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Chapter 7--Inventory and the Cost of Sales
Student: ___________________________________________________________________________
1. Items that are either manufactured or purchased for resale in the normal course of business are called
A. Supplies
B. Inventory
C. Purchases
D. Materials
2. Which of the following is an inventory account for a retailer?

A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
3. Which inventory account consists of partially finished products?

A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
4. Which inventory account consists of goods in a relatively undeveloped state that will eventually be a major
part of the finished product?
A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
5. Which inventory account consists of the completed products waiting for sale?
A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
6. Inventory costs include all of the following, EXCEPT
A. Selling costs
B. Production costs
C. Purchase costs
D. Freight costs
7. Which of the following would NOT be included in ending inventory of the seller?
A. Goods shipped to customers, F.O.B. destination
B. Goods purchased from suppliers, F.O.B. shipping point
C. Goods held on consignment
D. Goods out on consignment
8. Inventory accounting is most complex in

A. Merchandising companies
B. Service companies
C. Manufacturing companies
D. Wholesale companies
9. When products are sold, their costs are removed from inventory and reported on the income statement as an
expense called
A. Operating expenses
B. Cost of goods sold
C. Cost of goods manufactured
D. Inventory expenses
10. Which of the following is NOT an inventory in a manufacturing company?

A. Raw materials
B. Finished goods
C. Work-in-process
D. Merchandise
11. The cost of finished goods inventory includes all BUT which of the following?
A. Advertising costs
B. Manufacturing overhead costs
C. Labor costs
D. Raw material costs
12. If the shipping terms indicate that the seller owns the goods until delivered to the buyer, this arrangement is
known as
A. Goods in transit
B. FOB shipping point
C. FOB destination
D. FOB carrier
13. If the shipping terms indicate that the buyer owns the goods upon shipment from the seller, this arrangement
is known as
A. Goods in transit
C. FOB destination
D. FOB carrier
14. Cost of goods sold is equal to

A. The cost of inventory on hand at the end of a period plus net purchases minus the cost of inventory on hand
at the beginning of a period
B. The cost of inventory on hand at the beginning of a period minus net purchases plus the cost of inventory on
hand at the end of a period
C. The cost of inventory on hand at the beginning of a period plus net sales minus the cost of inventory on hand
at the end of a period
D. The cost of inventory on hand at the beginning of a period minus the cost of inventory on hand at the end of
a period plus net purchases
15. If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
A. Seller
B. Common carrier
C. Buyer
D. Bank
16. Merchandise shipped FOB shipping point on the last day of the year should probably be included in
A. The buyer's inventory balance
B. The seller's inventory balance
C. Neither the buyer's nor seller's inventory balance
D. Both the buyer's and the seller's inventory balances
17. Conner Company's inventory balance on December 31, 2012 was $3,100,000 before considering the
following transactions:
· Goods were in transit from a vendor to Conner on December 31, 2012. The invoice price was $250,000, and the goods were shipped FOB
shipping point on December 29, 2012. The goods were received on January 4, 2013.
· Goods were shipped to Conner FOB destination on December 20, 2012, from a vendor. The invoice price was $125,000. The goods were
received on January 1, 2013.
Given the above information, on December 31, 2012, Conner should report an inventory balance of
A. $3,100,000
B. $2,850,000
C. $3,475,000
D. $3,350,000
18. Conner Company's accounts payable balance on December 31, 2012 was $1,400,000 before considering the
Given the above information, on December 31, 2012, Conner should report an accounts payable balance of
A. $1,400,000
B. $1,150,000
C. $1,775,000
D. $1,650,000
19. A perpetual inventory system is most often used when

A. Inventory has a small number of items with relatively high value
B. Inventory has a small number of items with relatively low value
C. Inventory has a large number of items with relatively low value
D. Inventory has a large number of items with relatively high value
20. A periodic inventory system is most often used when

21. When the periodic inventory method is used, the entry to record a return of defective merchandise to a
supplier would include a
A. Credit to Accounts Payable
B. Credit to Inventory
C. Credit to Purchase Returns
D. Credit to Cash
22. When a company uses the perpetual inventory method, purchase returns are recorded by
A. Debiting Purchase Returns
B. Crediting Purchase Returns
C. Crediting Accounts Payable
D. Crediting Inventory
23. A firm using the periodic inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction would include a debit to
A. Accounts Receivable
B. Inventory
C. Purchase Returns and Allowances
D. Accounts Payable
24. Which of the following accounts would be found on the income statement?
A. Inventory
B. Wages Payable
C. Freight-In
D. Cash
25. Which of the following statements is true under the periodic inventory method?
A. Freight-In is subtracted from purchases in order to derive net purchases
B. Freight-In is added to purchases in order to derive net purchases
C. Freight-In is used only with the perpetual inventory method, not with the periodic inventory method
D. Freight-In is neither subtracted nor added to purchases in order to derive net purchases
26. ACE Manufacturing pays a freight bill of $54 to United Trucking Company for merchandise purchased
from Jackson Sales, terms FOB shipping point. When recording the payment with the periodic inventory
method, ACE would debit the $54 cost of the freight to
A. Purchases
B. Freight-In
C. Prepaid Freight
D. Freight-Out
from Jackson Sales, terms FOB shipping point. When recording the payment with the perpetual inventory
A. Inventory
B. Freight-In
C. Prepaid Freight
D. Freight-Out
28. A firm that uses the perpetual inventory method purchased $1,000 of inventory on terms 2/10, n/30. The
journal entry to record this transaction would include a debit to
A. Purchases
B. Purchase Discounts
C. Inventory
D. Accounts Payable
29. A firm using the periodic inventory method purchased $2,000 of inventory on terms 2/10, n/30. The journal
entry to record this transaction would include a debit to
A. Purchases
C. Inventory
D. Accounts Payable
30. Company D makes the following entry in its accounting records:
Inventor 200
y
Cost of Goods Sold 200
This entry would be made when

A. Merchandise is sold and the periodic inventory method is used
B. Merchandise is sold and the perpetual inventory method is used
C. Merchandise is returned and the perpetual inventory method is used
D. Merchandise is returned and the periodic inventory method is used
31. The perpetual method of accounting for inventory

