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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Retail Company reported the following amounts on its 20X2 income statement: Purchases, $45,000;
Beginning 20X2 inventory, $15,000; and Cost of goods sold, $50,000. What was the 20X2 ending
inventory?
A) $26,000 B) $27,000 C) $25,000 D) $10,000
Answer: D

2) The 20X2 records of Tom Company showed beginning inventory, $6,000; cost of goods sold,
$14,000; and ending inventory, $8,000. What was the purchases amount for 20X2?
A) $10,000 B) $16,000 C) $9,000 D) $12,000
Answer: B

3) When goods are sold on credit, revenue usually should be recognized on which of the following
dates?
A) manufacture of the goods.
B) passage of title from the seller to the buyer.
C) receipt of the goods by the buyer.
D) receipt of the sales order
Answer: B

4) Which of the following types of inventory usually is not held by a manufacturing business?
A) Work in process inventory. B) Raw material inventory.
C) Finished goods inventory. D) Merchandise inventory.
Answer: D

5) The cost of goods sold account is which of the following?

A) $108,000 B) $88,000 C) $112,000 D) $100,000
Answer: B

1
 A) An expense B) A contra-asset
C) An extraordinary item D) An asset
Answer: A

6) Which of the following is not an inventory account in a manufacturing company?

A) Work in process B) Raw materials
C) Finished goods D) Goods available for sale
Answer: D

7) Wilburn Company reported the following data at year-end: Sales, $100,000; Beginning inventory,
$8,000; Ending inventory, $6,000; Cost of goods sold, $60,000; and Gross margin, $40,000. What
was the amount of merchandise purchases for the year?
A) $58,000 B) $40,000 C) $46,000 D) $68,000
Answer: A

8) The following information was taken from the 20X2 income statement of Milburn Company: Pretax
profit, $12,000; Total operating expenses, $20,000; Sales revenue, $120,000. Compute the cost of
goods sold.

A) $108,000 B) $88,000 C) $112,000 D) $100,000

Answer: B

1
 9) The following information was taken from the 20X2 income statement of Milburn Company: Pretax
profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue,
$120,000; Beginning inventory, $8,000; and Purchases, $90,000. Compute the amount of the ending
inventory.
A) $88,000 B) $18,000 C) $10,000 D) $8,000
Answer: C

10) Which of the following statements about inventory costs is true?

A) Purchases discounts increase sales revenue to arrive at net sales.
B) Net realizable value is the expected sales price plus selling costs.
C) Factory overhead consists of manufacturing costs other than direct materials and direct labour.
D) FIFO Reserve is a contra sales account for the excess of FIFO over weighted-average
inventory.
Answer: C

11) Which of the following costs would be included in the costs of inventory of a manufacturer?
A) Wages for factory workers. B) Electricity for the office building.
C) Wages for administrative staff. D) Sales salaries.
Answer: A

12) Which of the following should be included in the cost of inventory?

A) Amortization on the inventory warehouse B) Receiving and inspection costs
C) The cost of keeping the inventory records D) The salesperson's commission
Answer: B

13) Which of the following should be included in the cost of the inventory?
A) Salaries paid to warehouse employees.
B) The cost of shelves used to store inventory
C) Advertising costs to sell the inventory
D) Shipping and handling on inventory purchases
Answer: D

14) Richmond Company had the following information taken from its 20X1 adjusted trial balance:
Sales, $200,000; Sales Discounts, $4,000; Beginning Inventory, $10,000; and Purchases, $140,000.
A physical count of the merchandise on hand at the end of the year showed $20,000. Compute the
gross margin (gross profit) that would appear in the statement of earnings.
A) $74,000 B) $70,000 C) $62,000 D) $66,000
Answer: D

15) On March 10, Frazier Company received merchandise for resale from its normal supplier. The
invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid
on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to buy the
inventory. What is the unit cost that should be recorded for each of the 100 units of Part #345?
A) $36.48 B) $37.56 C) $37.20 D) $36.00
Answer: A

