DeVry NY ACCT 504 Week 4, Midterm Exam 5

16 Jul DeVry NY ACCT 504 Week 4, Midterm Exam 5

1. Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.
A) True
B) False

2. The matching principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.
A) True
B) False

3. A company may use more than one inventory costing method concurrently.
A) True
B) False

4. An error that overstates the ending inventory will also cause net income for the period to be overstated.
A) True
B) False

5. Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.
A) True
B) False

6. The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.
A) True
B) False

7. In a manufacturing business, inventory that is ready for sale is called
A) raw materials inventory.
B) work in process inventory.
C) finished goods inventory.
D) store supplies inventory.

8. An employee assigned to counting computer monitors in boxes should
A) estimate the number if there is a large quantity to be counted.
B) read each box and rely on the box description for the contents.
C) determine that the box contains a monitor.
D) rely on the warehouse records of the number of computer monitors.

9. A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?
A) Establishment of responsibility
B) Documentation procedure
C) Independent internal verification
D) Segregation of duties

10. The term “FOB” denotes
A) free on board.
B) freight on board.
C) free only (to) buyer.
D) freight charge on buyer.

11. Cost of goods sold is computed from the following equation:
A) beginning inventory – cost of goods purchased ending inventory.
B) sales – cost of goods purchased beginning inventory – ending inventory.
C) sales gross profit – ending inventory beginning inventory.
D) beginning inventory cost of goods purchased – ending inventory

12. Which of the following is not a common cost flow assumption used in costing inventory?
A) First-in, first-out
B) Middle-in, first-out
C) Last-in, first-out
D) Average cost

13. Which of the following statements is true regarding inventory cost flow assumptions?
A) A company may use more than one costing method concurrently.
B) A company must comply with the method specified by industry standards.
C) A company must use the same method for domestic and foreign operations.
D) A company may never change its inventory costing method once it has chosen a method.

14. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
A) LIFO will have the highest ending inventory.
B) FIFO will have the highest cost of good sold.
C) FIFO will have the highest ending inventory.
D) LIFO will have the lowest cost of goods sold.

15. If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the
A) cost of goods sold of the companies will be identical.
B) cost of goods available for sale of the companies will be identical.
C) ending inventory of the companies will be identical.
D) net income of the companies will be identical.

 

2. Goods held on consignment should be included in the consignor’s ending inventory.
A) True
B) False

3. In periods of inflation, phantom or paper profits may be reported as a result of using the
A) perpetual inventory method.
B) FIFO costing assumption.
C) LIFO costing assumption.
D) periodic inventory method.

4. Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method?
A) It limits the risk of having obsolete items in inventory.
B) Companies may not have quantities to meet customer demand.
C) It lowers inventory levels and costs.
D) Companies can respond to individual customer requests.

5. Days in inventory is calculated by dividing 365 days by
A) average inventory.
B) beginning inventory.
C) ending inventory.
D) the inventory turnover ratio.

6. Barnett Company had the following records:
What is Barnett’s average days in inventory for 2010? (rounded)
A) 41.62 days
B) 43.30 days
C) 41.15 days
D) 1,404 days

7. Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question “What is Danforth’s LIFO reserve for 2009?”
A) $535
B) $85
C) $42
D) $58

8. Selection of an inventory costing method by management does not usually depend on
A) the fiscal year end.
B) income statement effects.
C) balance sheet effects.
D) tax effects.

9. Peach Pink Inc. has the following inventory data:
A physical count of merchandise inventory on July 30 reveals that there are 35 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is
A) $1,345
B) $1,380
C) $1,390.
D) $1,425.

10. The specific identification method of inventory costing
A) always maximizes a company’s net income.
B) always minimizes a company’s net income.
C) has no effect on a company’s net income.
D) may enable management to manipulate net income.

11. Which of the following terms best describes the assumption made in applying the four inventory methods?
A) Goods flow
B) Cost flow
C) Asset flow
D) Physical flow

12. A problem with the specific identification method is that
A) inventories can be reported at actual costs.
B) management can manipulate income.
C) matching is not achieved.
D) the lower of cost or market basis cannot be applied.