A. Requires that a physical count of inventory be taken before the cost of goods sold can be determined with
any reasonable degree of accuracy
B. Is likely to be less expensive to maintain than a periodic inventory method
C. Is not as helpful as a periodic method in providing management with timely reports about inventory
quantities and costs
D. Allows management to better estimate inventory losses from pilferage than does a periodic inventory method
32. The entry (or entries) required to record a sales return by a customer when using the perpetual inventory
method would consist of
A. A debit to Sales Revenue and a credit to Accounts Receivable
B. A debit to Sales Returns and a credit to Accounts Receivable
C. Debits to Sales Returns and Inventory and credits to Accounts Receivable and Cost of Goods Sold
D. Debits to Sales Returns and Cost of Goods Sold and credits to Accounts Receivable and Inventory
33. Which of the following accounts would NOT normally have a debit balance?
A. Inventory
B. Cost of Goods Sold
C. Purchase Discounts
D. Freight-In
34. A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction will include a debit to
B. Inventory
C. Purchase Returns
D. Accounts Payable
suppliers. The entry to record this transaction will include a credit to
B. Inventory
C. Purchase Returns
D. Accounts Payable
36. ABC Company purchased inventory on account with credit terms of 2/10, n/30. It paid the amount owed
within 10 days and recorded the following entry:
Account 800
A
Account B 784
Account C 16
Given this entry, and assuming that ABC company uses a periodic inventory system, what would be the nature of Account C?
A. Accounts Payable
B. Inventory
D. Cash
37. Which of the following accounts would be debited when making closing entries?
A. Cost of Goods Sold
B. Purchases
C. Sales Discounts
D. Purchase Returns
38. Under the periodic inventory method, if merchandise is sold for cash on December 31 and is recorded as a
sale but is NOT shipped (and thus is included in the ending inventory count), the financial statements will
A. Overstate assets
B. Understate net income
C. Understate liabilities
D. Understate assets
39. If a company sold merchandise for a profit, the accounting equation would show a(n)
A. Net increase in assets and increase in revenues
B. Net increase in assets and decrease in liabilities
C. Net decrease in assets and increase in revenues
D. Increase in liabilities and increase in revenues
40. Williston Cattle Company uses a perpetual inventory system. Williston purchased sheep from Little H
Ranch at a cost of $39,000, payable at time of delivery. The entry to record the delivery would be
A. Purchases 39,000
Accounts Payable 39,000
B. Inventory 39,000
C. Purchases 39,000
Cash 39,000
D. Inventory 39,000
Cash 39,000
41. Exhibit 7-1

Garfunkle Company had the following four transactions during January 2012:
January 3 Purchased 200 hair dryers from Hot Aire Corporation for $30 each, terms n/30.
5 Sold 50 hair dryers purchased on January 3 for $50 each, terms n/30.
15 Returned five of the hair dryers purchased on January 3 because they were defective.
22 A customer returned two hair dryers purchased on January 5 because they were defective.
Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 5 transaction would include
A. A debit to Cost of Goods Sold of $1,500
B. A debit to Accounts Receivable of $2,500
C. A credit to Inventory of $1,500
D. All of these
42. Exhibit 7-1

Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 15 transaction would
include a
A. Debit to Purchases of $150
B. Credit to Purchases of $150
C. Credit to Inventory of $150
D. Credit to Purchase Returns of $150
43. Exhibit 7-2

Lindsey Corporation had the following account balances:
Sales revenue $200,000

Beginning inventory 40,000
Purchases 80,000
Purchase discounts 3,000
Freight-in 1,000
Ending inventory 30,000
Purchase returns and allowances 2,000
Refer to Exhibit 7-2. Given the information above, gross margin is

A. $86,000
B. $94,000
C. $106,000
D. $114,000
44. Exhibit 7-2

Purchases 80,000
Freight-in 1,000
Refer to Exhibit 7-2. Given the information above, and assuming that Lindsey's total operating expenses (exclusive of cost of goods sold) are
$40,000, pretax income is
A. $46,000
B. $110,000
C. $114,000
D. $74,000
45. If a firm's beginning inventory is $70,000, goods purchased during the period cost $260,000, and the cost of
goods sold is $300,000, what is the ending inventory?
A. $30,000
B. $50,000
C. $40,000
D. $90,000
46. With the perpetual inventory method, which of the following entries would be made when inventory costing
$3,600 is sold for $5,000?
A. Inventory 5,000
B. Cost of Goods Sold 3,600
Inventory 3,600
C. Purchases 5,000
Accounts Receivable 5,000
D. Inventory 3,600
Cost of Goods Sold 5,000
Purchases 5,000
47. If cost of goods sold is $12,000 and the ending inventory balance is $6,000, the
A. Beginning inventory is $18,000
B. Net income is $6,000
C. Cost of goods available for sale is $18,000
D. Purchases are $6,000
48. If a firm's beginning inventory is $70,000, purchases are $320,000, and the cost of goods sold is $300,000,
what is its ending inventory?
A. $330,000
B. $260,000
C. $90,000
D. $30,000
49. An entry is made to close Purchases and Purchase Discounts as:
Account 35,000
A
Account 1,600
B
Account C 36,600
Based on this entry, total (gross) purchases for the year were
A. $35,000
B. $1,600
C. $36,600
D. Undeterminable, given the preceding information
50. Chyna Corporation has the following income statement for the year ended December 31, 2012:
Sales $100,000
revenue
Cost of
goods
sold:
Beginning inventory $12,000
Purchases (net) 48,000
Cost of goods available for sale $60,000
Cost of ending inventory 12,000
Cost of goods sold 48,000
Gross $ 52,000
margin
Expense 30,000
s
Net $ 22,000
income
Given this information, if ending inventory was $10,000 instead of $12,000, net income would be
A. $18,000
B. $22,000
C. $20,000
D. None of these
51. For external reporting purposes, inventory shrinkage is usually combined with which account?
A. Merchandise inventory
B. Gross profit
C. Cost of goods sold
D. Operating expenses
52. A physical count would be necessary at the end of the accounting period under which inventory system?
A. Periodic inventory system
B. Perpetual inventory system
C. Both periodic and perpetual inventory systems
D. Neither periodic nor perpetual inventory systems
53. Under which inventory system would a company NOT be able to specifically determine the amount of
inventory lost or stolen?
54. The inventory shrinkage account is

A. Used only with the perpetual inventory method
B. A permanent (real) account
C. A balance sheet account
D. Used only with the periodic inventory method
55. If expenses are overstated on the income statement, net income

