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Under the principle of lower-of-cost-or-market, when a company has 10 units of inventory A with market value of $50 and a cost of $60, what is the adjustment?


A) Debit Inventory $100; credit Cost of Goods Sold $100.
B) Debit Inventory $500; credit Cost of Goods Sold $500.
C) Debit Cost of Goods Sold $100; credit Inventory $100.
D) Debit Cost of Goods Sold $500; credit Inventory $500.

E) All of the above
F) A) and C)

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Using the information below, determine the ending inventory value applying the lower-of-cost-or-market method. Using the information below, determine the ending inventory value applying the lower-of-cost-or-market method. A) $13,300. B) $12,000. C) $11,600. D) $13,700.


A) $13,300.
B) $12,000.
C) $11,600.
D) $13,700.

E) B) and C)
F) B) and D)

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Listed below are four terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Indicates that title to inventory transfers from the seller to the buyer once it reaches the buyer.


A) FOB shipping point
B) FOB destination
C) Periodic inventory system
D) Perpetual inventory system

E) All of the above
F) None of the above

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Northern Town Equipment has four types of products in its inventory. Northern applies the rules under lower-of-cost or market (LCM) to its inventory at the end of each year as shown below:  Product  Quantity  Cost  Market  A 15$7$8 B 101514 C 2086 D 151110\begin{array} { l c c c c } \text { Product } & \text { Quantity } & \text { Cost } & \text { Market } \\\hline \text { A } & 15 & \$ 7 & \$ 8 \\\text { B } & 10 & 15 & 14 \\\text { C } & 20 & 8 & 6 \\\text { D } & 15 & 11 & 10\end{array} The year-end adjustment based upon the information above would include a:


A) Debit to Cost of Goods Sold $65.
B) Credit to Inventory $50.
C) Debit to Inventory $65.
D) Debit to Cost of Goods Sold $50.

E) None of the above
F) A) and B)

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Inventory records for Marvin Company revealed the following:  Date  Transaction  Number  of Units  Unit  Cost  Mar. 1  Beginning inventory 1,000$7.20 Mar. 10  Purchase 6007.25 Mar. 16  Purchase 8007.30 Mar. 23  Purchase 6007.35\begin{array} { c l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array} Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be:


A) $5,040.
B) $5,055.
C) $5,075.
D) $5,135.

E) None of the above
F) A) and B)

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LeGrand Corporation reported the following amounts in its income statement:  Sales revenue $440,000 Advertising expense 60,000 Interest expense 10,000 Salaries expense 55,000 Utilities expense 25,000 Income tax expense 45,000 Cost of goods sold 180,000\begin{array} { l r } \text { Sales revenue } & \$ 440,000 \\\text { Advertising expense } & 60,000 \\\text { Interest expense } & 10,000 \\\text { Salaries expense } & 55,000 \\\text { Utilities expense } & 25,000 \\\text { Income tax expense } & 45,000 \\\text { Cost of goods sold } & 180,000\end{array} What was LeGrand's gross profit?


A) $260,000.
B) $180,000.
C) $220,000.
D) $120,000.

E) A) and D)
F) B) and D)

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The largest expense on a retailer's income statement is typically:


A) Salaries.
B) Cost of goods sold.
C) Income tax expense.
D) Depreciation expense.

E) B) and C)
F) A) and D)

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Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Cost flow assumption that assumes first units purchased are sold first.


A) Ending inventory
B) Freight-in
C) Cost of goods sold
D) LIFO conformity rule
E) LIFO
F) Freight-out
G) LIFO reserve
H) Specific identification
I) FIFO
J) Average cost

K) F) and H)
L) C) and G)

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__________ is commonly referred to as the income statement approach.

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A company understated its ending inventory balance by $8,000 in 2012. What impact will this error have on cost of goods sold and gross profit in 2012 and 2013?

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2012
Cost of goods sold is ove...

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When the market value of inventory falls below its cost, no adjustment to the accounting records is needed.

A) True
B) False

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Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Cost of inventory not sold by the end of the period.


A) Ending inventory
B) Freight-in
C) Cost of goods sold
D) LIFO conformity rule
E) LIFO
F) Freight-out
G) LIFO reserve
H) Specific identification
I) FIFO
J) Average cost

K) B) and E)
L) G) and I)

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Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?


