Unit 3 Test

1. Bajwa Inc. always has its annual inventory count completed by employees other than those who responsible for storing and maintaining the inventory on a day-to-day basis. This is an example of what type of internal control procedure?

1. Authorization
2. Documentation
3. Independent verification
4. Segregation of duties

2. The specific identification method of costing inventories is a good choice when the

1. physical flow of units cannot be determined.
2. company sells large quantities of relatively low cost homogeneous items.
3. company sells large quantities of relatively low cost heterogeneous items.
4. company sells a limited quantity of high-unit cost items.

3. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

1. LIFO will have the highest ending inventory.
2. FIFO will have the highest cost of good sold.
3. FIFO will have the highest ending inventory.
4. LIFO will have the lowest cost of goods sold.

4. Which of the following statements is correct with respect to accounting for inventories?

1. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
2. It is generally good business management to sell the most recently acquired goods first.
3. Under FIFO, the ending inventory is based on the latest units purchased.
4. FIFO seldom coincides with the actual physical flow of inventory.

5. A good system of internal control

1. can never fail.
2. can be ineffective if employees collude.
3. will have costs exceeding benefits.
4. is based on the concept that all individuals are trustworthy.

6. The beginning inventory of the Martin’s Pro Shop was $180 000. If the cost of goods sold was $450 000 and ending inventory was $140 000 the purchases must have been:

1. $400 000          
2. $410 000
3. $530 000
4. $590 000

7. If the ending inventory in 2015 is understated and the error is never caught, the effect is to:

1. Understate 2015 net income and overstate 2016 net income
2. Overstate 2015 net income this year and understate 2016 net income
3. Understate 2015 net income with no effect on 2016 net income
4. Overstate cost of goods sold, but have no effect upon net income

8. Which of the following statements regarding internal control is FALSE?

1. Subdivision of duties strengthens internal control.
2. Source documents are a vital part of internal control.
3. Strong internal control is easier to achieve in a large business than a small one.
4. If an employee makes a mistake when issuing a cheque, the cheque should be discarded and replaced by the next cheque in sequence.

9. The review conducted by a group of professional accountants hired to report whether the financial statements of a company accurately portray their business is called a(n)

1. safeguard.
2. authorization.
3. audit.
4. documentation procedure.

10. Kwafja Ltd. made only three purchases of a particular item of merchandise during its first year of operation. Each purchase was for 100 units and the prices paid were $41 per unit in the first purchase, $42 per unit in the second purchase, and $46 per unit in the third purchase.  The ending inventory consisted of 150 units. Under the first-in, first-out method, the value assigned to the ending inventory would be:

1. $6 200        
2. $6 450
3. $6 500
4. $6 700

11. When a perpetual inventory system is in use, the sale of merchandise requires an entry as follows:

1. Debit Accounts Receivable; Credit Merchandise Inventory
2. Debit Cost of Goods Sold; Credit Merchandise Inventory
3. Debit Accounts Receivable; Credit Cost of Goods Sold
4. Debit Sales; Credit Accounts Receivable

12. Having one person responsible for ordering merchandise, receiving the merchandise, and paying for the merchandise

1. increases the potential for errors and fraud
2. decreases the potential for errors and fraud.
3. is an example of good internal control.
4. ensures the company’s assets are safeguarded.

13. A company using a periodic inventory system purchases goods for resale. Which of the following is part of the resulting accounting entry?

1. Purchases are debited to Merchandise Inventory.
2. Purchases are debited to Purchases.
3. Purchases are debited to Cost of Goods sold
4. Purchases are debited to Purchase Expense.

14. A company using a perpetual inventory system purchases goods for resale. Which of the following is part of the resulting accounting entry?

1. Purchases are debited to Merchandise Inventory
2. Purchases are debited to Purchases.
3. Purchases are debited to Cost of Goods sold
4. Purchases are debited to Purchase Expense.

15. If beginning inventory is $70 000, cost of goods purchased is $350 000, and ending inventory is $60 000, what is cost of goods sold?

1. $480 000
2. $130 000
3. $420 000
4. $360 000

16. A multi-step income statement in a periodic inventory system differs from that in a perpetual inventory system because it has:

1. a detailed cost of goods sold section.
2. net sales     
3. gross profit
4. operating expenses

17. If beginning inventory is $100 000, purchases are $400 000, and cost of goods sold is 350 000, what is ending inventory?

1. $50 000
2. $100 000
3. $150 000
4. $200 000

18. Which internal control requires the use of pre-numbered cheques?

1. Authorization
2. Segregation of duties
3. Physical, mechanical and electronic safeguards
4. Documentation procedures

19. Mason Company uses a periodic inventory system and has the following:

If 1 000 units are on hand at September 30, the cost of ending inventory under FIFO is:

1. $24 600
2. $22 200
3. $23 525
4. $25 000

20. Using the data (in 19) above, the cost of the ending inventory using the average cost method of inventory valuation is:

1. $24 600
2. $22 200
3. $23 525
4. $25 000