A. Will be unaffected
B. Will be overstated
C. Will be understated
D. Cannot be determined from the information given
56. If the ending inventory is overstated, net income for the same period will be
A. Unaffected
B. Overstated
C. Understated
57. When the current year's ending inventory amount is overstated, the
A. Current year's cost of goods sold is overstated
B. Current year's total assets are understated
C. Current year's net income is overstated
D. Next year's income is overstated
58. If the ending inventory balance is understated, net income of the same period will be
A. Overstated
B. Understated
C. Unaffected
59. An overstatement of ending inventory in period 1 would result in income of period 2 being
A. Overstated
B. Understated
C. Correctly stated
60. Which of the following will result if the current year's ending inventory amount is understated in the cost of
goods sold calculation?
A. Cost of goods sold will be overstated
B. Total assets will be overstated
C. Net income will be overstated
D. Cost of goods sold and net income will be overstated
61. If ending inventory on December 31, 2011, is overstated by $60,000, what is the effect on net income for
2012?
A. Net income is overstated by $60,000
B. Net income is understated by $60,000
C. Net income is overstated by $120,000
D. The answer cannot be determined from the information given
62. Following are the account balances from Connery Company's income statement:
Inventory, January 1, 2012 $34,000

Purchases 50,000
Purchase returns 5,000
Freight-in 6,000
Inventory, December 31, 2012 15,000
Freight-out 8,000
Given this information, the cost of goods sold during 2012 is
A. $51,000
B. $46,000
C. $56,000
D. $66,000
63. Following are the account balances from Samuel Company's income statement:

Purchases 35,000
Freight-in 5,000
Freight-out 6,000
Given this information, the cost of merchandise available for sale during 2012 is
A. $65,000
B. $59,000
C. $69,000
D. $61,000
64. Exhibit 7-3

The following information is provided:
Beginning inventory $ 64,000

Purchases 128,000
Freight-in ?
Cost of goods available for sale 176,000
Ending inventory ?
Refer to Exhibit 7-3. Given the information above, determine the amount of freight-in.
A. $9,600
B. $12,800
C. $6,400
D. $3,200
65. Exhibit 7-3

Purchases 128,000
Freight-in ?
Ending inventory ?
Refer to Exhibit 7-3. Given the information above, determine the amount of ending inventory.
A. $73,600
B. $105,600
C. $70,400
D. $102,400
66. Agassi Company is a wholesale electronics distributor. On December 31, 2012, it prepared the following
partial income statement:
Gross $500,400
sales
Sales 400
discount
s
Net sales $500,000
Cost of
goods
sold:
Beginnin $200,000
g
inventor
y
Net 300,000
purchase
s
Given this information, if the ending inventory balance was $210,000, what would be its gross margin?
A. $290,000
B. $300,000
C. $310,000
D. $210,000
67. Montgomery Corporation has the following account balances:

Purchases 40,000
Sales discounts 2,000
Freight-in 500
Given this information, total cost of goods available for sale is

A. $60,000
B. $57,000
C. $58,000
D. $62,000
68. The net sales figure of XYZ Company in 2012 was $300,000. If the cost of goods available for sale was
$280,000 and gross margin was 35 percent of net sales, ending inventory must have been
A. $70,000
B. $85,000
C. $195,000
D. $105,000
69. Which inventory cost flow assumption is most often used by businesses that sell a limited number of
high-priced items?
A. Average cost
B. FIFO
C. Specific identification
D. LIFO
70. Which inventory cost flow assumption matches current costs against current revenues?
A. Average cost
B. FIFO
D. LIFO
71. Which inventory cost flow assumption best reflects the current value of inventory on the balance sheet?
A. Average cost
B. FIFO
D. LIFO
72. Which of the following would be true if inventory costs were increasing?
A. LIFO would result in lower net income and lower ending inventory amounts than would FIFO
B. FIFO would result in lower net income and higher ending inventory amounts than would LIFO
C. LIFO would result in a lower net income amount but a higher ending inventory amount than would FIFO
D. None of these would be true
73. Which of the following will occur when inventory costs are decreasing?
A. LIFO will result in lower net income and lower ending inventory than will FIFO
B. FIFO will result in lower net income and lower ending inventory than will LIFO
C. LIFO will result in a lower net income but a higher ending inventory than will FIFO
D. FIFO will result in a lower net income but a higher ending inventory than will LIFO
74. During an inflationary period, which inventory costing alternative usually results in a firm paying the lowest
income taxes?
A. FIFO
B. LIFO
C. Average cost
D. Specific identification
75. During a period of continuing inflation, which inventory cost flow alternative usually results in the highest
reported net income?
A. FIFO
B. LIFO
C. Average cost
D. All of these result in the same reported net income
76. Purchases and sales during a recent period for Bottineau Inc. were
Purchases During the Period Sales During the

Period
1st purchase 1,400 units ´ $ 4 1st sale 800 units ´ $14
2nd purchase 2,000 units ´ $ 6 2nd sale 1,500 units ´ $16
3rd purchase 1,000 units ´ $ 8 3rd sale 1,000 units ´ $18
4th purchase 1,000 units ´ $10 4th sale 1,000 units ´ $20
5,400 units 4,300 units
Beginning inventory was 200 units at $2 each. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used?
A. $1,600
B. $2,000
C. $5,000
D. $12,400
77. Exhibit 7-4
Purchases and sales during a recent period for Casora Inc. were as follows:

Period
1st purchase 500 units ´ $2 1st sale 600 units ´ $ 7
2nd purchase 1,000 units ´ $3 2nd sale 750 units ´ $ 8
3rd purchase 500 units ´ $4 3rd sale 500 units ´ $ 9
4th purchase 500 units ´ $5 4th sale 500 units ´ $10
Refer to Exhibit 7-4. Beginning inventory was 100 units at $2 each. Given this information, what is the ending inventory if the periodic LIFO
costing alternative is used?
A. $400
B. $500
C. $1,250
D. $3,100
78. Exhibit 7-4


Period
Refer to Exhibit 7-4. Beginning inventory was 100 units at $1 each. Given this information, what is the average cost per unit available for sale
during the year if the periodic inventory method is used (rounded to the nearest cent)?
A. $2.61
B. $3.10
C. $3.53
D. $3.31
79. The following information is available for Harvey Corporation for the month of June:
Beginning inventory 32 units ´ $80 = $2,560

Purchased, June 3 20 units ´ $88 = $1,760
Sold, June 9 36 units
Given this information, the average (periodic) ending inventory balance is approximately
A. $9,056
B. $4,205
C. $3,968
D. $4,320
80. Exhibit 7-5

Warren Clothing Store sells jeans. During January, its inventory records of one brand of designer jeans were as
follows:
Beginning inventory 10 pairs ´ $22 = $220

