1.Having a perpetual inventory system, Revenza Company has just performed its year-end physical inventory count. The ending balance of inventory is recorded at $14,500 while the count shows $13,800 of inventory on hand. What is necessary adjusting journal entry for the inventory?

Select one:

a. DrCost of Goods Sold $700, Cr Sales Allowances

b. No entry is necessary as Revenza Company uses a perpetual system

c. DrCost of Goods Sold $700, Cr Inventory $700

d. DrCost of Goods Sold $13,800, Cr Inventory $13,800

2.Mary operates a wholesale business that distributes high quality doll houses. One day,her best customer called to say they had over-ordered and would like to return $500 worth of product that was billed on account. To maintain good relations with this customer, Mary graciously accepted the return. The cost of the product is $300. Which of the following entries by Mary correctly records the sales return? Assume Mary uses the perpetual inventory system.

Select one:

a. DrSales Returns and Allowances $500, Cr Accounts Receivable $500

b. Dr Sales Returns and Allowances $300, Cr Cost of Goods Sold $300 and Dr Inventory $500, Cr Accounts Receivable $300

c. DrSales Returns and Allowances$500, Cr Accounts Receivable $500 and DrInventory $300, Cr Cost of Goods Sold $300

d. Cr Sales $500, DrAccounts Receivable $500 and Cr Inventory $300, DrCost of Goods Sold $300

3.Bruce operates a successful computer store and is flush with cash. He receives a bill from one of his suppliers in the amount of $1,000 with payment terms stated as follows: 2/15, n/30. The bill is dated May 15th and Bruce pays the bill on May 20th. Which entry represents the payment? Assume he uses the periodic inventory system.

Select one:

a. Dr Accounts Payable $1,000, Cr Cash $1,000

b. DrAccounts Payable $1,000, Cr Cash $980, Cr Inventory $20

c. Cr Accounts Payable $980, DrCash $980

d. DrAccounts Payable $1,000, Cr Cash $980, Cr Purchase Discount $20

4.A sales allowance occurs when:

Select one:

a. The customer decides to return undesirable products to the seller

b. The seller decides to reduce costs

c. Inventory is returned to the supplier

d. The customer decides to keep undesirable products from a seller at a reduced price

5.In times of rising inventory prices, the inventory valuation method that would result in the lowest gross profit is:

Select one:

a. Average cost

b. FIFO

c. Impossible to determine with the information given

d. LIFO

6.FOB shipping point means that:

Select one:

a. ownership of the items being purchased changes when the goods are in the middle of shipment

b. ownership of the items being purchased changes when the goods leave the seller's place of business

c. ownership of the items being purchased changes when the goods arrive at the purchaser's place of business

d. ownership of the items being purchased changes when the goods are in transit from seller to buyer

7.Calculate the Inventory Days on hand, assuming:

Sales $400,000

Gross Margin 50%

Opening Inventory $40,000

Closing Inventory $60,000

Select one:

a. 365 Days

b. 4 Days

c. 91 Days

d. 50 Days

8.Assume a perpetual inventory system is used. When inventory is purchased on account, the transaction recorded in the purchaser's accounting records results in:

Select one:

a. A decrease in Inventory and an increase in Accounts Payable

b. An increase in Inventory and a decrease in Accounts Payable

c. A decrease in Inventory and a decrease in Accounts Payable

d. An increase in Inventory and an increase in Accounts Payable

9.Which of the following steps in an inventory count isfalse?

Select one:

a. The inventory count must be completed by one person

b. Count and record each item on pre-numbered sheets that are distributed and controlled by the accounting department

c. Where major differences occur between the inventory record and the physical count, further investigation is required

d. Designate an area to a specific person

10.FOB destination means that:

Select one:

a. ownership of the items being purchased changes when the goods are in transit from seller to buyer

b. ownership of the items being purchased changes when the goods leave the seller's place of business

c. ownership of the items being purchased changes when the goods arrive at the purchaser's place of business

d. ownership of the items being purchased changes when the goods are in shipment

11.Which of the following would be a GAAP principle relating to inventory?

Select one:

a. the inventory valuation method chosen by a company must be the same method used by all other companies in the same industry

b. all companies must use the average inventory valuation for public reporting, even though it may use other methods for internal reporting

c. the inventory valuation method chosen must match physical movement of goods

d. the same inventory valuation method must be used from period to period, unless a change is required by GAAP

12.Overstating closing inventory on the current year's financial statements results in:

Select one:

a. overstating sales

b. understating gross profit

c. understating net income

d. overstating gross profit

13.Which of the following is false?

Select one:

a. Inventory turnover ratioindicates how often a company sells and replaces inventory over a period of time

b. All of statements are correct

c. Management should not be making decisions regarding inventory based on ratios alone

d. The higher the inventory turnover ratio, the higher the inventory days on hand ratio will be

14.What is inventory shrinkage?

Select one:

a. Inventory that the company has sold at a discount

b. Inventory that has decreased in value due to theft or accounting errors

c. Inventory that has increased in value

d. Inventory that has shrunk in value due to a change in market demands

15.A retail store uses the periodic inventory system and performs a physical count every December 31st. On March 1, a customer paid $1,000 for goods costing $600. On March 3rd, another customer paid $1,500 for goods costing $900. Which of the following is correct?

Select one:

a. $900 is recorded in Cost of Goods Sold on March 3rd

b. No Cost of Goods Sold is recorded in March

c. $1,500 is recorded in Cost of Goods Sold on March 3rd

d. $600 is recorded in Cost of Goods Sold on March 1st

16.The two inventory systems are:

Select one:

a. periodic and episodic

b. LIFO and FIFO

c. perpetual and periodic

d. none of the available choices