Reference no: EM132467627

Question 1. Under what circumstances should a company with high rate of return on sales consider the inventory sold?

a. When it can reasonably estimate the amount of returns
b. When the retailer gives a confirmation that the goods won't be returned
c. When the goods are sold on installment
d. When the payment for goods is received

Question 2. 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.

Question 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.

Question 4. During 2020 Came Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Came. In 2021 when Came repurchased the inventory, Nolan used the proceeds to repay its bank loan.
On whose books should the cost of the inventory appear at the December 31, 2020 balance sheet date?

a. Came Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Came making appropriate note disclosure of the transaction

Question 5. What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance?

a. Understated by $50,000.
b. No effect.
c. Overstated by $50,000.
d. Need more information to determine.

Question 6. Which method may be used to record cash discounts a company receives for paying suppliers promptly?

a. Net method.
b. Gross method.
c. Average method.
d. Both the net method and the gross method.