiser's balance sheet and not on a service firm's?
ANSWER: Inventory

In which of these situations would a merchandiser record revenue?
ANSWER: Goods were delivered FOB shipping point but not yet arrived at the buyer's place of business, The obligation has been fulfilled and control of the goods has been transferred to the customer

True or False: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers
ANSWER: FALSE

Gross Profit is _____________.
ANSWER: 1. a subtotal on the income statement
2. equal to Net Sales minus Cost of Goods Sold

Which line item would be found on a merchandiser's income sheet and not on a service firm's?
ANSWER: Cost of Goods Sold, Sales Revenue

An increase in a company's inventory balance from a prior year is ____________.
ANSWER: good if the inventory turnover ratio is higher.

The costs of carrying inventory include the costs of ______________.
ANSWER: storage, obsolescence, theft, spoilage

Which of the following would be found on the credit side of the Inventory T-Account?
ANSWER: Purchase discounts, Purchase returns

Under the ______ inventory system, the inventory account is updated every time inventory is bought, sold, or returned
ANSWER: Perpetual

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ________
ANSWER: Increase in liabilities, increase in assets

Using a perpetual system, purchasing merchandise on account includes a ______
ANSWER: Credit to Accounts Payable, Debit to Inventory

Using a perpetual inventory system, when a company records of a sale merchandise, it must also record _______________.
ANSWER: 1. a decrease in its inventory
2. cost of goods sold, which will be reported on the income statement

Using a perpetual inventory system, the journal entry to record a sale on account will include a ______
ANSWER: Debit to Cost of Goods Sold, Debit to Accounts Receivable, Credit to Sales Revenue, Credit to Inventory

Cost of goods sold is debited and inventory credited, when the sale occurs using the ___________ inventory system.
ANSWER: perpetual

The operating cycle is a series of activities that the company undertakes to generate ______ and, ultimately, cash
ANSWER: Revenue

What will require a credit to the inventory account in the perpetual inventory system?
ANSWER: 1. selling inventory on account
2. selling inventory for cash

The inventory turnover ratio directly measures _____________.
ANSWER: the times per period the average inventory balance is sold

Gross profit percentage is calculated as ______
ANSWER: Net sales minus Cost of Goods Sold, then divide by Net Sales, and multiply by 100

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______
ANSWER: Remain unchanged

The ______ cycle is a series of activities that the company undertakes the generate sales and ultimately cash
ANSWER: Operating

What does the sales discount 2/10, n/30 mean?
ANSWER: You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days

Sales Revenue reports the ______
ANSWER: Sales price times the quantity of goods sold

Under the ______ Inventory system, Inventory records are updated only at the end of the accounting period.
ANSWER: Periodic

The Inventory Balance on the balance sheet reports the _____
ANSWER: Cost of Goods available for sale

who decides which of the many inventory accounting methods a company should use?
ANSWER: the company's management

The journal entry to record the payment for merchandise previously purchased on account includes a ______
ANSWER: Credit to Cash, Debit to accounts Payable

Inventory is a(n) _______ intended to be ______
ANSWER: Current asset; sold

Inventory is reported as an ______
ANSWER: Current asset on the balance sheet

Which of these will require to the inventory account in a perpetual inventory system?
ANSWER: Selling inventory on account, Selling inventory for cash

As inventory quality increases, and its cost usually _________________.
ANSWER: increases

Match the type of company with an example
ANSWER: Retailer=Walmart, Costco
Manufacturer= Mattel, Goodyear

Cost of good sold equals beginning inventory plus ______ minus ending inventory
ANSWER: Purchases

Which of the following are reported on the income statement?
ANSWER: Cost of Goods Sold, Sales Revenue, Gross Profit

What causes LIFO and weighted average cost methods to differ when using perpetual versus periodic?
ANSWER: the periodic method assumes all purchases during the period occurred before all sales during the period.

Create an income statement in the proper order from top to bottom
ANSWER: 1) Sales Revenue
2) Sales Returns, Allowances and Discounts
3) Net Sales
4) Cost of Goods Sold
5) Gross Profit

______ companies sell goods that they have produced
ANSWER: Manufacturing

Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.
ANSWER: TRUE

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______
ANSWER: Credit to Accounts Payable, Debit to inventory

which would explain an increase in a company's inventory turnover ratio?
ANSWER: 1. a decrease in total inventory
2. an increase in the demand for the company's products

What is an example of merchandise inventory?
ANSWER: goods held for sale in the normal course of business

The goals of inventory managers include ___________.
ANSWER: 1. keeping the costs of buying and storing inventory as low as possible
2. making sure that inventory quality meets customer expectations
3. having enough inventory on hand to meet customer demand

In a periodic inventory system, for cost of goods sold to be updated, which of the following must occur?
ANSWER: 1. take a physical count of inventory
2. compute cost of goods sold by subtracting ending inventory from goods available for sale

which of the following may occur with a higher inventory turnover ratio?
ANSWER: 1. reduction in inventory storage costs
2. reduction in obsolescence

Which will require a credit to the inventory account in a perpetual inventory system?
ANSWER: 1. selling inventory for cash
2. selling for on account

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