ASU ACC231 EXAM2
PRACTICE
Question 1: Under the perpetual inventory system, which of the following accounts is debited when a company purchases merchandise on account?
Choices:
1) Purchases 2) Accounts Payable 3) Inventory 4) Cost of Goods Sold
Correct Answer: Inventory
Explanation: In a perpetual inventory system, purchases of merchandise for resale are debited directly to the Inventory account.Page 1
Question 2: A company sells merchandise on account for $1,000 with terms, n/
- Cost of goods is $600. What is the entry to record the sale under a perpetual
system?
Choices:
1) Debit AR $1,000; Credit Sales $1,000 2) Debit AR $1,000, Credit Sales $1,000; Debit COGS $600, Credit Inventory $600 3) Debit Cash $980, Debit Sales Discounts $20; Credit Sales $1,000 4) Debit AR $600; Credit Sales $600 Correct Answer: Debit AR $1,000, Credit Sales $1,000; Debit COGS $600, Credit Inventory $600 Explanation: Under a perpetual system, two entries are required: one to record the retail revenue and one to record the cost of the goods sold.
Question 3: Which inventory costing method assumes that the latest units
purchased are the �rst to be allocated to cost of goods sold?
Choices:
1) FIFO
2) LIFO
3) Weighted-Average 4) Speci�c Identi�cation
Correct Answer: LIFO
Explanation: LIFO (Last-In, First-Out) assumes that the last items placed in inventory are the �rst ones sold.Page 2
Question 4: During a period of steadily rising prices, which inventory valuation method yields the highest reported net income?
Choices:
1) LIFO
2) FIFO
3) Weighted-Average 4) Speci�c Identi�cation
Correct Answer: FIFO
Explanation: In periods of rising prices, FIFO assigns the older, lower costs to Cost of Goods Sold, resulting in a higher gross pro�t and higher net income.Question 5: A company has beginning inventory of 100 units at $5. It purchases 200 units at $6 and later 100 units at $7. It sells 250 units. Under FIFO, what is the cost of ending inventory?
Choices:
1) $1,050
2) $1,500
3) $950
4) $1,000
Correct Answer: $1,000
Explanation: Total available = 400 units. Sold = 250, so Ending Inventory = 150 units. Under FIFO,
EI consists of the newest units: 100 at $7 ($700) + 50 at $6 ($300) = $1,000.
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