Question

Under the perpetual inventory system, which of the following accounts would not be used?

Select one:

a. Sales

b. Accounts Payable

c. Cost of Goods Sold

d. Purchases

e. Inventory

Jones Merchandise uses a perpetual inventory system. It is a publicly traded company. On February 19 it sold $8,000 of motor parts to Vivak Candles on account. Jones statistics indicate 5% of its sales will result in returns. Jones's cost of inventory on motor parts is 50% of the sales price. Jones's entry to record the credit sale will be:

Select one:

a. DR Cost of Goods Sold $4,000; CR Sales $3,600 CR Inventory Liability $400

b. DR Inventory $8,000; CR Sales $7,600 CR Refund Liability $400

c. DR Cost of Goods Sold $4,000 DR Estimated Inventory Returns $4,000; CR Sales $7,600 CR Refund Liability $400

d. DR Accounts Receivable $8,000; CR Sales $7,600 CR Refund Liability $400

e. DR Accounts Receivable $8,000; CR Sales $$8,000

Adjusting entries are needed

Select one:

a.  only under the cash basis of accounting.

b. only under a perpetual inventory system

c. only under IFRS

d.  to produce relevant financial information for users.

e. to update accounts at the beginning of the accounting period.

The factor that determines whether or not goods should be included in a physical count of inventory is

Select one:

a. FIFO

b.  whether or not the purchase price has been paid.

c.  management's judgement.

d.  ownership.

e.  physical possession.

The physical inventory count is used to determine . . .

Select one:

a. cost of inventory sold during the period.

b. the cost of goods available for sale.

c. Debt/Equity turnover ratio

d.  the cost of inventory on hand.

e. cost of inventory purchased during the period.

To calculate Days in Inventory, you must know . . .

Select one:

a. Whether it is a Leap Year or Not

b. The Cost of Rotational Capital

c. Earnings per Share

d. Whether the company is using IFRS or ASPE

e. Inventory Turnover

Answer 1

1. D. Under perpetual inventory system, Purchase a/c are not used.

2. E. A/R a/c dr. 8000 and sales a/c cr. 8000. The COGS and badebt will not have impact on sales entry. When bad debt is written-off, the A/C a/c will be reduced.

3. E. Adjusting entries are necessary to update all account balances before financial statements can be prepared.

4. D. Ownership determine whether to include in inventory count or not.

5. D. The physical count is used to determine the cost of inventory on hand.

6. E. To calculate the inventory in days, inventory turnover ratio is required. The formula is =

Inventory turnover ratio/ 365.