Question

1- Which of the following is false regarding a perpetual inventory system?

a.Physical counts of ending inventory are not needed since inventory records are maintained on transaction-by-transaction basis.

b. The balance in the inventory account is updated with each inventory purchase and sale transaction

c.Cost of goods sold is increased(recorded) as sales are recorded.

d. Inventory shrinkage loss can be detected, if any, when physical counts on inventory are conducted.

2- Jiro Industries uses straight-line depreciation for all of its depreciable assets. Jiro Industries sold a

used piece of machinery on December 31, 2015, that it purchased on January 1, 2014, for $10,000. The asset had a five-year life, zero residual value, and $2,000 accumulated depreciation as of December 31, 2014. If the sales price of the used machine was $6,500, the resulting gain or loss upon the sale was which of the following amounts?

a. Loss of $500

b. Gain of $500

c. Loss of $1,500

d. Gain of $1,500

3- Under which method(s) of depreciation is the residual value of a depreciated asset may not be

taken into account to determine annual depreciation expense?

a. Straight-line method

b. Declining-balance method

c. Units-of-production method

d. Straight-line and Units-of-production methods

e. All of the above

Answer 1

1

Physical counts of ending inventory are not needed since inventory records are maintained on transaction-by-transaction basis is false.

Physical counts of ending inventory are needed in perpetual inventory system as well to verify the accuracy of inventory records.

Option A is correct

2

Accumulated depreciation as of December 31, 2015 = 2000+2000 = $4000

Book value as of December 31, 2015 = 10000-4000 = $6000

Gain on sale = 6500-6000 = $500

Option B Gain of $500 is correct option

3

Under Declining-balance method, residual value of a depreciated asset is not taken into account.

Option B is correct