A perpetual inventory system, Intro to Accounting BAM 110 Ch4 Exam Answers

1. In a perpetual inventory system:
a. Merchandise Inventory is debited every time inventory is purchased
b. cost of Goods Sold is debited every time inventory is sold
c. a physical inventory is taken at least annually
d. All of the above.
2. Under the perpetual inventory system, the purchase of merchandise is recorded by a debit to:
a. Merchandise Inventory; credit to Accounts Payable or Cash
b. Cost of Goods Sold; credit to Accounts Payable
c. Purchases; credit to Accounts Payable
d. Accounts Payable; credit to Purchases
3. Individual inventory items are tracked in the:
a. accounts receivable ledger
b. inventory ledger
c. accounts payable ledger
d. purchases journal
4. Which of the following goods should Pin Department Store include in its December 31 count?
a. goods held on consignment from ABC Wholesale
b. goods sold and shipped to Gray Brothers, in-transit F.O.B shipping point
c. goods that have been consigned to Dalton Brothers
d. goods in transit purchased F.O.B. destination point
5. St. Paul Corporation has a normal gross profit of 45%. The current year’s beginning inventory
was $2,500, purchases were $9,000, and retail sales were $15,000. The estimated ending
inventory under the gross profit method is:
a. $4,750
b. $3,250
c. $8,220
d. $4,050
6. An overstatement of ending inventory in one period results in:
a. an overstatement of net income for the next period
b. no effect on net income for the next period
c. an overstatement of the ending inventory for the next period
d. an understatement of net income for the next period
Unit 4 Examination
160
BAM 110 Introduction to Accounting
7. The full disclosure principle says that if a change is made:
a. the company should disclose the change
b. the effects of the change on profit and inventory valuation should be disclosed
c. the company should show justification for the change in a footnote on the financial
reports
d. All of the above.
8. Costs and assessments that should be charged to the land account include:
a. streets
b. parks
c. flood prevention
d. All of the above.
9. Which of the following assets would not be classified as property, plant, and equipment?
a. delivery truck
b. copyright
c. land
d. furniture
10. The amount to include in the entry to record the cost of a property, plant, and equipment asset
would include:
a. acquisition cost
b. freight
c. installation
d. All of the above.
11. The depreciation method that does not base the expense on the passage of time but on the
level of use is:
a. units-of-production
b. straight-line
c. modified accelerated cost recovery
d. double-declining-balance
12. Which depreciation method does not deduct residual value when computing depreciation
expense?
a. units-of-production
b. straight-line
c. double-declining-balance
d. a and b only
Unit 4 Examination
161
BAM 110 Introduction to Accounting
13. What would be the depreciation expense in year 1, using units-of-production, for a molding
machine that cost $18,000, had a useful life of 3 years, and an estimated total machine hours
of 36,000? The salvage value is $3,000 and production in year 1 was 10,000 hours.
a. $5,000
b. $4,167
c. $6,000
d. $2,167
14. The articles of incorporation are submitted by the incorporators to the:
a. IRS for approval
b. Office of the Secretary of State for approval
c. Securities and Exchange Commission for approval
d. Governor of the State for approval
15. Characteristics of a corporation include:
a. stockholders having unlimited liability
b. direct management by the stockholders
c. stockholders having limited liability
d. choosing a board of directors
16. The entry to record selling 150 shares of no-par common stock with a stated value of $30 for
$40 would be to:
a. debit Common Stock for $6,000; credit Cash for $6,000
b. debit Cash for $6,000; credit Common Stock for $6,000
c. debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in
Excess of Stated Value-Common for $1,500
d. debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in
Excess of Par Value-Common for $1,500
17. No entry was recorded for the exchange of stock for land. This error would cause:
a. the period end stockholders’ equity to be understated
b. the period end stockholders’ equity to be overstated
c. the period’s net income to be understated
d. a and c only
18. Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a
fair market value of $7,500. The entry to record the transaction would include a:
a. debit to Equipment for $5,000
b. debit to Common Stock for $5,000
c. credit to Paid-in Capital in Excess of Par Value for $2,500
d. credit to Common Stock Subscribed for $5,000
Unit 4 Examination
162
BAM 110 Introduction to Accounting
19. Dolly’s Best issued 200 shares of its $10 common stock in exchange for used packaging
equipment with a fair market value of $2,400. The entry to record the acquisition of the
equipment would include a:
a. debit to Equipment for $2,000
b. debit to Paid-in Capital in Excess of Par for $400
c. credit to Common Stock for $2,400
d. debit to Equipment for $2,400
20. A statement comparing data from two or more consecutive periods is called a:
a. horizontal analysis
b. comparative income statement
c. common-size statement
d. comparative balance sheet
21. In a comparative balance sheet, the ending Cash for 2012 was $315,000 and is $270,000
for 2013. The net increase or decrease from 2012 to 2013 is:
a. 86.0%
b. 14.3%
c. 26.4%
d. 16.7%
22. Liquidity ratios measure:
a. how effectively a company is using its equity
b. how effectively a company is using its liabilities
c. a company’s ability to pay shareholders
d. a company’s ability to pay off short-term debts
23. Debt management ratios measure:
a. how effectively a company is using its cash
b. how well a company is using debt versus equity position
c. a company’s ability to earn profit
d. a company’s ability to meet payable obligations
24. If the average collection period is 35 days, this means:
a. from the date of purchase to the date of payment is 35 days
b. from the date of sale to the date of receipt of payment is 35 days
c. from the date of discount to the date of receipt of payment is 35 days
d. None of the above.
Unit 4 Examination
163
BAM 110 Introduction to Accounting
25. The inventory turnover ratio calculates:
a. how many times the inventory turns over in one period
b. number of times inventory is purchased in one period
c. the dollar amount of change in inventory in one period
d. None of the above.

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