To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory True / False Questions Ownership of goods passes from the seller to the buyer after the buyer has paid for the goods FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: If transportation costs are the responsibility of the buyer, they should be added to the cost of inventory purchases for the period TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: The weighted average method of inventory costing results in a valuation between that determined by the FIFO and LIFO costing methods TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: When the weighted average inventory method is used, ending inventory and cost of goods sold are valued at a different cost per unit FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-1 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory LIFO will always result in highest income when costs are rising in comparison to specific identification, FIFO and weighted average FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: LIFO can be used for income tax purposes and FIFO can be used for financial reporting purposes for a company in a given year FALSE AACSB Tag: Communications Difficulty: Hard L.O.: A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: The lower-of-cost-or-market (LCM) rule is used because of the conservatism constraint, which allows a departure from the historical cost principle TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-2 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory If Dell Computer has 10,000 Pentium disks in stock at a cost of $300 per chip when they can be purchased at a replacement cost of $250 each Dell will recognize this decline in cost when the chips are sold as part of their computers FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 10 Inventory turnover is computed as cost of goods sold divided by ending inventory FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11 Reducing inventory can free up cash and allow for reduced borrowing TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 12 If a company sells their inventory every 87 days then their inventory turnover ratio must be 4.2 times TRUE AACSB Tag: Analytic Difficulty: Medium L.O.: 7-3 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 13 If a company has a decrease in inventory equal to $3 million and a decrease in accounts payable of $2 million, then cash flow from operating activities will increase by $1 million TRUE AACSB Tag: Analytic Difficulty: Medium L.O.: 14 The LIFO Reserve is a contra-asset account for the excess of FIFO inventory costs over the LIFO inventory costs TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 15 In a period of rising costs, the LIFO Reserve account would be deducted from the ending inventory under LIFO costing to convert it to ending inventory under FIFO costing FALSE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 16 The beginning inventory of one accounting period becomes the beginning inventory amount of the next accounting period FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 7-4 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 17 An understatement error in the ending inventory causes an overstatement of both net income and current assets in that year FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 18 When a company using LIFO costing reduces its inventory levels at the end of the year, it can lead to a LIFO liquidation TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 19 When a perpetual inventory system is used, the purchases returns and allowances account will not be part of the general ledger accounts TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup B 20 Under the periodic inventory system, the balance in the inventory account changes each time a purchase or sale of inventory is recorded FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup C 7-5 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory Multiple Choice Questions 21 Which of the following best describes inventory? A They are held for resale B They are tangible property C They are used in the operations of the company D They are held for resale and are tangible property AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 22 Which of the following statements about inventory is true? A It is acquired for use in operating the company B It is intangible property C It is a current asset on the balance sheet D Manufacturers have four inventory accounts AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 23 Rockwell Company reported the following amounts on its 2009 income statement: Purchases, $100,000; Beginning inventory, $20,000; and Cost of goods sold, $110,000 Therefore, the 2009 ending inventory was A $10,000 B $25,000 C $15,000 D $27,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 7-6 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 24 The 2009 records of Coleman Company showed beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000 The purchases for 2009 equal A $450,000 B $410,000 C $430,000 D $420,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 25 When goods are sold on credit, revenue usually should be recognized at the date of A receipt of the sales order B passage of title from the seller to the buyer C receipt of the goods by the buyer D manufacture of the goods AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 26 Which of the following types of inventory usually is not held by a manufacturing business? A Finished goods inventory B Raw material inventory C Merchandise inventory D Work in process inventory AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 7-7 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 27 Which of the following is true about a manufacturing company's inventory? A Components purchased from vendors will be added to a raw material inventory account B Direct labor and factory overhead are added to the materials in the raw material inventory account C Cost of storing finished units in a separate warehouse will be added to the finished goods inventory account D Direct labor and factory overhead are subtracted from the materials in the raw material inventory account AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 28 Thorton Co reported the following data at year-end Sales, $500,000; beginning inventory, $40,000; ending inventory, $45,000; cost of goods sold, $350,000; and gross margin, $150,000 What was the amount of merchandise purchased during the year? A $370,000 B $355,000 C $348,000 D $341,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 29 The following information was taken from the 2010 income statement of Cobra Company: Pretax income, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000 Compute cost of goods sold A $ 88,000 B $100,000 C $108,000 D $112,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 7-8 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 