Accounting Exam 3 and Graded Answers.
Which of the following is a characteristic of a perpetual inventory system?
A. Cost of goods sold is determined as the amount of purchases less the change in inventory.
B. Inventory records are not kept for every item.
C. Inventory purchases are debited to a Purchases account.
D. Cost of goods sold is recorded with each sale. - Cost of goods sold is recorded with
each sale.
How is a significant amount of consignment inventory reported in the balance sheet? -
The inventory is reported separately on the consignor's balance sheet.
Where should goods in transit that were recently purchased f.o.b. destination be included on the
balance sheet? - Not on the balance sheet.
If a company uses the periodic inventory system, what is the impact on net income of including
goods in transit f.o.b. shipping point in purchases, but not ending inventory? - Understate
net income.
If a company uses the periodic inventory system, what is the impact on the current ratio of
including goods in transit f.o.b. shipping point in purchases, but not ending inventory? -
Understate the current ratio.
When using a perpetual inventory system:
A. no Purchases account is used.
B. all of these answer choices are correct.
C. a Cost of Goods Sold account is used.
D.two entries are required to record a sale. - all of these answer choices are correct.
, Goods in transit which are shipped f.o.b. shipping point should be - included in the
inventory of the buyer.
Goods in transit which are shipped f.o.b. destination should be - included in the inventory
of the seller.
Goods on consignment are - included in the consignor's inventory.
If the beginning inventory for 2014 is overstated, the effects of this error on cost of goods sold
for 2014, net income for 2014, and assets at December 31, 2015, respectively, are -
overstatement, understatement, no effect.
The failure to record a purchase of merchandise on account even though the goods are properly
included in the physical inventory results in - an understatement of liabilities and an
overstatement of owners' equity.
Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the
transaction as a purchase and included the goods in inventory. The effect of this on its financial
statements for March 31 would be - net income was correct and current assets and current
liabilities were overstated.
Green Co. received merchandise on consignment. As of January 31, Green included the goods in
inventory, but did not record the transaction. The effect of this on its financial statements for
January 31 would be - net income, current assets, and retained earnings were overstated.
Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31,
Feine had recorded the transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be - net income, current
assets, and retained earnings were understated.
What is the effect of a $50,000 overstatement of last year's inventory on current years ending
retained earning balance? - No effect.
Which of the following is a characteristic of a perpetual inventory system?
A. Cost of goods sold is determined as the amount of purchases less the change in inventory.
B. Inventory records are not kept for every item.
C. Inventory purchases are debited to a Purchases account.
D. Cost of goods sold is recorded with each sale. - Cost of goods sold is recorded with
each sale.
How is a significant amount of consignment inventory reported in the balance sheet? -
The inventory is reported separately on the consignor's balance sheet.
Where should goods in transit that were recently purchased f.o.b. destination be included on the
balance sheet? - Not on the balance sheet.
If a company uses the periodic inventory system, what is the impact on net income of including
goods in transit f.o.b. shipping point in purchases, but not ending inventory? - Understate
net income.
If a company uses the periodic inventory system, what is the impact on the current ratio of
including goods in transit f.o.b. shipping point in purchases, but not ending inventory? -
Understate the current ratio.
When using a perpetual inventory system:
A. no Purchases account is used.
B. all of these answer choices are correct.
C. a Cost of Goods Sold account is used.
D.two entries are required to record a sale. - all of these answer choices are correct.
, Goods in transit which are shipped f.o.b. shipping point should be - included in the
inventory of the buyer.
Goods in transit which are shipped f.o.b. destination should be - included in the inventory
of the seller.
Goods on consignment are - included in the consignor's inventory.
If the beginning inventory for 2014 is overstated, the effects of this error on cost of goods sold
for 2014, net income for 2014, and assets at December 31, 2015, respectively, are -
overstatement, understatement, no effect.
The failure to record a purchase of merchandise on account even though the goods are properly
included in the physical inventory results in - an understatement of liabilities and an
overstatement of owners' equity.
Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the
transaction as a purchase and included the goods in inventory. The effect of this on its financial
statements for March 31 would be - net income was correct and current assets and current
liabilities were overstated.
Green Co. received merchandise on consignment. As of January 31, Green included the goods in
inventory, but did not record the transaction. The effect of this on its financial statements for
January 31 would be - net income, current assets, and retained earnings were overstated.
Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31,
Feine had recorded the transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be - net income, current
assets, and retained earnings were understated.
What is the effect of a $50,000 overstatement of last year's inventory on current years ending
retained earning balance? - No effect.
