ACCT 2000 STUDY EXAMS GUIDE ALL QUESTIONS
AND ANSWERS SURE A+
✔✔How is the gross profit rate computed? - ✔✔by dividing the amount of gross profit by
net sales
✔✔How is the profit margin computed? - ✔✔by dividing net income by net sales
✔✔How is the quality of earnings ratio computed? - ✔✔by dividing net cash provided by
operating activities by net income
✔✔Where is inventory reported? - ✔✔as a current asset on the balance sheet
✔✔are items that will eventually be used in production - ✔✔raw materials
✔✔How is inventory ready for sale classified in a manufacturing company? - ✔✔finished
goods inventory
✔✔In the perpetual inventory system, which of the following is NOT a reason to take
physical inventory? - ✔✔to determine ownership of goods
, ✔✔Which of the following is NOT considered an inventory cost? - ✔✔costs of the
purchasing and warehousing departments
✔✔What is the beginning inventory plus the cost of goods purchased? - ✔✔cost of
goods available for sale
✔✔A new company purchased three inventory items at the following costs: first
purchase $60; second purchase $40; third purchase $50. If the company sells two units
for $200, what would the gross profit for the period be, using FIFO costing? - ✔✔$100
✔✔What does the LIFO inventory method assume about the cost of the latest units
purchased? - ✔✔They are the first to be allocated to cost of goods sold.
✔✔Which inventory flow assumption should a company choose if it is interested in the
lowest amount of income tax expense in a period of increasing prices? - ✔✔LIFO
✔✔Based on the net income of the shop, the sales staff at Francesca's Fashions
receive performance bonuses. In periods of declining prices, which inventory costing
method would bring the sales staff the most benefit? - ✔✔LIFO
✔✔When determining the cost of inventory items before lower-of-cost-or-market is
applied, which of the following costing methods cannot be used? - ✔✔All Choices -
FIFO, LIFO, Specific Identification
✔✔How is market defined under the lower-of-cost-or-market basis in valuing inventory?
- ✔✔current replacement costs
✔✔Simpson's Sandals, Inc. has five cases of flip-flops that just have not sold, remaining
part of the inventory for more than two years. Each case cost $300 and originally
retailed for $500. Each case has a current replacement cost of $200. What is the
amount of loss that Simpson's should report for the year? - ✔✔$500
✔✔If beginning inventory is understated, which of the following will also be
understated? - ✔✔cost of goods sold
✔✔An error was made with the physical count of goods on hand at the end of a period
that resulted in a $25,000 overstatement of the ending inventory. What is the effect of
this error on cost of goods sold and net income, respectively? - ✔✔Understated,
Overstated
✔✔American Supply sold merchandise on account to Decker Plumbing on March 31st.
The sales price was $2,300, and the cost of goods sold was $1,500. Sales revenue was
AND ANSWERS SURE A+
✔✔How is the gross profit rate computed? - ✔✔by dividing the amount of gross profit by
net sales
✔✔How is the profit margin computed? - ✔✔by dividing net income by net sales
✔✔How is the quality of earnings ratio computed? - ✔✔by dividing net cash provided by
operating activities by net income
✔✔Where is inventory reported? - ✔✔as a current asset on the balance sheet
✔✔are items that will eventually be used in production - ✔✔raw materials
✔✔How is inventory ready for sale classified in a manufacturing company? - ✔✔finished
goods inventory
✔✔In the perpetual inventory system, which of the following is NOT a reason to take
physical inventory? - ✔✔to determine ownership of goods
, ✔✔Which of the following is NOT considered an inventory cost? - ✔✔costs of the
purchasing and warehousing departments
✔✔What is the beginning inventory plus the cost of goods purchased? - ✔✔cost of
goods available for sale
✔✔A new company purchased three inventory items at the following costs: first
purchase $60; second purchase $40; third purchase $50. If the company sells two units
for $200, what would the gross profit for the period be, using FIFO costing? - ✔✔$100
✔✔What does the LIFO inventory method assume about the cost of the latest units
purchased? - ✔✔They are the first to be allocated to cost of goods sold.
✔✔Which inventory flow assumption should a company choose if it is interested in the
lowest amount of income tax expense in a period of increasing prices? - ✔✔LIFO
✔✔Based on the net income of the shop, the sales staff at Francesca's Fashions
receive performance bonuses. In periods of declining prices, which inventory costing
method would bring the sales staff the most benefit? - ✔✔LIFO
✔✔When determining the cost of inventory items before lower-of-cost-or-market is
applied, which of the following costing methods cannot be used? - ✔✔All Choices -
FIFO, LIFO, Specific Identification
✔✔How is market defined under the lower-of-cost-or-market basis in valuing inventory?
- ✔✔current replacement costs
✔✔Simpson's Sandals, Inc. has five cases of flip-flops that just have not sold, remaining
part of the inventory for more than two years. Each case cost $300 and originally
retailed for $500. Each case has a current replacement cost of $200. What is the
amount of loss that Simpson's should report for the year? - ✔✔$500
✔✔If beginning inventory is understated, which of the following will also be
understated? - ✔✔cost of goods sold
✔✔An error was made with the physical count of goods on hand at the end of a period
that resulted in a $25,000 overstatement of the ending inventory. What is the effect of
this error on cost of goods sold and net income, respectively? - ✔✔Understated,
Overstated
✔✔American Supply sold merchandise on account to Decker Plumbing on March 31st.
The sales price was $2,300, and the cost of goods sold was $1,500. Sales revenue was
