Merchandise Inventory is an asset account.

True

False

Correct!

Review the section "The Merchandise Inventory Account."

The journal entry recorded when merchandise inventory is purchased includes a credit to the Merchandise Inventory account.

True

False

Correct!

Review the section "The Merchandise Inventory Account."

Under the perpetual inventory system, the Merchandise Inventory balance is updated solely at the end of the period.

True

False

Correct!

Review the section "The Merchandise Inventory Account (A Closer Look)."

FIFO stands for first-in, first-out.

True

False

Correct!

Review the section "FIFO Method (First In, First Out)."

Under the average cost method, both the cost of goods sold and the merchandise inventory balance will fall between those calculated using the FIFO and LIFO methods.

True

False

Correct!

Review the section "Average Cost Method."

The frequency of calculations under the LIFO method is the same, regardless of the inventory system used (perpetual or periodic).

True

False

Correct!

Review the section "LIFO Method (Last In, First Out)."

The physical inventory count for a company using the perpetual inventory system shows that the cost of the merchandise inventory in the warehouse is lower than the Merchandise Inventory account balance. The adjusting journal entry will indicate a credit to the Cost of Goods Sold account.

True

False

Correct!

Review the section "The Merchandise Inventory Account (A Closer Look)."

The physical inventory count for a company using the perpetual inventory system shows that the cost of the merchandise inventory in the warehouse is higher than the Merchandise Inventory account balance. In this case, no adjusting journal entry is necessary.

True

False

Correct!

Review the section "The Merchandise Inventory Account (A Closer Look)."

The gross margin ratio is a merchandise-related profitability ratio.

True

False

Correct!

Review the section "Analyzing Cost of Goods Sold and Gross Profit."

Companies want to increase their gross margin ratio.

True

False

Correct!

Review the section "Analyzing Cost of Goods Sold and Gross Profit."

Cost of Goods Sold is a(n) expense account.

Review the section "The Merchandise Inventory Account."

Correct!

You sold merchandise inventory on account to your best customer for $3,600. The merchandise inventory cost you $2,100. What do you include in the journal entry you record?

A debit to Accounts Receivable for $2,100.

A credit to Sales Revenue for $3,600.

A debit to Cost of Goods Sold for $3,600.

A debit to Merchandise Inventory for $2,100.

Correct!

Review the section "The Merchandise Inventory Account."

When a business sells merchandise inventory for cash, how many journal entries are typically recorded on the date of the sale? 2

Review the section "The Merchandise Inventory Account."

Correct!

What account is credited in the journal entry recorded by the seller when a business remits payment for merchandise inventory purchased two weeks ago?

Merchandise Inventory

Accounts Receivable

Accounts Payable

Cash

Correct!

Review the section "The Merchandise Inventory Account."

What statement about inventory valuation methods is accurate?

They track the exact cost of all units sold.

You use average cost amounts with all of them.

There are two inventory valuation methods from which a business can choose.

They determine the Cost of Goods Sold and Merchandise Inventory account balances.

Correct!

Review the section "Determining the Value of Merchandise Inventory."

Under LIFO, what units are assumed to have been sold first?

The most expensive

The oldest

The least expensive

The most recently obtained

Correct!

Review the section "LIFO Method (Last In, First Out)."

What usually happens during a period of inflation?

Cost of goods sold is higher under FIFO.

Total expenses are lower under LIFO.

Merchandise inventory is higher under FIFO.

Total assets are higher under LIFO.

Correct!

Review the section "LIFO Method (Last In, First Out)."

Average cost per unit (using the average cost inventory valuation method) =

Total cost of all merchandise ÷ total number of units available for sale

Total number of units available for sale ÷ total cost of all merchandise

Total sales price of all merchandise ÷ total number of units sold

Total number of units sold ÷ total sales price of all merchandise

Correct!

Review the section "Average Cost Method."

Gross Margin = Sales - Cost of Goods Sold

Review the section "Analyzing Cost of Goods Sold and Gross Profit."

Correct!

Cost of Goods Sold Ratio = Cost of Goods Sold ÷ Total Sales

Review the section "Analyzing Cost of Goods Sold and Gross Profit."

Correct!