1. A low gross profit percentage means that
A. the cost of goods sold was relatively high.
B. selling expenses are very low.
C. general and administrative expenses are very high.
D. the cost of goods sold was relatively low.
2. Isaiah Sporting Goods uses the perpetual average cost method
of determining inventory costs. Below is
the inventory record for Product C124:
What is the average cost per unit after the receipt of the June 21
Date Received Sold Cost/Unit Balance
April 22 534 $6.58 $3,513.72
May 17 433 $6.70 $2,901.10
June 21 389 $6.76 $2,629.64
August 2 436 $6.44 $2,807.84
3. The balance sheet format that lists assets above liabilities
is the _______ form.
4. A drawback to using _______ when inventory costs are rising
is that the company reports lower net
B. average costing
C. specific-identification costing
5. Which items may not limit the effectiveness of internal
control systems in an organization?
A. Properly designed controls
C. Costs not worth benefits
D. Overriding controls
6. The major difference in the statement of retained earnings
between a service business and a
merchandising business is
A. that the retained earnings statement of a service business
B. that the retained earnings statement of a merchandising business
C. that the retained earnings statement of a merchandising business
shows the cost of goods sold.
D. nothing. There are no differences between the two.
7. Net sales times the historical gross profit percentage yields
A. gross profit.
B. ending inventory.
C. beginning inventory.
D. cost of goods sold.
8. A company’s gross profit percentage decreases from 58% to
51%. What does this mean?
A. This means that net income will be lower.
B. We can’t determine anything definite from the information
C. This means that net income will be higher.
D. This means that there will be a net loss.
9. Under a perpetual inventory system, the account to which
transportation charges on incoming
merchandise is generally entered is
A. FOB destination.
B. FOB shipping.
D. delivery expense.
10. If current assets decrease and current liabilities increase,
the current ratio
A. remains the same.
D. will change based on the change in total assets.
11. ABC Corporation pays an invoice for $350 in time to take a
3% discount. The journal entry to record
the payment of this invoice is
A. debit Accounts Payable $350; credit Cash $350.
B. debit Accounts Payable $350; credit Inventory $10.50, credit
C. debit Accounts Payable $340; credit Cash $340.
D. debit Accounts Payable $340; debit Inventory $10; credit Cash
12. To pay the least income tax possible in periods of rising
inventory costs, the company should use which
inventory costing method?
B. Specific identification
C. Average cost
13. Committing a fraud because the employee feels that it will
be easy to do is indicative of which part of
the fraud triangle?
C. Perceived opportunity
D. Perceived pressure
14. Under Sarbanes-Oxley, those officers signing off on the
reports must have evaluated the company’s
internal control within the previous
A. 90 days.
C. nine months.
D. six months.
15. Committing a fraud because the employee feels “I deserve a
pay raise. The company owes this to me”
is indicative of which part of the fraud triangle?
A. Perceived opportunity
B. Perceived pressure
16. Bill’s Bikes had sales for the week of $3,569, of which
$2,900 was on credit and $659 was in cash
sales. The cost of the bikes sold was $1,888. The journal entries
would include a
A. debit to Cash for $3,569; credit to Cost of Goods Sold for
B. debit to Cost of Goods Sold for $1,888; credit to Inventory for
C. debit to Cost of Goods Sold for $1,888; credit to Sales of
D. debit to Cash for $3569; credit to Sales for $3,569.
17. To overstate earnings, a company can
A. understate expenses and understate revenue.
B. overstate receivables and understate payables.
C. overstate expenses and overstate revenue.
D. understate unearned revenue and understate property, plant, and
18. Which of the following would probably not cause inventory
A. Spoilage of items
B. Employee theft
C. Spills of items
D. Correct counting of all inventory
19. When a company repays the seller for shipping costs on an
FOB shipping transaction, which of the
following is true?
A. A purchase discount can still be taken net of the prepaid
B. A purchase discount can still be taken on the gross amount of
C. A purchase discount cannot be taken when shipping charges are
D. The shipping costs don’t affect the invoice cost.
20. A company’s current ratio increased from 1.23 to 1.45. What
does this mean?
1. A low gross profit percentage means that