13. Manufactured inventory that has begun the production process but is not yet completed is
A) work in process.
B) raw materials.
C) merchandise inventory.
D) finished goods.

The correct answers are in bold text.
1) Which of the following is an external user of accounting information?
a.Managers
b.Labor unions
c.Finance directors
d.Company officers

2) The accounting process is correctly sequenced as
A.communication, recording, identification.
b identification, communication, recording.
c.recording, communication, identification.
d.identification, recording, communication.

3) Communication of economic events is the part of the accounting process that involves a.recording and classifying information.
b.identifying economic events.
C.quantifying transactions into dollars and cents.
D.preparing accounting reports.

4) The body of theory underlying accounting is not based on
a.definitions.
b.physical laws of nature.
C.concepts.
D.principles.

6) The private sector organization involved in developing accounting principles is the
a. Financial Auditors’ Standards Body.
b.Feasible Accounting Standards Body.
c.Financial Accounting Studies Board.
d.Financial Accounting Standards Board.

7) All of the financial statements are for a period of time except the
A.statement of cash flows.
B.income statement.
C.retained earnings.
D.balance sheet.

8) After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
A.financial statements.
B.the company’s bank.
C.stockholders’ equity.
D.ledger accounts.

9) Auditing is
a. conducted by the Securities and Exchange Commission to ensure that registered financial statements are presented fairly.
b.the examination of financial statements by a CPA in order to express an opinion on their fairness.
c.a part of accounting that involves only recording of economic events.
d.an area of accounting that involves such activities as cost accounting, budgeting, and accounting information systems.

10) In recording an accounting transaction in a double-entry system
A.there must only be two accounts affected by any transaction.
b.the number of debit accounts must equal the number of credit accounts.
c.there must always be entries made on both sides of the accounting equation.
D.the amount of the debits must equal the amount of the credits.

11) If a company has overdrawn its bank balance, then
a. it cannot be detected by observing the balance of the cash account.
B. the cash account debits will exceed the cash account credits.
c. its cash account will show a debit balance.
d. its cash accounts will show a credit balance

12) An account will have a credit balance if the
A. last transaction entered was a credit.
B. first transaction entered was a credit.
c. credits exceed the debits.
d. debits exceed the credits.

13) On August 13, 2008, Dudbury Enterprises purchased office equipment for $1,000 and office supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format?

Office Equipment    1,000
Office Supplies    200
Account Payable    1,200

14) Adjusting entries are required
a.when revenues are recorded in the period in which they are earned.
b.when the company’s profits are below the budget.
c.when expenses are recorded in the period in which they are incurred.
d.because some costs expire with the passage of time and have not yet been journalized.

15) The worksheet does not show
a. the trial balance before adjustments.
B. the ending balance in the retained earnings account.
c. revenue and expense account balances.
d. net income or loss for the period.

16) In order to close the dividends account, the
a.retained earnings account should be debited.
b.retained earnings account should be credited.
c.income summary account should be credited.
d.income summary account should be debited.

17) The entity responsible for setting International Accounting Standards is:
A.The Financial Accounting Foundation
B.The Financial Accounting Standards Board
C.The International Accounting Standards Board
d.The International Monetary Fund

Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates
A.establishment of responsibility is violated.
b.documentation procedures are violated.
c.independent internal verification is violated.
d.segregation of duties is violated.

18) An employee authorized to sign checks should not record
A.cash disbursement transactions.
b sales transactions.
c.owner cash contributions.
d.mail receipts.

19) Allowing only the treasurer to sign checks is an example of
A. establishment of responsibility.
B documentation procedures.
c. other controls.
d.segregation of duties.

20) The importance of a good system of internal controls was recognized with the passage of A. the Securities and Exchange Act of 1933.
b. the Securities and Exchange Act of 1994.
c. the Sarbanes-Oxley Act of 2002.
d.the Blue Sky Laws.

21) Which one of the following is not an objective of a system of internal controls?
A. overstate liabilities in order to be conservative
B. Enhance the accuracy and reliability of accounting records
C. Reduce the risks of errors
D. Safeguard company assets