Question 1

Which of the following best describes the purpose of closing entries in the accounting cycle?

Accepted Answer

To transfer the balances of temporary accounts to a permanent equity account at the end of the period.

Question 2

A company using a perpetual inventory system purchases $5,000 of merchandise on account, terms 2/10, n/30. If the company pays within the discount period, what is the journal entry to record the payment?

Accepted Answer

Debit Accounts Payable $$5,000; Credit Inventory 100$$; Credit Cash $4,900

Question 3

Which of the following is NOT a component of a classified balance sheet?

Accepted Answer

Sales Discounts

Question 4

Under the perpetual inventory system, which of the following journal entries is required when a company sells merchandise to a customer?

Accepted Answer

Two entries: one to record the sale and one to record the cost of goods sold.

Question 5

A company ships goods FOB Destination. When should the sale be recognized?

Accepted Answer

When the goods reach the buyer's location.

Question 6

Which inventory costing method will result in the highest net income during a period of rising prices?

Accepted Answer

FIFO (First-In, First-Out)

Question 7

A company had the following inventory transactions during the month:
- Beginning inventory: 100 units at $$10 each
- Purchased 200 units at 12 $$each
- Sold 150 units
Using the FIFO method, what is the cost of goods sold (COGS)?

Accepted Answer

$1,600

Question 8

Which of the following best describes the effect of using LIFO instead of FIFO during a period of inflation?

Accepted Answer

LIFO results in higher cost of goods sold and lower net income.

Question 9

Which of the following is the correct formula for calculating Gross Profit on a multi-step income statement?

Accepted Answer

$$Gross\ Profit = Net\ Sales - Cost\ of\ Goods\ Sold$$

Question 10

A company records a sales return of $500 for merchandise originally sold on account. Which of the following is the correct journal entry under the perpetual inventory system?

Accepted Answer

Debit Sales Returns and Allowances $$500; Credit Accounts Receivable 500$$

Question 11

Which of the following statements about the post-closing trial balance is TRUE?

Accepted Answer

It contains only permanent accounts.

Question 12

A company pays $200 in freight costs to have inventory delivered to its warehouse. Under the perpetual inventory system, which account is debited?

Accepted Answer

Inventory

Question 13

Which of the following is a key difference between the perpetual and periodic inventory systems?

Accepted Answer

Perpetual system continuously updates inventory records, while periodic system updates at the end of the period.

Question 14

A company has the following balances at year-end: Net Sales $$100,000; Cost of Goods Sold 60$$,000; Operating Expenses $25,000. What is the company's net income?

Accepted Answer

$$15,000$$

Question 15

If a company records a purchase return under the perpetual inventory system, which of the following is the correct journal entry?

Accepted Answer

Debit Accounts Payable; Credit Inventory

Question 16

Which of the following is the correct formula for calculating the weighted average cost per unit in a perpetual inventory system?

Accepted Answer

$$Weighted\ Average\ Cost\ per\ Unit = \frac{Cost\ of\ Goods\ Available\ for\ Sale}{Total\ Units\ Available\ for\ Sale}$$

Question 17

A company using the perpetual inventory system records a sale of $$2,000 (cost 1$$,200) on account. Which of the following is the correct set of journal entries?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Sales Revenue 2$$,000; Debit Cost of Goods Sold $$1,200; Credit Inventory 1$$,200

Question 18

Which of the following accounts is closed at the end of the accounting period?

Accepted Answer

Sales Discounts

Question 19

A company purchases inventory for $$10,000, pays 500 in $$freight-in, and returns $1,000 of the inventory. What is the total cost of inventory recorded?

Accepted Answer

$$9,500$$

Question 20

Which of the following is TRUE regarding the effect of inventory valuation methods on the balance sheet?

Accepted Answer

FIFO results in higher ending inventory values during periods of rising prices.

Principles of Accounting: Financial Statements, Merchandising Operations, and Inventory

Study Guide - Practice Questions

Study Guide - Flashcards