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Accounting 2 Chapter 6

True/False
Indicate whether the statement is true or false.
 

 1. 

A perpetual inventory maintains a continuous record of merchandise inventory increases and decreases.
 

 2. 

A business may fail if it does not have enough inventory on hand, but will not fail if it has an excess of inventory.
 

 3. 

The cost of items in inventory involves both the price paid to vendors for the merchandise and the costs involved in getting the goods to the place of business and ready for sale.
 

 4. 

Each year, the business uses the inventory costing method that results in the most favorable net income.
 

 5. 

The consignor is the owner of the goods on consignment and is responsible for selling the goods.
 

 6. 

The unit of measurement concept states that the unit price should be used to record inventory cost when merchandise is purchased.
 

 7. 

If ending inventory is understated, merchandise inventory on the balance sheet will be overstated.
 

 8. 

If the average number of days' sales in merchandise inventory is 40 days, the merchandise turnover ratio (rounded to the nearest 0.1) is 9.1.
 

 9. 

A low merchandise inventory turnover ratio usually indicates a high return on investment.
 

 10. 

Typically, a business counts as part of its inventory all goods for sale legally owned by the business.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

A completed form authorizing a seller to deliver goods with payment to be made later is called a(n) ____.
A.
stock ledger
C.
stock record
B.
purchase order
D.
invoice
 

 2. 

The costing method that uses the price of merchandise purchased last to calculate the cost of merchandise sold first is called ____.
A.
first-in, first-out
C.
last-in, first-out
B.
lower of cost or market
D.
weighted average
 

 3. 

The number of times the average amount of merchandise inventory is sold during a specific period of time is called the ____.
A.
average number of days' sales in merchandise inventory
B.
average sales turnover ratio
C.
inventory sales period ratio
D.
merchandise inventory turnover ratio
 

 4. 

Goods that are given to a business to sell but for which title remains with the vendor, are called a(n) ____.
A.
consignment
C.
sale
B.
purchase
D.
consignee
 

 5. 

The costing method that uses the lower of cost or market price to calculate the cost of ending merchandise inventory is called ____.
A.
first-in, first-out
C.
last-in, first-out
B.
lower of cost or market
D.
weighted average
 
 
The following selected data is taken from the inventory records of Edwards, Inc: Inventory item S10 had 1,200 units at a unit price of $17.00 in inventory on January 1. The first purchase during the year was for 1,400 units at $18.00. The second purchase was for 1,400 units at $19.00. The December 31 inventory consisted of 1,800 units.
 

 6. 

Refer to the Edwards Inc. Inventory Item S10 Scenario. The total cost of the ending inventory using weighted-average is ____.
A.
$31,200
C.
$32,490
B.
$32,400
D.
$33,800
 

 7. 

The inventory method that uses the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold is called ____.
A.
first-in, first-out
C.
last-in, first-out
B.
lower of cost or market
D.
weighted average
 

 8. 

The method of estimating inventory by using a percentage based on both cost and retail prices is called ____.
A.
gross profit
C.
percentage
B.
periodic inventory
D.
retail
 

 9. 

A file of stock records for all merchandise on hand is called a(n) ____.
A.
accounts payable ledger
C.
merchandise ledger
B.
stock ledger
D.
inventory record
 

 10. 

The period of time needed to sell an average amount of merchandise inventory is called the ____.
A.
average number of days' sales in merchandise inventory
B.
average sales turnover ratio
C.
merchandise inventory turnover ratio
D.
merchandise sold ratio
 

 11. 

The person or business that receives goods on consignment is called the ____.
A.
consignment buyer
C.
consignor
B.
consignee
D.
owner
 
 
The following selected data is taken from the inventory records of Edwards, Inc: Inventory item T35 had 1,600 units at a unit price of $14.00 in inventory on January 1. The first purchase during the year was for 1,000 units at $15.00. The second purchase was for 1,000 units at $18.00. The December 31 inventory consisted of 1,200 units. The market price is $15.00.
 

 12. 

Refer to the Edwards Inc. Inventory Item T35 Scenario. The weighted-average unit price is ____.
A.
$14.50
C.
$15.67
B.
$15.39
D.
$16.00
 

 13. 

If the cost of ending merchandise inventory is understated, the cost of merchandise sold will be ____.
A.
understated
C.
not affected
B.
overstated
D.
undetermined
 

 14. 

The weighted-average inventory costing method is based on the assumption that each item in ending inventory has a cost equal to the ____.
A.
beginning price paid for similar items
B.
ending price paid for similar items
C.
average price paid for similar items
D.
average price for all inventory items
 

 15. 

The shipping terms that indicate that title to the goods passes to the buyer when the goods are received by the buyer is ____.
A.
FOB shipping point
C.
FOB buyer
B.
FOB destination
D.
FOB seller
 



 
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