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1. Transportation-in is considered a cost of purchasing inventory.
2. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
3. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to
take a physical inventory.
4. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise
to the buyer's place of business.
5. Purchased goods in transit should be included in the ending inventory if the goods were shipped FOB
shipping point.
6. A consignor who has goods out on consignment with an agent should include the goods in ending
inventory even though they are not in the possession of the consignor.
7. If ending inventory for the year is understated, net income for the year is overstated.
8. If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of
the year is understated.
9. If the perpetual inventory system is used and a physical count disclosed a shortage, the cost of
merchandise sold should be debited and the merchandise inventory account credited.
10. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for
purchases of merchandise.
11. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in
the general ledger.
12. One difference between the periodic and the perpetual inventory systems is that under the perpetual
method the purchases account is not used.
13. Under the periodic inventory system, the merchandise inventory account continuously discloses the
amount of inventory on hand.
14. Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory
on hand and the cost of the merchandise sold.
15. Merchandise is sold for P4,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of
P250. If P800 of the merchandise is returned prior to payment and the invoice is paid within the
discount period, the amount of the sales discount is P79..
1. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the
terms are
a. consigned
b. n/30
c. FOB shipping point
d. FOB destination
2. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the
terms are
a. n/30
b. FOB shipping point
c. FOB destination
d. consigned
3. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets, and owner's equity?
a. net income is overstated, assets are overstated, owner's equity is understated
b net income is overstated, assets are overstated, owner's equity is overstated
c. net income is understated, assets are understated, owner's equity is understated
d. net income is understated, assets are understated, owner's equity is overstated
4. Merchandise inventory at the end of the year was understated. Which of the following statements
correctly states the effect of the error?
a . net income is understated
b. net income is overstated
c. cost of merchandise sold is understated
d. merchandise inventory reported on the balance sheet is overstated
5. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly
states the effect of the error?
a owner's equity is overstated
b. cost of merchandise sold is overstated
c. gross profit is understated
d. net income is understated
6. Under a perpetual inventory system, when a shortage is discovered
a. Merchandise Inventory is debited
b. Cost of Merchandise Sold is credited
c. Inventory Shortages is credited
d. Merchandise Inventory is credited
7. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory
records, the journal entry is
a. debit Cost of Merchandise Sold; credit Sales
b. debit Cost of Merchandise Sold; credit Merchandise Inventory
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. debit Accounts Receivable; credit Sales
8. Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled
a. Merchandise Inventory
b. Cost of Merchandise Sold
c. Cost of Merchandise Available for Sale
d. Purchases
9. The inventory system employing accounting records that continuously disclose the amount of inventory
is called
a.
b.
c.
d.
retail
periodic
physical
perpetual
10. When the perpetual inventory system is used, the inventory sold is debited to
a. supplies expense
b. cost of merchandise sold
c. merchandise inventory
d. sales
11. Under a perpetual inventory system
a. accounting records continuously disclose the amount of inventory
b. increases in inventory resulting from purchases are debited to Purchases
c. there is no need for a year-end physical count
d. the purchase returns and allowances account is credited when goods are returned to
vendors
For each of the following, calculate the cost of inventory reported on the balance sheet.
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The total merchandise on hand at the end of the year as determined by taking a physical
inventory is P55,000. Of the P55,000, P7,000 is held on consignment.
The total merchandise inventory counted at the end of the year was P65,000. Purchases for
P7,000 are in transit under FOB shipping point terms.
The total merchandise inventory counted at the end of the year was P60,000. Purchases for
P5,000 are in transit under FOB destination terms.
$*&@^)
JAY Co. took a physical count of its inventory on December 31. In addition, it had to decide whether or not the
following items should be added to this count.
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Merchandise on hand had been sold earlier in the year but had been returned by customers for
various warranty repairs.
JAY Co. sent merchandise on a consignment basis on December 31 just prior to the physical
count.
On December 22, JAY Co. ordered merchandise on FOB destination terms. The merchandise
was shipped by the supplier on December 30 but had not been received by December 31.
On December 27, JAY Co. ordered merchandise on FOB shipping point terms. The merchandise
was shipped on December 29 but had not been received by December 31.
Merchandise sold FOB shipping point on December 31 was picked up by the freight company
just before closing on December 31.
Merchandise shipped to a customer FOB shipping point was picked up by the freight company
on December 28 but had not arrived at its destination as of December 31.
No yes no yes no no