Question

1. The largest expense category on the income statement of most merchandising companies​ is:
A.
selling expenses
B.
administrative expenses
C.
other expenses
D.
cost of goods sold

2.Using a perpetual inventory​ system, which of the following entries would record the cost of merchandise sold on​ credit?
A.
Debit Inventory and credit Cost of Goods Sold
B.
Debit Cost of Goods Sold and credit Purchases
C.
Debit Cost of Goods Sold and credit Inventory
D.
Credit Sales and debit Accounts Receivable

3.FIFO tends to increase cost of goods sold​ when:
A.
costs are constant
B.
costs are increasing
C.
costs are declining
D.
FIFO will always yield the lowest possible cost of goods sold

4.When the FIFO method is​ used, cost of goods sold is assumed to consist​ of:
A.
the most recently purchased units
B.
the units with the lowest per unit cost
C.
the units with the highest per unit cost
D.the oldest units

5.If ending inventory for the year ended December​ 31, 2016, is​ understated, this error will cause​ owners' equity to​ be:
A.
understated at the end of 2016 and overstated at the end of 2017
B.
correctly stated at the end of 2016 and overstated at the end of 2017
C.
overstated at the end of 2016 and understated at the end of 2017
D.
understated at the end of 2016 and correctly stated at the end of 2017

6.The gross margin percentage is one of the most closely watched profitability measures. It can be calculated​ by:
A.
dividing cost of goods sold by average inventory
B.
dividing gross margin by net accounts receivable
C.
dividing gross margin by net sales revenue
D.
dividing cost of goods sold by net sales revenue

7.The gross margin rate is equal​ to:
A.
net sales revenue minus gross margin on sales
B.
net sales revenue minus cost of goods sold
C.
gross margin divided by net sales revenue
D.
cost of goods sold divided by net sales revenue

8.Given the following​ data, calculate the cost of ending inventory using the weightedminusaverage method for a periodic inventory​ system, rounding to the nearest dollar.​ (Do not round in the process of your​ calculations, only round your final​ answer.)
​1/1 Beginning inventory 50 units at​ $10 per unit
​3/5 Purchases 30 units at​ $14 per unit
​5/30 Purchases 25 units at​ $15 per unit
​10/25 Purchases 20 units at​ $16 per unit
​12/31 Ending inventory 45 units
A.
​$720
B.
​$581
C.
​$450
D.
​$619

9.A business offers credit terms of​ 2/15, n/30. These terms indicate​ that:
A.
a discount of​ 2% can be taken if the invoice is paid within 15 days of the invoice date
B.
no discount is offered for early payment
C.
the buyer can take a​ 2% discount if the bill is paid within 30 days of the invoice date
D.
the total amount of the invoice must be paid within 15 days of the invoice date

10.King Size International buys beds from a manufacturer for sale overseas. A shipment of beds to King Size was received slightly damaged. The manufacturer agreed to take an extra​ 10% off of its invoice price to King Size if it will keep and sell the beds to its customers. In this​ situation, King Size has received​ a:
A.
purchase allowance
B.
purchase discount
C.
sales allowance
D.
purchase return

Answer 1

1) Option D : Cost of goods sold is correct.

Cost of goods sold means cost incurred related to Merchandise sold.

Cost of goods sold = Opening Purchases + Purchases + Direct expenses - Closing stock.

2) Option C : Debit Cost of Goods Sold and credit Inventory

Reason : Under Perpetual inventory system Merchandise Purchase and Sale are Posted to Inventort account instead of Purchases , under perpetual inventory system cost of goods sold is frequently updated.

3) Option B : Cost are increasing

Reason : Under FIFO First purchased inventory are sold first , hence they increase costs.

4) Option A : The most recently purchased units.

Reason : FIFO means First in and First out , Hence cost of goods sold consists of most recently purchased units.