2
16) Which of the following equations is correct?
A) Beginning Inventory + Ending Inventory - Purchases = Cost of Goods Sold.
B) Income Before Taxes - Operating Expenses = Cost of Goods Sold.
C) Sales + Cost of Goods Sold = Gross Margin.
D) Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory.
Answer: D

17) Marsden Company purchased a significant amount of raw materials inventory for a new product it is
manufacturing. Marsden purchased insurance on these raw materials while they were in transit from
the supplier. How should Marsden account for the insurance costs?
A) As a prepaid expense until the inventory arrives
B) As part of the cost of the raw materials inventory
C) As an operating expense of the period
D) As a contra-asset account to inventory
Answer: B

18) Which of the following costs would not be part of product inventory costs for a manufacturer such
as Harley Davidson?
A) Costs to store finished motorcycles until they are sold.
B) The wages and benefits of an employee in the welding department.
C) The factory manager's salary and benefits.
D) Kickstands purchased for use in manufacturing the motorcycles.
Answer: A

19) Which of the following businesses would not have cost of goods sold?
A) A grocery store B) A movie theatre
C) A jewelry store D) A manufacturer of batteries
Answer: B

20) The inventory of a retail company is comparable to which type of inventory of a manufacturing
company?
A) Supplies B) Work in process C) Finished goods D) Raw materials
Answer: C

21) Halles Medical Instruments has net sales and gross profit of $1,841,000 and $971,000 respectively.
Assuming the cost of goods available were $1,584,000, what was the cost of Halle's ending
inventory?
A) $460,000 B) $714,000 C) $747,000 D) $350,000
Answer: B

22) Smithers Amusement Machines has cost of goods sold of $100,000 and ending inventory of
$150,000. If Smithers had no purchases and no returns, what was the cost of its beginning
inventory?
A) $250,000 B) $150,000 C) $50,000 D) $100,000
Answer: A

3
23) If ABC's statement of earnings showed cost of goods sold at $78,000, purchases of $80,000,
freight-in at $300, purchases returns of $500 and end-of-the period inventory at $11,900, its
beginning-of-the-period-inventory must have been:
A) $9,200 B) $10,400 C) $9,900 D) $10,100
Answer: D

24) A company reports its 20X2 cost of goods sold at $20.0 billion. Its ending inventory for 20X2 is
$1.8 billion and for 20X1, ending inventory was $1.5 billion. How much inventory did the company
purchase during 20X2?
A) $21.8 billion B) $19.7 billion C) $18.5 billion D) $20.3 billion
Answer: D

25) Which of the following is true under the perpetual inventory system?
A) A separate account for purchases is required.
B) Two entries are required to record a sale.
C) Cost of goods sold cannot be determined unless a physical inventory is taken.
D) One entry is required to record a sales return.
Answer: B

26) Which inventory system keeps an ongoing record of purchases and sales of inventory with
adjustments that reflect changes as they occur
A) Just-in-time system B) Periodic system
C) Specific identification system D) Perpetual system
Answer: D

27) On February 20, 20X1, Ross Sound Company purchased $10,000 of stereo equipment for resale on
credit, subject to the terms 3/15, n/30. The periodic inventory system is used. If the company paid
for these goods on March 20, the entry made to record the payment should include which of the
following?
A) A $300 debit to Purchases discounts. B) An $8,500 credit to Cash.
C) A $10,000 debit to Trade payables. D) A $9,700 debit to Purchases.
Answer: C

28) Two systems are used in accounting for inventory-perpetual and periodic. Which of the following
statements is correct?
A) In a perpetual inventory system, the inventory account is not changed for each purchase during
the accounting period.
B) In a periodic inventory system, the inventory account is increased for each purchase during the
accounting period.
C) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning
inventory and ending inventory only.
D) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during
the accounting period.
Answer: D

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