30 The following information was taken from the 2010 income statement of Milburn Company: Pretax income, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000 Compute the amount of the ending inventory A $88,000 B $10,000 C $ 8,000 D $18,000 AACSB Tag: Analytic Difficulty: Hard L.O.: 31 Which of the following is true? A Factory overhead consists of manufacturing costs other than direct materials and direct labor B Net realizable value is the expected sales price plus selling costs C LIFO Reserve is a contra sales account for the excess of LIFO over FIFO inventory D Purchases discounts increase sales revenue to arrive at net sales AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 32 Sheffield Company had the following information taken from its 2009 adjusted trial balance: Sales, $400,000; Sales Discounts, $12,000; Beginning Inventory, $20,000; and Purchases, $200,000 Ending inventory was determined to be $25,000 Compute the gross margin (gross profit) that would appear in the income statement A $162,000 B $180,000 C $193,000 D $205,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 7-9 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 33 On March 10, Anthony Company received merchandise for resale from its normal supplier The price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345 The invoice was paid on March 17 Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory What is the unit cost that should be recorded for each of the 100 units of Part # 345? A $36.48 B $37.20 C $36.00 D $37.56 AACSB Tag: Analytic Difficulty: Medium L.O.: 34 Which of the following is correct? A Beginning Inventory + Purchases Cost of Goods Sold = Ending Inventory B Sales + Cost of Goods Sold = Gross Margin C Beginning Inventory + Ending Inventory Purchases = Cost of Goods Sold D Income Before Taxes Operating Expenses = Cost of Goods Sold AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 35 Which of the following costs while includable in inventory, is usually expensed as incurred instead of being assigned to the inventory units? A Freight costs B Inspection and preparation costs C Purchases discounts D Purchase returns AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-10 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 97 The single-step income statement for Clinton Company for 2009 reported the following under two different assumptions Answer the following questions (assume a 40% income tax rate): A Were merchandise inventory costs rising, or falling? Explain your answer B What was the amount of the LIFO ending inventory? C Calculate net income (after tax) for both LIFO and FIFO D Under FIFO, would retained earnings on the balance sheet be more or less than under LIFO? A Rising; Cost of goods sold increased under LIFO with the same volume B $120,000 $100,000 = $20,000 C FIFO: $120,000; LIFO: $60,000 D More AACSB Tag: Analytic Difficulty: Hard L.O.: 7-42 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 98 Boulder, Inc is computing its inventory at December 31, 2009 The following information relates to the five major inventory items regularly stocked for resale A Using the lower-of-cost-or-market rule, compute the total valuation for each inventory item at December 31, 2009, and the total inventory valuation AACSB Tag: Analytic Difficulty: Medium L.O.: 7-43 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 99 Cutting Edge Technologies reported the following information in their 2010 annual report: Determine the inventory turnover ratio Determine the average days to sell inventory Explain the meaning of each number 6.50, ($11,010/$1,695) 56.2 days, (365 days/6.50) The inventory turnover ratio identifies how many times the inventory was sold or liquidated during the year's time while the average days to sell shows the volume of sales that can be supported in terms of number of days' stock on hand As the inventory turnover increases, the company will carry less stock in terms of days' sales AACSB Tag: Analytic Difficulty: Easy L.O.: 7-44 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 100 Sports Style Inc manufactures sporting equipment and clothing Its recent annual report included the following on its balance sheet: In addition to the above balance sheet information, All Sports Style Inc., reported cost of goods sold on their income statement of $53,800,000.All purchases of inventory were made on credit Calculate: Inventory purchased during 2010 Cash paid to suppliers during 2010 $53,850,520 ($53,800,000 + ($610,850 minus $560,330), $53,845,820 ($53,850,520 minus ($90,500 minus $85,800) AACSB Tag: Analytic Difficulty: Medium L.O.: 7-45 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 101 Quest Inc provided the following footnote in their annual report: Inventories are stated at the lower of cost or market The cost of inventories has been determined using last in first out (LIFO) method Cost of goods sold under LIFO costing were $22.2 billion for 2010 and ending inventory under LIFO was $1.3 billion Inventory in 2009 under LIFO costing was $1.2 billion The LIFO Reserve account carried a credit balance of $0.8 billion in 2010 and $0.6 billion in 2009 $1.8 billion, ($1.2 billion LIFO inventory plus $0.6 billion LIFO reserve) $2.1 billion, ($1.3 billion plus $0.8 billion LIFO reserve) $22.0 billion, ($22.2 billion LIFO COGS minus $0.2 billion increase in the LIFO reserve) 17.76, ($22.2 billion divided by [$1.3 + $1.2 billion divided by 2]) 11.28, ($22.0 billion divided by [$2.1 + $1.8 billion divided by 2]) AACSB Tag: Analytic Difficulty: Hard L.O.: 7-46 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 102 Dows Company prepared income statements that reflected pretax income of $21,000 for 2009 and $30,000 for 2010 An audit has determined that there were two errors in the inventory amounts as follows Determine the correct pretax income amount for each year (show computations assuming the errors were not corrected: 2009: $21,000 $1,000 = $20,000 2010: $30,000 + $1,000 $2,000 = $29,000 AACSB Tag: Analytic Difficulty: Hard L.O.: 7-47 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 103 For each independent situation given below, determine the effect on pretax income for each Enter "+" to indicate pretax income is overstated, " " to indicate pretax income is understated, or "NA" to indicate that pretax income is not affected AACSB Tag: Analytic Difficulty: Medium L.O.: 7-48 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 104 Redford Company hired a new store manager in October 2011, who determined the ending inventory on December 31, 2011, to be $50,000 In March, 2012 the company discovered that the December 31, 2011 ending inventory should have been $58,000 The December 31, 2012, inventory was correct Ignore income taxes Complete the following table to show the effects of the inventory error on the four amounts listed Give the amount of the