Activity 2: COST ACCOUNTING AND COST CONTROL (Select The Letter of The Best Answer)

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ACTIVITY 2
COST ACCOUNTING AND COST CONTROL [Select the letter of the best answer].
1. When perpetual inventory is maintained, the cost of goods sold is recorded by a journal entry
in which a credit is made to the
a. Cost of Goods Sold account

b. Merchandise Inventory account
c. Accounts Receivable account
d. Purchases account
2. Which journal entry is an indication that a perpetual inventory system is being used?
a. Accounts Receivable, dr., $500; Sales, cr., $500

b. Merchandise Inventory, dr., $45,000; Income Summary, cr., $45,000
c. Cost of Goods Sold, dr., 30,000; Merchandise Inventory, cr., $30,000
d. Income Summary, dr., $24,000; Merchandise Inventory, cr., $24,000
3. Work-Days Clothing had beginning merchandise inventory of $45,000. It made purchases of

$80,000 and recorded sales of $130,000 during November. Its estimated gross profit on sales
was 25%. On November 30, the store was destroyed by fire. The merchandise inventory loss
was
a. $27,500
b. $125,000
c. $97,500
d. $25,000
4. Beginning inventory totals $100,000 and ending inventory totals $140,000. Net sales totals
$400,000 and cost of goods sold is $300,000. The merchandise turnover ratio will be
a. 2.25
b. 2.50
c. 3.00
d. 4.50
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5. Beginning inventory totals $100,000 and ending inventory totals $140,000. Net sales totals
$800,000 and cost of goods sold is $600,000. The days' sales in inventory will be (to the nearest
hundredth).
a. $22.25
b. $32.50
c. $55.33
d. $85.17
6. Emerson Furniture prepared the following schedule:
Cost Retail
Beginning merchandise inventory $40,000 $60,000
Purchases for November 80,000 140,000
Sales in November 180,000
Using the retail method for estimating the value of ending inventory, the goods available for
sale at cost and retail is
a. $40,000 and $200,000

b. $100,000 and $140,000
c. $120,000 and $200,000
d. $120,000 and $320,000
7. Which of the following types of inventory would be used by a merchandiser?
a. Finished goods
b. Work in process
c. Raw materials
d. Merchandise inventory
8. The inventory that is ready for sale by a manufacturer is:

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a. raw materials.
b. work in process.
c. finished goods.
d. cost of goods sold.
9. The terms "2/15, n/30" mean that:
a. the buyer can receive a 15% discount if the invoice is paid within 2 days.
b. the buyer can receive a 2% discount if the invoice is paid within 15 days.
c. the buyer can receive a 2% discount if the invoice is paid within 30 days.
d. the buyer can receive a 15% discount if the invoice is paid within 30 days.
10. A sale of $200 was made with terms of 2/14, n/30 on February 1. The customer made a
return and received a $50 credit to their account. If we collected the amount due on February
13, the amount collected should be:
a. $150.
b. $147.
c. $129.
d. $120.
11. If beginning inventory is $5,000, ending inventory is $7,000, and cost of goods sold is
$20,000, then the cost of goods purchased must have been:
a. $20,000.
b. $22,000.
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c. $18,000.
d. The cost of goods purchased cannot be determined.
12. The gross profit ratio is:
a. Sales - Cost of Goods Sold.
b. Cost of Goods Sold/Sales.
c. Sales - Gross Profit.
d. Gross Profit/Net Sales.
13. If the ending inventory amount is incorrect, then:
a. purchases will be incorrect.
b. goods available for sale will be incorrect.
c. cost of goods sold will be incorrect.
d. revenues will be incorrect.
14. The inventory costing method that assigns the most recent costs to cost of goods sold is:
a. FIFO.
b. LIFO.
c. weighted average cost.
d. specific identification.
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15. When prices are rising, the inventory costing method that reports the highest net income is:
a. FIFO.
b. LIFO.
c. weighted average cost.
d. specific identification.
16. In 2005, Bond Company overstated its ending inventory by $100. Which of the following
statements is true?
a. Sales will be overstated by $100.
b. Assets will be understated by $100.
c. Cost of goods sold will be understated by $100.
d. Retained earnings will be understated by $100.
17. Odessy Company has experienced a 30% gross profit ratio for the past several years. Odessy
experienced a fire on March 4, 2006. Selected account balances through March 4 were:
The estimated amount of inventory lost in the fire is:
a. $62,000.
b. $98,000.
c. $14,000.
d. $29,400.
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18. The retail inventory method is used to:
a. count inventory.
b. record inventory.
c. estimate inventory.
d. purchase inventory.
19. Number of days' sales in inventory is a measure of:
a. how much inventory a company has.
b. how long before a company should stock up its inventory again.
c. how long it takes to accumulate inventory.
d. how long it takes to sell inventory.
20. The inventory turnover ratio is a measure of the number of:
a. times inventory is purchased.
b. units of inventory purchased.
c. items of inventory.
d. times inventory is sold.