January 6 purchase 4 pairs ´ $25 = $100
January 10 sale 5 pairs
Refer to Exhibit 7-5. Using the information above, periodic FIFO cost of goods sold is
A. $330
B. $300
C. $430
D. $350
81. Exhibit 7-5

follows:

Refer to Exhibit 7-5. Using the information above, periodic LIFO cost of goods sold is
A. $430
B. $360
C. $330
D. $300
82. Exhibit 7-5
follows:

Refer to Exhibit 7-5. Using the information above, average (periodic) cost of goods sold is
A. $450
B. $390
C. $375
D. $330
83. Exhibit 7-6

Martin Inc. is a wholesaler of office supplies. The activity for supply number 47519 during October is shown
below:
Date Balance/Transaction Units Cost

October 1 Inventory 2,000 $36.00
7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a FIFO periodic inventory system, the ending inventory of supply number 47519 at October 31 is reported
as
A. $152,960
B. $152,288
C. $150,160
D. $150,080
84. Exhibit 7-6

below:

7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a LIFO periodic inventory system, the ending inventory of supply number 47519 at October 31 is reported
as
A. $152,960
B. $150,160
C. $150,080
D. $146,400
85. Exhibit 7-6

below:

7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a periodic average cost inventory system, the ending inventory of supply number 47519 at October 31 is
reported as (round the average cost to the nearest cent)
A. $152,232
B. $150,160
C. $150,080
D. $146,400
86. With LIFO, cost of goods sold is $780,000, and ending inventory is $180,000. If FIFO ending inventory is
$260,000, how much is FIFO cost of goods sold?
A. $860,000
B. $780,000
C. $700,000
D. $260,000
87. Which of the following factors are used in calculating a company's inventory turnover?
A. Cost of goods sold and average working capital
B. Average accounts receivable and net sales
C. Net sales and average inventory
D. Average inventory and cost of goods sold
88. Which of the following factors are used in calculating a company's number of days' sales in inventory?
A. Average inventory and 365
B. Inventory turnover and 365
C. Cost of goods sold and 365
D. Average accounts payable and 365
89. The two ratios that help a company measure how effectively it is managing its inventory are
A. Inventory turnover and number of days' sales in inventory
B. Inventory turnover and number of days' purchases in accounts payable
C. Number of days' sales in inventory and number of days' purchases in accounts payable
D. Accounts receivable turnover and number of days' sales in inventory
90. Which ratio tells how many times a year a company is replenishing its inventory?
A. Number of days' sales in inventory
B. Accounts receivable turnover
C. Number of days' purchases in accounts payable
D. Inventory turnover
91. Which ratio tells how much long it takes a company to pay its suppliers?
92. Monica Mills Co. began the year with $100,000 in inventory and ends the year with $300,000. Purchases
during the year amounted to $1,660,000. The number of days' sales in inventory for the year was
A. 43.98 days
B. 8.30 days
C. 7.30 days
D. 50.00 days
93. Andromeda, Inc., purchased $100,000 of inventory during the year and had average receivables and
payables of $46,575 and $21,918, respectively. The number of days' purchases in accounts payable was
approximately
A. 60 days
B. 170 days
C. 80 days
D. 128 days
94. During the current calendar year, Bowman Corporation purchased $660,000 of inventory. The beginning
inventory balance was $84,000, and the inventory balance at year-end was $120,000. The inventory turnover for
the current year was
A. 5.20 times
B. 5.50 times
C. 6.12 times
D. 7.86 times
95. The following information was taken from the records of Kane Company:

Net credit sales 1,440,000
Net income 112,500
Given this information, Kane's inventory turnover is

A. 5.68
B. 5.40
C. 10.11
D. 1.33
96. The December 31, 2012, balance sheet and income statement for Santana Company are presented below:
Santan
a
Compa
ny
Balanc
e Sheet
Decem
ber 31,
2012
Assets Liabi
lities
and
Stock
holde
rs'
Equit
y
Cash $ 96,000 Acco $ 243
unts ,000
Payab
le
Accou 560,000 Inco 67,000
nts me
Receiv Taxes
able Payab
le
Invent 234,000 Salari 46,000
ory es
Payab
le
Plant 770,000 Bond 760,00
and s 0
Equip Payab
ment le
Intangi 40,000 Com 340,00
ble mon 0
Assets Stock
Retai 244
ned ,000
Earni
ngs
Total
Liabilit
ies and
Total Assets $1,700,000 Stockholders' Equity $1,700,000
Santana
Compan
y
Income
Stateme
nt
For the
Year
Ended
Decemb
er 31,
2012
Net $1,800,000
sales
revenue
Cost of 945,000
goods
sold
Gross $ 855,000
margin
Operatin 567,000
g
expenses
(includin
g
$40,000
of bond
interest)
Income $ 288,000
before
taxes
Income 115,000
taxes
Net $ 173,000
income
Addition
al
informat
ion:
Total assets (12/31/11) $2,400,000
Inventory (12/31/11) 238,500
Total stockholders' equity (12/31/11) 616,000
Given this information, Santana's inventory turnover during 2012 was

A. 4
B. 5
C. 7
D. 8
97. The December 31, 2012, balance sheet and income statement for Santana Company are presented below.
Santan
a
Compa
ny
Balanc
e Sheet
Decem
ber 31,
2012
Assets Liabilities and

Stockholders' Equity
Cash $ 96,000 Acco $ 243
unts ,000
Payab
le
Accou 560,000 Inco 67,000
nts me
Receiv Taxes
able Payab
le
ory es
Payab
le
Plant 770,000 Bond 720,50
and s 0
Equip Payab
ment le
ble mon 0
Assets Stock
Retai 244
ned ,000
Earni
ngs
Total
Liabilit
ies and
Santana
Compan
y
Income
Stateme
nt
For the
Year
Ended
Decemb
er 31,
2012
Net $1,800,000
sales
revenue
Cost of 945,000
goods
sold
Gross $ 855,000
margin
Operatin 567,000
g
expenses
(includin
g
$40,000
of bond
interest)
Income $ 288,000
before
taxes
Income 115,000
taxes
Net $ 173,000
income
Addition
al
informat
ion:
Total assets (12/31/11) $2,400,000
Inventory (12/31/11) 238,500
Accounts payable (12/31/11) 287,000
Given this information, Santana's number of days' purchases in accounts payable during 2012 was
A. 75
B. 80
C. 98
D. 102
98. The following information is available for Belden Company:
Cost of goods sold for 2012 $3,600,000

