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ACCT-201 Study Guide - Midterm Guide: Inventory Turnover, Association To Advance Collegiate Schools Of Business, Retained Earnings

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Practice Exam 2
Student: ___________________________________________________________________________
1. Costs of selling inventory are product costs.
True False
2. The ending Merchandise Inventory plus Cost of Goods Sold equals the Cost of Goods Available for Sale
during the period.
True False
3. A purchase allowance is treated as a decrease in expenses by the company that purchased the goods.
True False
4. The term "FOB shipping point" indicates that the seller is responsible for transportation costs.
True False
5. A multistep income statement separates routine operating results from peripheral or non-operating items.
True False
6. Common size financial statements are prepared by converting dollar amounts to percentages.
True False
7. In most businesses, the physical flow of goods occurs on a FIFO basis, but a different cost flow method
is allowed under generally accepted accounting principles.
True False
8. A company's gross margin reported on the income statement is not affected by the inventory cost flow
method it uses.
True False
9. During a period of rising prices the FIFO cost flow method will result in higher total assets than LIFO.
True False
10. If a company applies the lower-of-cost-or-market rule on an aggregate basis, its write-down of inventory
is likely to be lower than if it applies the rule to individual items of inventory.
True False
Singh Company's perpetual inventory records included the following information:
11. If Singh uses the LIFO cost flow method, its ending inventory would be $1,620.
True False
12. If Singh uses the FIFO cost flow method, its cost of goods sold would be $4,130.
True False
13. If Singh uses the weighted-average cost flow method, its weighted-average cost per unit would be $8.00.
True False
14. Which of the following would be considered as primarily a merchandising business?
A. West Consulting
B. Baker's Jewelry Store
C. Sandridge and Associates Law Offices
D. KPM Accounting and Tax Service
15. Which of the following is considered a product cost?
A. Utility expense for the current month.
B. Transportation cost on goods received from suppliers.
C. Salaries paid to employees of a retailer.
D. Transportation cost on goods shipped to customers.
16. Which of the following statements is true about period costs?
A. Operating expenses are not period costs.
B. Period costs are expensed when the products associated with these costs are sold.
C. Period costs are usually recorded as assets.
D. Most period costs are expensed in the period the costs are incurred.
17. Lonestar Company paid the amount due on a purchase of merchandise on account. Lonestar uses the
perpetual inventory system. Which of the following answers reflects the effect of the payment on the
financial statements?
A. Option A
B. Option B
C. Option C
D. Option D
18. Greencroft Company sold merchandise costing $1,800 for $2,600 cash. The merchandise was later
returned by the customer for a refund. If the perpetual inventory method is used, what effect will the
sales return have on the accounting equation?
A. Total assets and total equity increase by $800.
B. Total assets decrease by $2,600 and total equity is decreased by $1,800.
C. Total assets and total equity decrease by $2,600.
D. Total assets and total equity decrease by $800.
19. Andrews Company sold merchandise with a cost of $500 to a customer for $800 on account. Due to an
error, this sale was never recorded in the accounting records. What effect will the failure to make the
necessary entries have on the company's accounting equation?
A. Total assets and total equity will be understated.
B. Total assets will be overstated and total equity will be understated.
C. Total assets and total equity will be overstated.
D. The accounting equation will not be affected.
20. Which accounts would affect operating income?
A. Account numbers 2, 4, and 9.
B. Account numbers 3, 5, 7, and 9.
C. Account numbers 3, 4, 7, and 9.
D. Account numbers 3, 4, 7, 8 and 9.