discrepancy and indicate whether it was overstated (O), understated (U), or had no effect (N) AACSB Tag: Analytic Difficulty: Medium L.O.: 105 Sideline Company reported net income for 2009 of $70,000, and in 2010 $84,000 (both after income taxes at a 30% rate) It was discovered in 2011 that the ending inventory for 2009 was understated by $2,000 (before any income tax effect) Calculate the correct net income (after income tax of 20%) for 2009 and 2010 2009–$70,000 ($2,000 70) = $68,600; 2010–$84,000 + ($2,000 70) = $85,400 AACSB Tag: Analytic Difficulty: Hard L.O.: 7-49 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 106 Tech Star Company reported net income in 2009 of $50,000 and in 2010 of $54,000 Later it was discovered that the 2009 ending inventory was overstated by $1,000 Compute the correct amount of net income (disregard income tax) for 2009 and 2010 2009–$51,000; 2010–$53,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 107 A company provided the following footnote in its most recent annual report: During the current and prior year, the company reduced certain inventory quantities that were valued at lower LIFO costs prevailing in prior years The effect of these physical reductions was to increase after tax earnings this year by $90 million, $.30 per share, and $98 million, or $.327 per share last year Explain why the reduction in inventory quantity increased after tax earnings for this company If the company had been using FIFO costing, would the reductions in inventory quantity during the two years have increased after tax earnings? Explain The reduction of the physical level of inventory forced the release of older costs assigned to those units from the balance sheet to the income statement once they were sold Obviously the company had been in a period of inflation and these older costs attached to the inventory units were far below the current inventory replacement costs The reductions in inventory would not have increased after tax earnings because the costs that would have been released from the balance sheet for the units sold would have been reflecting current costs and not older, lower costs as they were under LIFO AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 7-50 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 108 Assume Webster Company buys compact disks at a unit cost of $20 and sells them at a unit price of $26 There was no beginning inventory Provide the journal entries required below by entering the account code of the appropriate account and the amount for each debit and credit: 7-51 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory AACSB Tag: Analytic Difficulty: Medium L.O.: Sup C 7-52 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 109 Give the journal entries for the transactions listed below under each of the two inventory systems A Purchased merchandise for cash, $1,000 B Sold merchandise for $600 cash that had cost $480 (cost is 80% of the sales price C Accepted a sales return from a customer: sales price $30 A cash refund was given to the customer The goods were returned to regular inventory D Returned goods to the vendor because they did not meet our specification; $50 cash refund was received AACSB Tag: Analytic Difficulty: Medium L.O.: Sup C 7-53 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory Matching Questions 110 For each of the following types of inventory, enter a letter to indicate the type of business in which the inventory is more likely to appear Raw materials Merchandise Finished goods Work in progress Manufacturing Retail Manufacturing Manufacturing AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 111 Match the descriptions with inventory costing methods Requires computation of a new unit cost after each purchase and after each sale Tends to match older costs with current revenue Cost of goods sold and inventory are costed at the oldest costs Inventory is costed at the newest unit costs Inventory is costed at the oldest unit cost Tends to match current costs with current revenue Cost of goods sold is costed at the oldest unit costs Subject to manipulation by arbitrary choice of unit costs when sold or issued Requires computation of an average cost for the entire period excluding beginning inventory 10 Inventory and cost of goods sold are valued at the same unit cost FIFO None of the answers is correct LIFO Weighted average LIFO None of the answers is correct None of the answers is correct Specific identification 10 FIFO FIFO AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-54 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 112 Relate each situation to the direction of prices LIFO provides a lower inventory amount than FIFO when FIFO provides a higher net income than LIFO when FIFO provides a lower inventory amount than LIFO when LIFO provides a higher net income than FIFO when Costs are rising Costs are rising Costs are falling Costs are falling AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 113 Match the inventory systems with the appropriate statement Cost of goods sold cannot be determined until a physical count is taken Uses a separate account for recording purchases Requires that two concurrent journal entries be made to record a purchase Used to reveal any inventory shortages and shrinkage that occur during the period Requires that purchases be recorded at their cash equivalent cost Inventory account is increased for each purchase and decreased for each sale The periodic inventory system Both the perpetual and periodic inventory systems Neither the perpetual nor the periodic inventory systems The periodic inventory system The perpetual inventory system The perpetual inventory system AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-55 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 007: Reporting and Interpreting Cost of Goods Sold and Inventory 114 Match the inventory systems with the appropriate statement Perpetual inventory system Periodic inventory system Neither the perpetual nor the periodic inventory systems Periodic inventory system Perpetual inventory system Perpetual inventory system Neither the perpetual nor the periodic inventory systems Perpetual inventory system A sale requires one journal entry Cost of goods sold is computed as a residual amount after an inventory count A sale requires two journal entries A purchase requires two journal entries The inventory system that provides more control features Merchandise inventory is debited when goods are purchased A return of a purchase requires two journal entries A physical inventory count is never taken The inventory system that requires adjusting (or closing) entries for the beginning and ending inventories Periodic inventory system AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 7-56 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e ... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com