Inventories at December 31, 2011 1,050,000
Inventories at December 31, 2012 930,000
Assuming that a business year consists of 360 days, the number of days' sales in inventory for 2012 was
A. 49.5
B. 93
C. 99
D. 105
99. The following information is available for Lendo Company:
Lendo Company
Partial Balance Sheet
December 31, 2012 and 2011
2012 2011
Accounts receivable $500,000 $470,000
Allowance for uncollectible accounts (25,000) (20,000)
Net accounts receivable $475,000 $450,000
Inventories at lower of cost or market $600,000 $550,000
Lendo
Compan
y
Partial
Income
Stateme
nt
For the
Years
Ended
Decemb
er 31,
2012
and
2011
2009 2008
Net $2,500,000 $2,200,000
credit
sales
Net cash 500,000 400,000
sales
Net $3,000,000 $2,600,000
sales
Cost of $2,800,000 $1,800,000
goods
sold
Selling, 300,000 270,000
general,
and
administ
rative
expenses
.
Other 50,000 30,000
expenses
Total operating expenses $2,350,000 $2,100,000
Lendo's inventory turnover for 2012 is computed by
A. $2,000,000 / $575,000
B. $2,350,000 / $600,000
C. $2,800,000 / $575,000
D. $3,000,000 / $575,000
100. How many years does it take for an inventory error to correct itself assuming the ending inventory count in
the second year is correct?
A. 1
B. 2
C. 3
D. 4
101. When ending inventory is overstated in period 1, net income in period 2 will be
A. Understated
B. Overstated
C. Stated correctly
D. None of these are correct
102. An understatement of purchases results in cost of goods sold being

A. Overstated
B. Understated
C. Stated correctly
103. Under the periodic inventory method, if an inventory purchase has been made and recorded but has NOT
yet arrived (and thus is not counted), the financial statements will
A. Overstate assets
B. Overstate net income
C. Understate net income
D. Understate revenues
104. The misclassification of Freight-in as an operating expense will result in

A. An overstatement of cost of goods sold
B. An overstatement of gross margin
C. An overstatement of net income
105. Golva Company sold $15,000 of inventory on December 31. This sale was recorded in the books and was
also included in the ending inventory count. How will this information affect the financial statements?
A. Cost of goods sold will be overstated by $15,000
B. Gross margin will be understated by $15,000
C. Gross margin will be overstated by $15,000
D. The financial statements will not be affected
106. Cait Company sold $5,000 of inventory on December 31, 2011. This sale was recorded in the books and
was also included in the ending inventory count. How will this information affect the financial statements for
2012?
D. Beginning inventory will be understated by $5,000
107. Which inventory cost flow assumption will provide the same amounts for ending inventory and cost of
goods sold under both the periodic and perpetual inventory systems?
A. FIFO
B. LIFO
C. Average cost
D. NIFO
108. Under certain methods of inventory cost flow assumption, the amount of cost of goods sold can be affected
by when the sale occurs. Which of the following methods is NOT affected by when the sale occurs?
A. LIFO
B. FIFO
C. Average cost
109. Under which system must a determination of the "last in" units be evaluated at the time of each individual
sale?
A. Perpetual system
B. Periodic system
C. Both perpetual and periodic systems
D. Neither periodic nor perpetual systems
110. The following information is available for Waggoner Corporation for the month of June:
Beginning inventory 16 units ´ $40 = $640

Purchased, June 3 10 units ´ $44 = $440
Given this information, the perpetual LIFO ending inventory balance is

A. $1,080
B. $960
C. $1,032
D. $1,188
111. Exhibit 7-7

Iliescu Sporting Goods had the following inventory records for one line of skis for the month of January:
Beginning inventory 70 pairs ´ $100 per pair = $7,000

Sales, Jan. 1 - Jan. 7 50 pairs
Purchase, Jan. 8 46 pairs ´ $104 per pair = $4,784
Refer to Exhibit 7-7. Assuming the perpetual FIFO inventory method is used, what is the cost of Iliescu's ending inventory?
A. $3,000
B. $3,446
C. $3,276
D. $3,546
112. Exhibit 7-7


Refer to Exhibit 7-7. Assuming the perpetual LIFO inventory method is used, what is the cost of Iliescu's ending inventory?
A. $3,546
B. $3,376
C. $3,268
D. $3,124
113. Exhibit 7-7


Refer to Exhibit 7-7. Assuming the perpetual LIFO inventory method is used, what is Iliescu's cost of goods sold?
A. $16,986
B. $17,244
C. $17,328
D. $17,174
114. Monango Clothing Store sells jackets. During January, its inventory records of one brand of designer
jackets were as follows:
Beginning inventory 10 jackets ´ $44 = $440

January 6 purchase 4 jackets ´ $50 = $200
January 10 sale 5 jackets
Using this information, perpetual LIFO cost of goods sold is

A. $860
B. $750
C. $796
D. $806
115. The ceiling, or the maximum market amount at which inventory can be carried on the books, is equal to
A. Current replacement cost
B. Net realizable value
C. Historical cost
D. Selling price
116. The floor, or the minimum market amount at which inventory can be carried on the books, is equal to
A. Selling price less estimated selling costs
B. Current replacement cost
C. Net realizable value less normal profit margin
D. Historical cost
117. Inventories are carried in the accounting records at cost, EXCEPT when
A. The inventory is damaged
B. The market value of the inventory falls below its acquisition cost
C. Either the inventory is damaged or the market value of the inventory falls below its acquisition cost
D. The market price rises above cost
118. Inventory is usually carried in the accounting records at

A. Lower of cost or market
B. Market
C. Cost
D. Selling price
119. Inventory valued at lower of cost or market can never be recorded at amounts below its
A. Net realizable value
B. Net realizable value minus a normal profit margin
C. Sales price
D. Ceiling
120. Exhibit 7-8

Tena Company has the following information related to its two products:
Original Replacement
Cost Cost Ceiling Floor
Product A $12 $ 9 $10 $ 8
Product B $15 $16 $18 $14
Refer to Exhibit 7-8. The net realizable value of product B is

A. $15
B. $16
C. $18
D. $14
121. Exhibit 7-8
Product A $12 $ 9 $10 $ 8
Product B $15 $16 $18 $14
Refer to Exhibit 7-8. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product A should be
valued is
A. $12
B. $9
C. $10
D. $8
122. Commodity X sells for $18.00; selling expenses are $3.60; normal profit is $4.50. If the cost of
Commodity X is $11.70 and the replacement cost is $10.00, the lower of cost or market is
A. $8.10
B. $9.00
C. $9.90
D. $11.70
123. A firm is writing its inventory down to the lower of cost or market. It has determined the following per unit
costs and market prices for its product:
Original cost $104

