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Accounting: inventory, constraints, adjusting entries

___ 1. In a period of rising prices, the inventory method that results in the lowest income tax payment is
a. LIFO.
b. FIFO.
c. average cost.
d. specific identification.

____ 2. The inventory methods that result in the most current costs in the income statement and balance sheet are
Income Statement Balance Sheet
a. FIFO FIFO
b. LIFO FIFO
c. LIFO LIFO
d. FIFO LIFO

____ 3. The following information is available for Morton Company:
Sales $130,000 Freight-in $10,000
Ending Merchandise Inventory 12,000 Purchase Returns and Allowances 5,000
Purchases 90,000 Beginning Merchandise Inventory 15,000
Morton's cost of goods sold is
a. $115,000.
b. $110,000.
c. $98,000.
d. $95,000.

____ 4. If ending inventory is understated, net income and assets will be
Net Income Assets
a. Understated Understated
b. Overstated Overstated
c. Understated Unaffected
d. None of the above.

____ 5 One of the two "constraints" recognized by the FASB in applying the operating guidelines within its conceptual framework is
a. comparability.
b. materiality.
c. reliability.
d. relevance.

____ 6 A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification

____ 7. A petty cash fund
a. results in expense accounts being charged when cash is disbursed.
b. should be replenished when the fund is low and at the end of the period.
c. results in expense accounts being charged when the fund is replenished.
d. both (b) and (c) above.

____ 8. Harder Company's records show the following for the month of January:
Total Retained Earnings at January 1 $400,000
Total Retained Earnings at January 31 600,000
Total Revenues 670,000
Total Dividends Declared 30,000
Total expenses for January were
a. $640,000.
b. $670,000.
c. $470,000.
d. $440,000.

____ 9. Maxwell Company's financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 15,000
Sales Returns and Allowances 30,000 Ending Merchandise Inventory 35,000
Net Sales 350,000 Cost of Goods Sold 180,000
Beginning Merchandise Inventory ???? Gross Profit ????
Purchases 170,000
The missing amounts above are:
Sales Beginning Inventory Gross Profit
a. $380,000 $45,000 $170,000
b. $320,000 $45,000 $200,000
c. $380,000 $60,000 $170,000
d. $320,000 $60,000 $200,000

____ 10. The necessity of making adjusting entries relates mostly to the
a. economic entity assumption.
b. time period assumption.
c. going concern assumption.
d. monetary unit assumption.

____ 11. The preparation of closing entries
a. is an optional step in the accounting cycle.
b. results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.
c. is necessary before financial statements can be prepared.
d. results in transferring the balances in all nominal accounts to Retained Earnings.

____ 12. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
a. not posted at all.
b. posted as a debit to Cash and a credit to Accounts Payable.
c. posted as a debit to Cash and a debit to Accounts Payable.
d. posted as a debit to Accounts Receivable and a credit to Cash.

____ 13. Mitchell Company bought furniture on account. Their accountant debited Furniture and credited Accounts Receivable. An appropriate correcting entry is
a. debit Furniture and credit Accounts Payable.
b. debit Accounts Receivable and credit Accounts Payable.
c. debit Miscellaneous Expense and credit Accounts Payable.
d. no correcting entry is needed.

____14. A corporation with total stockholders' equity of $85,000 paid a $10,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $10,000.
c. decreased by $10,000.
d. increased to $95,000.

____15. A check correctly written and paid by the bank for $391 is incorrectly recorded on the company's books for $319. The appropriate adjustment on a bank reconciliation would be to
a. deduct $391 from the book's balance.
b. deduct $72 from the book's balance.
c. deduct $72 from the bank's balance.
d. add $72 to the bank's balance.

Solution Preview

___ 1. In a period of rising prices, the inventory method that results in the lowest income tax payment is
a. LIFO.
b. FIFO.
c. average cost.
d. specific identification.

a. When prices are rising, LIFO inventory will have the highest value and therefore amounts removed from inventory will increase costs on the income statement the most; therefore, income tax will be lower.

____ 2. The inventory methods that result in the most current costs in the income statement and balance sheet are
Income Statement Balance Sheet
a. FIFO FIFO
b. LIFO FIFO
c. LIFO LIFO
d. FIFO LIFO

b. Using LIFO will move the most current costs from inventory to the income statement.
Using FIFO for inventory costing will remove the oldest costs first from inventory. FIFO would show the most current costs on the balance sheet.

____ 3. The following information is available for Morton Company:
Sales $130,000 Freight-in $10,000
Ending Merchandise Inventory 12,000 Purchase Returns and Allowances 5,000
Purchases 90,000 Beginning Merchandise Inventory 15,000
Morton's cost of goods sold is
a. $115,000.
b. $110,000.
c. $98,000.
d. $95,000.

c. Cost of goods sold
Beginning inventory $15,000
Purchases 90,000
Less returns/allowance (5,000)
Freight in 10,000
Goods available 110,000
Less ending inventory 12,000
Cost of goods sold 98,000

____ 4. If ending inventory is understated, net income and assets will be
Net Income Assets
a. Understated Understated
b. Overstated Overstated
c. Understated Unaffected
d. None of the above.

a. If inventory is too little, additional amounts will reduce net income. The entry is debit inventory and credit cost of goods sold. If inventory is too little, total assets are too little.

____ ...

Solution Summary

The 15 multi-choice questions regarding inventory, constraints, petty cash, adjusting entries, closing entries, bank reconciliations are answered with a full explanation.

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