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21. On the statement of cash flows, an increase in inventory:
a. would be reported in the Operating Activities category.
b. would be reported in the Investing Activities category.
c. would be reported in the Financing Activities category.
d. An increase in inventory would not be reported on the statement of cash flows.
22. On the statement of cash flows, an increase in accounts payable would be:
a. added to net income as an operating activity.
b. subtracted from net income as an operating activity.
c. added as a financing activity.

d. subtracted activity as a financing
23. Which inventory costing method results in the same ending inventory account with either
the periodic or perpetual inventory systems?
a. FIFO
b. LIFO
c. Moving average
d. None of the answers are correct.
Complied by: DR. LOVELL M. ABELLO, CPA, LPT, LL. B.

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a. Cost of Goods Sold account

a. Accounts Receivable, dr., $500; Sales, cr., $500

3. Work-Days Clothing had beginning merchandise inventory of $45,000. It made purchases of

6. Emerson Furniture prepared the following schedule:

a. $40,000 and $200,000

7. Which of the following types of inventory would be used by a merchandiser?

8. The inventory that is ready for sale by a manufacturer is:

d. cost of goods sold.

9. The terms "2/15, n/30" mean that:

d. The cost of goods purchased cannot be determined.

12. The gross profit ratio is:

a. Sales - Cost of Goods Sold.

b. Cost of Goods Sold/Sales.

c. Sales - Gross Profit.

d. Gross Profit/Net Sales.

13. If the ending inventory amount is incorrect, then:

a. purchases will be incorrect.

b. goods available for sale will be incorrect.

c. cost of goods sold will be incorrect.

d. revenues will be incorrect.

c. weighted average cost.

c. weighted average cost.

a. Sales will be overstated by $100.

b. Assets will be understated by $100.

c. Cost of goods sold will be understated by $100.

d. Retained earnings will be understated by $100.

The estimated amount of inventory lost in the fire is:

18. The retail inventory method is used to:

19. Number of days' sales in inventory is a measure of:

a. how much inventory a company has.

b. how long before a company should stock up its inventory again.

c. how long it takes to accumulate inventory.

d. how long it takes to sell inventory.

20. The inventory turnover ratio is a measure of the number of:

a. times inventory is purchased.

b. units of inventory purchased.

d. times inventory is sold.

21. On the statement of cash flows, an increase in inventory:

a. would be reported in the Operating Activities category.

b. would be reported in the Investing Activities category.

c. would be reported in the Financing Activities category.

d. An increase in inventory would not be reported on the statement of cash flows.

a. added to net income as an operating activity.

b. subtracted from net income as an operating activity.

c. added as a financing activity.

d. None of the answers are correct.

Complied by: DR. LOVELL M. ABELLO, CPA, LPT, LL. B.

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