Sales price 120
Selling cost 20
Normal profit 18
Replacement cost 78
Given these data, the firm should value its inventory at a per unit cost of
A. $104
B. $100
C. $82
D. $78
124. Which of the following statements is true of the gross margin method of estimating the dollar amount of
ending inventory?
A. It is helpful in estimating inventory when a fire burns the warehouse
B. It uses the current gross margin percentage in its calculation
C. It is a method of estimating ending inventory that can be used only in retail firms
D. All of these statements are true
125. The use of the gross profit method assumes
A. The amount of gross profit is the same as in prior years
B. Sales and cost of goods sold have not changed from previous years
C. Inventory values have not increased from previous years
D. The relationship between selling price and cost of goods sold is similar to prior years
126. The gross profit method of estimating inventory would NOT be useful when
A. A periodic system is in use and inventories are required for interim statements
B. Inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data required for
inventory valuation are not available
C. There is a significant change in the mix of products being sold
D. The relationship between gross profit and sales remains stable over time
127. A firm had a beginning inventory balance of $1,000, net purchases of $35,000, and sales of $40,000. Its
gross margin percentage was 25 percent. Using the gross margin method, the ending inventory balance is
A. $1,000
B. $7,000
C. $6,000
D. $10,000
128. Penn Company needs an estimate of its ending inventory balance. The following information is available:

Net purchases 100,000
Gross margin percentage 30%
Given this information, when using the gross margin estimation method, ending inventory is approximately
A. $1,000
B. $9,000
C. $19,000
D. $11,650
129. The following information is available for the Segura Company for the three months ended June 30:
Inventory, April 1 $1,200,000

Purchases 4,500,000
Freight In 300,000
Sales 6,400,000
The gross margin was 25 percent of sales. What is the estimated inventory balance at June 30?
A. $880,000
B. $933,000
C. $1,200,000
D. $1,500,000
130. The following information appears in Gordon Company's records for the year ended December 31:
Inventory, January 1 $ 325,000

Purchases 1,150,000
Freight in 30,000
Sales 1,700,000
Sales returns 15,000
On December 31, a physical inventory revealed that the ending inventory was only $210,000. Gordon's gross profit on net sales has remained
constant at 30 percent in recent years. Gordon suspects that some inventory may have been pilfered by one of the company's employees. At
December 31, what is the estimated cost of missing inventory?
A. $75,000
B. $82,500
C. $210,000
D. $292,500
131. The following information is available for Velva Company for its most recent year:
Net sales $7,200,000

Freight in 180,000
The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
A. $3,360,000
B. $3,840,000
C. $4,800,000
D. $4,880,000
132. Minot Company's inventory balance on December 31, 2012 was $775,000 before considering the
· Goods were in transit from a vendor to Minot on December 31, 2012. The invoice price was $62,500, and the goods were shipped FOB
· Goods were purchased from a vendor on December 31, 2012. The invoice price was $83,000, with terms FOB shipping point. The goods
were shipped the same day as purchase and received on January 7, 2013.
· Goods were shipped to Minot Company FOB destination on December 23, 2012, from a vendor. The invoice price was $31,250. The
goods were received on January 2, 2013.
Minot Company also had the following information available:
· Minot had goods consisting of $15,000 on consignment with a customer that were not included in the ending inventory balance.
· Minot had goods on consignment from a vender of $25,000 that were included in the ending inventory balance.
Given the above information, compute Minot Company's inventory balance on December 31, 2012.
133. Compute the missing numbers for the following three partial income statements:
Dickison Beulah Grafton

Company Company Company
Beginning inventory $ 65,000 $25,400 (e) $______
Purchases 106,000 (c) ______ 246,000
Purchase returns and allowances (a) ______ 1,600 10,200
Goods available for sale 167,600 (d) ______ 348,400
Ending inventory (b) ______ 23,000 86,800
Cost of goods sold 133,000 67,200 (f) ______
134. Prepare journal entries to record the following four transactions for the Labatt Company using the
perpetual inventory method. (Omit explanations for the entries.)
· June 1 - purchased on account inventory costing $15,000 terms 2/10 n/30.

· June 9 - returned inventory costing $1,500 that was purchased on June 1.
· June 10 - paid for the merchandise purchased on June 1.
· June 15 - sold one half of its inventory for $12,000 cash. (Assume the inventory purchased on June 1 was the company's only inventory.)
135. Prepare journal entries to record the following four transactions for Labatt Company using the periodic
inventory method. (Omit explanations for the entries.)

136. Jahn Company had the following balances in its general ledger at December 31, 2012:
Inventory (as of January 1, 2012) $240,000

Purchases 440,000
For the year 2012, Jahn Company's electronic sales registers showed a total cost of goods sold of $480,000. Assuming that a physical count of
inventory on December 31, 2012, revealed inventory on hand costing $185,000, complete the following:
a. Prepare the journal entries needed to adjust the inventory records and close the related purchases accounts, assuming the periodic inventory
method is used.
b. Prepare any entries necessary to adjust the inventory records and close the appropriate accounts, assuming the perpetual inventory method
is used, but that the information preceding beginning inventory, purchases, and purchase returns and allowances is known.
137. Compute the missing numbers in the following income statements:
Year 1 Year 2
Sales revenue $50,000 (d) ______

Beginning inventory 12,400 (e) ______
Purchases 30,600 $42,000
Purchase returns and allowances 1,000 600
Ending inventory (a) ______ (f) ______
Cost of goods sold (b) ______ 32,000
Gross margin 14,000 35,000
Expenses 7,600 (g) ______
Net income (or loss) (c) ______ 19,600
138. Ling Company's inventory records for the current year are as follows:
Number
of Units Cost per Unit Total Cost
Beginnin 2,200 $3.00 $ 6,600
g
inventor
y
First 3,000 $2.90 8,700
purchase
Second 3,500 $2.80 9,800
purchase
Third 2,800 $2.70 7,560
purchase
Fourth 2,500 $2.60 6,500
purchase
Goods available for sale 14,000 $39,160
Units sold during the year 9,000
Compute the cost of ending inventory using the following inventory costing methods:
a. FIFO periodic
b. LIFO periodic
c. Average Cost periodic
139. Hillsboro Company's inventory records for November are as follows::

