Part 3.2. Obj 1&2 - EVN

Which of the following statements about merchandising activities is true?

• As inventory is purchased, the Inventory Expense account is debited and Cash (or Accounts Payable) is credited

• Inventory is recorded as an asset when it is first purchased

• As inventory is sold, its cost is transferred to the balance sheet

• As inventory is sold, its revenue is transferred to the balance sheet.

Marietta Corporation uses a perpetual inventory system. All of its sales are made on account. The company sells merchandise costing $3,000 at a sales price of $4,300. In recording this transaction, Marietta will make all of the following entries except

• Credit Sales, $4,300

• Credit Inventory, $4,300

• Debit Cost of Goods Sold, $3,000

• Debit Accounts Receivable, $4,300

Fashion House uses a perpetual inventory system. At the beginning of the year, inventory amounted to $50,000. During the year, the company purchased merchandise for$230,000 and sold merchandise costing $245,000. A physical inventory taken at year-end indicated shrinkage losses of $4,000. Prior to recording these shrinkage losses, the year-end balance in the company’s Inventory account was

• $31,000

• $35,000

• $50,000

• Some other amount

Best Hardware uses a periodic inventory system. Its inventory was $38,000 at the beginning of the year and $40,000 at the end. During the year, Best made purchases of merchandise totaling $107,000. Identify all of the correct answers.

• To use this system, Best must take a complete physical inventory twice each year.

• Prior to making adjusting and closing entries at year end, the balance in Best’s Inventory account is $38,000

• The cost of goods sold for the year is $109,000

• As sales transactions occur, Best makes entries to update its inventory records or to record the cost of goods sold

The two basic approaches to accounting for inventory and the cost of goods sold are the perpetual inventory systemand the periodic inventory system. Indicate which of the following statements are correct.

• Most large merchandising companies and manufacturing businesses use periodic inventory systems

• As a practical matter, a grocery store or a large department store could maintain both perpetual and periodic inventory system

• In a periodic inventory system, the cost of goods soldis not determined until a complete physical inventory istaken.

• In a perpetual inventory system, the Cost of Goods Sold account is not debited promptly for the cost of merchandise sold.

Under the perpetual inventory system which journal entry would indicate a purchase of merchandise? 

• Debit, Inventory and credit, Cash.

• Debit, Purchases and credit, Cash

• Debit, Costs of Goods Sold and credit, Inventory

• Debit, Inventory and credit, Cost of Goods Sold.

In a periodic inventory system, the formula used in computing the cost of goods sold may be summarized as follows: 

• Beginning inventory + purchases - ending inventory.

• Beginning inventory + purchases - net sales.

• Ending inventory + purchases - net sales.

• Balance in the Cost of Goods Sold account, less the balance in the Inventory Shrinkage account.

In a perpetual inventory system: 

• Merchandising transactions are recorded as they occur.

• No effort is made to record the Cost of Goods Sold until year-end.

• Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold.

• The need for ever taking physical inventory is eliminated

Jayson Products uses a perpetual inventory system. At year-end, the Inventory account had a balance of $280,000, but a complete year-end physical inventory indicated goods on hand costing only $273,000. Jayson should: 

• Reduce its cost of goods sold by $7,000.

• Record a $7,000 current liability.

• Reduce the balance in its Inventory control account and inventory subsidiary ledger by $7,000.

• Reduce the balance in the Inventory control account and record a current liability, both in the amount of $7,000

Which of the following would not tend to make a manufacturer choose a perpetual inventory system? 

• Management wants information about quantities of specific products.

• A low volume of sales transactions and a computerized accounting system

• A high volume of sales transactions and a manual accounting system

• Items in inventory with high per unit costs