1. Select all the statements are true about the periodic system of inventory. It is possible to have more than one correct answer. A Periodic treats all inventory purchases and freight in cost as expenses. When new inventory is purchases during the period an expenses account called purchases is debited. C Freight cost associated with new inventory purchases in debited to freight in. O Purchase returns and allowances are credited to purchases returns and allowances account which is a contra account to purchases. E Purchases returns and allowances has a debit normal balance. (F) Discounts on inventory purchases are recorded to a contra account called purchases discount (G) The purchase discounts account has a normal credit balance. Under the periodic system the only way to find cost of goods sold is to do a count of the company's ending inventory and the difference from goods available for sale must be cost of good sold. O Goods available for sale can be found by first taking beginning inventory, add new purchases, add freight in, deduct purchases returns and allowances, and purchases discount. (3) Goods Available for Sale (GAS) is the total dollar value of all good that the company can sell for the year or period. Periodic as opposed to the perpetual system would suffer the most from an incorrect Inventory count. M Both perpetual and periodic would yield the same result for FIFO, LIFO and Average. When costs are rising LIFO would yield the lowest cost of goods sold. When costs are rising FIFO would yield the lowest cost of goods sold and highest gross profit. 2. Under the lower of cost or market rule, a company ending inventory must first be compared to the market to determined the correct value that would appear on the balance sheet. If the replacement cost (market) is lower that the cost of the inventory the company must do which of the following? A Find a better source for their inventory. Keep the same source for their inventory. Reduce the inventory to the higher of the inventory cost or the replacement market cost. D Ignore any possible replacement cost since to adjust the inventory to the lower of cost or market would not follow the cost principle since the inventory has already been purchased. C) Reduce the inventory to the lower of the inventory cost or the replacement market cost. 3. A company uses the FIFO method to account of their inventory and at the end of the year the inventory account shoes a balance of $175.000. However, to replace this Inventory on the market would cost the company only $165.000. In this case what must the company do? Ask the vendor for a refund of $10,000 since they obviously paid too much for the inventory O Send an additional check for $10,000 to the vendor. Reduce the inventory on their books to $165,000 by making an adjusting entry: debit Inventory for $10,000 and Credit COGS $10,000 O Reduce the inventory on their books to $165,000 by making an adjusting entry: debit COGS for $10,000 and Credit Inventory $10,000 The company does not have to do anything to their book since the inventory was already purchased and paid for is my final answer. 4. If a company accepts Inventory returned by a customer that was broken or the company has shrinkage in their inventory, what must the company do? (A) The company must never accept broken goods back from a customer. This is just bad business. The company must give the customer back their money or reduce their account receivable for that customer, but allow the customer to keep the goods. The company must give the customer back their money or reduce the account receivable for that customer debit COGS and credit inventory for the cost of the broken or shrunk item(s). It depends on the circumstance at hand. C) I have no idea since I have never worked in a merchandising business before. 5. If a company discovered that staff in the marketing department made an incorrect count of the company's ending inventory and the financial statements have already been prepared and published, what must the company do? A Recall call the Annual reports that were sent set and correct them. O Send a letter to all who received an Annual Report asking them to make the change. c) Announce the error on Facebook, Twitter, Instagram or by any other media source. D Do nothing since an inventory error is self correcting and will correct itself in two accounting periods. I have no ides since I am not an accountant and have no desire to be one