November 1 Inventory 7,000 $55.00
9 Purchase 10,000 52.00
15 Sales 15,000
24 Purchase 14,000 50.00
26 Sales 10,000
30 Purchase 4,000 45.00
a. FIFO periodic
b. LIFO periodic
140. The following information was taken from the records of Colfax Company:

Cost of goods sold 4,050,000
Purchases 3,250,000
Beginning accounts payable 825,000
Ending accounts payable 975,000
Net income 562,500
Given this information, compute the following ratios for Colfax Company.
a. Inventory turnover
b. Number of days' sales in inventory
c. Number of days' purchases in accounts payable
141. The financial statements of Alphonso, Inc., reflect the following data:
Sales $1,000,000 Begi $80,10

nnin 0
g
Inve
ntor
y
Cost of 250,000 Endi 84,170
Goods ng
Sold Inve
ntor
y
Beginnin Begi
g nnin
Account g
s Acc
ount
s
Receivable 420,000 Payable 69,000
Ending Endi
Account ng
s Acc
ount
s
You are analyzing the company's statements to determine how much of the company's operating cycle must be financed through external financing.
1. Determine the length of the company's operating cycle.

2. Determine the number of days the company will need external financing.
3. Identify the means of obtaining the necessary external financing.
142. The following data are available for Toltec Company:
Year 1 Year 2
Beginning inventory $ 90,000 $ 60,000
Purchases 150,000 180,000
Cost of goods available for sale 240,000 240,000
Ending inventory 60,000 50,000
Cost of goods sold 180,000 190,000
Based on these data, answer the following three independent questions:
a. If ending inventory in year 1 is understated by $5,000 (it is recorded as $55,000), how much is cost of goods sold in year 1?
b. Assuming the same error as in (1), how much is total cost of goods sold for the two years combined?
c. If beginning inventory in year 2 is understated by $15,000 (it is recorded as $45,000), how much is cost of goods sold in year 2?
143. Palermo Company is a wholesaler of sporting goods. The activity for NBA-sanctioned basketballs during
November is shown below:

5 Purchase 1,500 43.00
9 Sales 1,800
17 Purchase 2,400 44.00
23 Sales 1,900
29 Purchase 800 45.00
Given this information, compute the cost of ending inventory using the following inventory costing methods:
a. FIFO perpetual
b. LIFO perpetual
c. Average Cost perpetual
144. Rawson Company's inventory records for April are as follows::

April 1 Inventory 3,500 $110.00
9 Purchase 5,000 104.00
15 Sales 7,500
24 Purchase 7,000 100.00
26 Sales 5,000
30 Purchase 2,000 90.00
a. FIFO perpetual
b. LIFO perpetual
145. Rhame Company has the following information related to its two products:
Product M $ 96 $ 72 $ 80 $ 64
Product N $120 $128 $144 $112
Given the above information, determine the following items:
a. Net realizable value of each product.

b. Normal profit margin for each product.
c. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product M should be valued.
d. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product N should be valued.
146. Feldman Company has the following inventory information for the current year:
Net
Replacement Realizable
Item Quantity Unit Cost Cost Value Floor
1A 100 $34 $36 $45 $41
2A 150 16 13 19 14
3A 50 25 20 21 18
4A 200 41 36 35 34
Determine the total inventory cost to appear on Feldman's balance sheet under the lower of cost or market rule assuming
a. The rule is applied to inventory as a whole.

b. The rule is applied on an item-by-item basis.
147. Hughes Medical Supply, a retail business, had net sales of $92,400 during January. Purchases of
merchandise during the month amounted to $42,700, of which $27,400 had been paid for by the end of January.
The merchandise purchased had a retail sales value of $59,000. On January 1, inventory on hand cost $26,180
and had a retail sales value of $39,400. Traditionally, Hughes' gross margin percentage has been 30 percent.
Use the gross margin estimation method to determine the cost of Hughes' inventory at the end of January.
148. The following information is available for the Williston Company for the month ended September 30:
Inventory, September 1 $ 600,000

Purchases 2,250,000
Freight In 150,000
Sales 3,200,000
The gross margin was 40 percent of sales. What is Williston's estimated inventory balance at September 30?
Chapter 7--Inventory and the Cost of Sales Key
1. Items that are either manufactured or purchased for resale in the normal course of business are called
A. Supplies
B. Inventory
C. Purchases
D. Materials
2. Which of the following is an inventory account for a retailer?

A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
3. Which inventory account consists of partially finished products?

A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
4. Which inventory account consists of goods in a relatively undeveloped state that will eventually be a major
part of the finished product?
A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
5. Which inventory account consists of the completed products waiting for sale?
A. Raw Materials
B. Work In Process
C. Finished Goods
D. Merchandise
6. Inventory costs include all of the following, EXCEPT
A. Selling costs
B. Production costs
C. Purchase costs
D. Freight costs
7. Which of the following would NOT be included in ending inventory of the seller?
A. Goods shipped to customers, F.O.B. destination
B. Goods purchased from suppliers, F.O.B. shipping point
C. Goods held on consignment
D. Goods out on consignment
8. Inventory accounting is most complex in

A. Merchandising companies
B. Service companies
C. Manufacturing companies
D. Wholesale companies
9. When products are sold, their costs are removed from inventory and reported on the income statement as an
expense called
A. Operating expenses
B. Cost of goods sold
C. Cost of goods manufactured
D. Inventory expenses
10. Which of the following is NOT an inventory in a manufacturing company?

A. Raw materials
B. Finished goods
C. Work-in-process
D. Merchandise
11. The cost of finished goods inventory includes all BUT which of the following?
A. Advertising costs
B. Manufacturing overhead costs
C. Labor costs
D. Raw material costs
12. If the shipping terms indicate that the seller owns the goods until delivered to the buyer, this arrangement is
known as
A. Goods in transit
C. FOB destination
D. FOB carrier
13. If the shipping terms indicate that the buyer owns the goods upon shipment from the seller, this arrangement
is known as
A. Goods in transit
C. FOB destination
D. FOB carrier
14. Cost of goods sold is equal to