A)  Cost of Goods Sold 620 Purchases 620 Accounts Receivable 960 Sales Revenue 960\begin{array} { c c c } \text { Cost of Goods Sold } & 620 & \\\text { Purchases } & & 620 \\\text { Accounts Receivable } & 960 & \\\text { Sales Revenue } & & 960\end{array}
B) Accounts Receivable 960\quad 960
Sales Revenue 960\quad 960
C) Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account? A) \begin{array} { c c c } \text { Cost of Goods Sold } & 620 & \\ \text { Purchases } & & 620 \\ \text { Accounts Receivable } & 960 & \\ \text { Sales Revenue } & & 960 \end{array} B) Accounts Receivable \quad 960 Sales Revenue \quad 960 C) D) \begin{array} { c c r } \text { Accounts Receivable } & 960 & \\ \text { Sales Revenues } & 620 \\ \text { Gain } & 340 \end{array}
D)  Accounts Receivable 960 Sales Revenues 620 Gain 340\begin{array} { c c r } \text { Accounts Receivable } & 960 & \\\text { Sales Revenues } & 620 \\\text { Gain } & 340\end{array}

E) None of the above
F) A) and B)

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Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a perpetual inventory system?


A) Inventory 2,000\quad 2,000
Accounts Payable 2,000\quad 2,000

B)  Cost of Goods Sold 2,000\begin{array} { l l } \text { Cost of Goods Sold } & 2,000 \end{array}
Unearned Revenue 1,000\quad 1,000
Sales Revenue 3,000\quad 3,000
C) Cost of Goods Sold 2,000\quad 2,000
Accounts Payable 2,000\quad 2,000
D) Cost of Goods Sold 2,000\quad 2,000
Gain 1,000\quad 1,000
Accounts Payable 3,000\quad 3,000

E) A) and D)
F) B) and C)

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Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Equals sales revenue minus cost of goods sold.


A) Gross profit
B) Net income
C) Inventory turnover ratio
D) Operating income
E) Income before income taxes

F) A) and B)
G) A) and E)

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a periodic inventory system?


A) Accounts Payable 2,000\quad 2,000
Cash 2,000\quad 2,000
B) Accounts Payable 1,960\quad 1,960
Purchase Discounts 40\quad 40
Cash 2,000\quad 2,000
C) Accounts Payable 2,000\quad 2,000
Purchase Discounts 40\quad 40
Cash 1,960\quad 1,960
D) Cash 2,000\quad 2,000
Accounts Payable 2,000\quad 2,000

E) B) and C)
F) A) and B)

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Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover, compared to Company B's, would be: Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover, compared to Company B's, would be: A) Option a B) Option b C) Option c D) Option d


A) Option a
B) Option b
C) Option c
D) Option d

E) B) and D)
F) B) and C)

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The following information relates to inventory for Shoeless Joe Inc.  Date  Quantity  Price  March 1  Beginning Inventory 20$2 March 7  Purchase 153 March 11  Sale 257 March 12  Purchase 204\begin{array} { l l c c } \text { Date } & & \text { Quantity } & \text { Price } \\\hline \text { March 1 } & \text { Beginning Inventory } & 20 & \$ 2 \\\text { March 7 } & \text { Purchase } & 15 & 3 \\\text { March 11 } & \text { Sale } & 25 & 7 \\\text { March 12 } & \text { Purchase } & 20 & 4\end{array} At what amount would Shoeless report ending inventory using FIFO cost flow assumptions?


A) $55.
B) $170.
C) $110.
D) $70.

E) B) and D)
F) A) and D)

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A company reports the following amounts at the end of the year:  Sales revenue $300,000 Cost of goods sold 225,000 Net income 50,000\begin{array}{lr}\text { Sales revenue } & \$ 300,000 \\\text { Cost of goods sold } & 225,000 \\\text { Net income } & 50,000\end{array} Compute the company's gross profit ratio.

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Gross profit ratio ...

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Which inventory method is better described as having a balance sheet focus and why is it considered as such?


A) FIFO; better approximates the value of ending inventory.
B) LIFO; better approximates the value of ending inventory.
C) LIFO; better approximates inventory cost necessary to generate revenue.
D) FIFO; better approximates inventory cost necessary to generate revenue.

E) All of the above
F) A) and D)

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