Date: Name: 1. Which of the following is a characteristic of a perpetual invento

Question

Date: Name: 1. Which of the following is a characteristic of a perpetual inventory system? A) Inventory purchases are debited to a Purchases account. B) Inventory records are not kept for every item. C) Cost of goods sold is recorded with each sale. D) Cost of goods sold is determined as the amount of purchases less the change in inventory. 2. Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet? A) Accounts payable. B) Inventory C) Equipment. D) Not on the balance sheet. 3. If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b shipping point in purchases, but not ending inventory? A) Overstate net income. B) Understate net income. C) No effect on net income. D) Not sufficient information to determine effect on net income. 4. When using a perpetual inventory system, A) no Purchases account is used. B) a Cost of Goods Sold account is used. C) two entries are required to record a sale. D) All of these answer choices are correct. Page 1 sco RE TES

Explanation / Answer

1) Which of the following is characterstic of a perpetual inventory system?

Solution: Cost of goods sold is recorded with each sale

Explanation: The Perpetual Inventory System is a system that maintains the physical movements of goods and their current balances at any given point of time

2) Where should goods in transit that were recently purchased f.o.b destination be included on the balance sheet

Solution: Not on the balance sheet

Explanation: FOB destination refers that the buyer will take the delivery of goods being shipped to it by a supplier when the goods arrive at the buyer's receiving dock, thus will not be on the balance sheet

3) If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory

Solution: Understate net income

Explanation: f.o.b. shipping point means that means that the buyer will accept delivery of goods being shipped to it by a supplier when the goods leave the supplier's shipping dock

4) When using a perpetual inventory system

Solution: all of these answer choices are correct

Explanation: The Perpetual Inventory System is a system that maintains the physical movements of goods and their current balances at any given point of time thus includes all the choices

5) Goods in transit which are shipped f.o.b. shipping point should be

Solution: included in the inventory of the buyer.

Explanation: f.o.b. shipping point means that means that the buyer will accept delivery of goods being shipped to it by a supplier when the goods leave the supplier's shipping dock, thus goods in transit which are shipped will be included in the inventory of the buyer.

6) The accountant for the Pryor Sales Company is preparing the income statement for 2017 and the balance sheet at December 31, 2017. Pryor uses the periodic inventory system. The January 1, 2017 merchandise inventory balance will appear

Solution: only in the cost of goods sold section of the income statement.

Explanation: Periodic inventory refers to a system of inventory in which updates are made on a periodic basis thus inventory balance will appear only in the cost of goods sold section of the income statement.

7) If the beginning inventory for 2017 is overstated, the effects of this error on cost of goods sold for 2017, net income for 2017, and assets at December 31, 2017, respectively, are

Solution: overstatement, understatement, no effect

Explanation: It will overstatement COGS, understate the net income , no effect on the assets

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