A. The cost of inventory on hand at the end of a period plus net purchases minus the cost of inventory on hand
at the beginning of a period
B. The cost of inventory on hand at the beginning of a period minus net purchases plus the cost of inventory on
hand at the end of a period
C. The cost of inventory on hand at the beginning of a period plus net sales minus the cost of inventory on hand
at the end of a period
D. The cost of inventory on hand at the beginning of a period minus the cost of inventory on hand at the end of
a period plus net purchases
15. If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
A. Seller
B. Common carrier
C. Buyer
D. Bank
16. Merchandise shipped FOB shipping point on the last day of the year should probably be included in
A. The buyer's inventory balance
B. The seller's inventory balance
C. Neither the buyer's nor seller's inventory balance
D. Both the buyer's and the seller's inventory balances
17. Conner Company's inventory balance on December 31, 2012 was $3,100,000 before considering the
Given the above information, on December 31, 2012, Conner should report an inventory balance of
A. $3,100,000
B. $2,850,000
C. $3,475,000
D. $3,350,000
18. Conner Company's accounts payable balance on December 31, 2012 was $1,400,000 before considering the
Given the above information, on December 31, 2012, Conner should report an accounts payable balance of
A. $1,400,000
B. $1,150,000
C. $1,775,000
D. $1,650,000
19. A perpetual inventory system is most often used when

20. A periodic inventory system is most often used when

21. When the periodic inventory method is used, the entry to record a return of defective merchandise to a
supplier would include a
A. Credit to Accounts Payable
B. Credit to Inventory
C. Credit to Purchase Returns
D. Credit to Cash
22. When a company uses the perpetual inventory method, purchase returns are recorded by
A. Debiting Purchase Returns
B. Crediting Purchase Returns
C. Crediting Accounts Payable
D. Crediting Inventory
23. A firm using the periodic inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction would include a debit to
B. Inventory
C. Purchase Returns and Allowances
D. Accounts Payable
24. Which of the following accounts would be found on the income statement?
A. Inventory
B. Wages Payable
C. Freight-In
D. Cash
25. Which of the following statements is true under the periodic inventory method?
A. Freight-In is subtracted from purchases in order to derive net purchases
B. Freight-In is added to purchases in order to derive net purchases
C. Freight-In is used only with the perpetual inventory method, not with the periodic inventory method
D. Freight-In is neither subtracted nor added to purchases in order to derive net purchases
from Jackson Sales, terms FOB shipping point. When recording the payment with the periodic inventory
A. Purchases
B. Freight-In
C. Prepaid Freight
D. Freight-Out
from Jackson Sales, terms FOB shipping point. When recording the payment with the perpetual inventory
A. Inventory
B. Freight-In
C. Prepaid Freight
D. Freight-Out
28. A firm that uses the perpetual inventory method purchased $1,000 of inventory on terms 2/10, n/30. The
journal entry to record this transaction would include a debit to
A. Purchases
C. Inventory
D. Accounts Payable
29. A firm using the periodic inventory method purchased $2,000 of inventory on terms 2/10, n/30. The journal
entry to record this transaction would include a debit to
A. Purchases
C. Inventory
D. Accounts Payable
30. Company D makes the following entry in its accounting records:
Inventor 200
y
Cost of Goods Sold 200
This entry would be made when

A. Merchandise is sold and the periodic inventory method is used
B. Merchandise is sold and the perpetual inventory method is used
C. Merchandise is returned and the perpetual inventory method is used
D. Merchandise is returned and the periodic inventory method is used
31. The perpetual method of accounting for inventory

A. Requires that a physical count of inventory be taken before the cost of goods sold can be determined with
any reasonable degree of accuracy
B. Is likely to be less expensive to maintain than a periodic inventory method
C. Is not as helpful as a periodic method in providing management with timely reports about inventory
quantities and costs
D. Allows management to better estimate inventory losses from pilferage than does a periodic inventory method
32. The entry (or entries) required to record a sales return by a customer when using the perpetual inventory
method would consist of
A. A debit to Sales Revenue and a credit to Accounts Receivable
B. A debit to Sales Returns and a credit to Accounts Receivable
C. Debits to Sales Returns and Inventory and credits to Accounts Receivable and Cost of Goods Sold
D. Debits to Sales Returns and Cost of Goods Sold and credits to Accounts Receivable and Inventory
33. Which of the following accounts would NOT normally have a debit balance?
A. Inventory
B. Cost of Goods Sold
D. Freight-In
suppliers. The entry to record this transaction will include a debit to
B. Inventory
C. Purchase Returns
D. Accounts Payable
suppliers. The entry to record this transaction will include a credit to
B. Inventory
C. Purchase Returns
D. Accounts Payable
36. ABC Company purchased inventory on account with credit terms of 2/10, n/30. It paid the amount owed
within 10 days and recorded the following entry:
Account 800
A
Account B 784
Account C 16
Given this entry, and assuming that ABC company uses a periodic inventory system, what would be the nature of Account C?
A. Accounts Payable
B. Inventory
D. Cash
37. Which of the following accounts would be debited when making closing entries?
A. Cost of Goods Sold
B. Purchases
C. Sales Discounts
D. Purchase Returns
38. Under the periodic inventory method, if merchandise is sold for cash on December 31 and is recorded as a
sale but is NOT shipped (and thus is included in the ending inventory count), the financial statements will
A. Overstate assets
B. Understate net income
C. Understate liabilities
D. Understate assets
39. If a company sold merchandise for a profit, the accounting equation would show a(n)
A. Net increase in assets and increase in revenues
B. Net increase in assets and decrease in liabilities
C. Net decrease in assets and increase in revenues
D. Increase in liabilities and increase in revenues
40. Williston Cattle Company uses a perpetual inventory system. Williston purchased sheep from Little H
Ranch at a cost of $39,000, payable at time of delivery. The entry to record the delivery would be
A. Purchases 39,000
B. Inventory 39,000
C. Purchases 39,000
Cash 39,000
D. Inventory 39,000
Cash 39,000
41. Exhibit 7-1

Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 5 transaction would include
A. A debit to Cost of Goods Sold of $1,500
B. A debit to Accounts Receivable of $2,500
C. A credit to Inventory of $1,500
D. All of these
42. Exhibit 7-1

Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 15 transaction would
include a
A. Debit to Purchases of $150
B. Credit to Purchases of $150
C. Credit to Inventory of $150
D. Credit to Purchase Returns of $150
43. Exhibit 7-2


Purchases 80,000
Freight-in 1,000
Refer to Exhibit 7-2. Given the information above, gross margin is

A. $86,000
B. $94,000
C. $106,000
D. $114,000
44. Exhibit 7-2

Purchases 80,000
Freight-in 1,000
Refer to Exhibit 7-2. Given the information above, and assuming that Lindsey's total operating expenses (exclusive of cost of goods sold) are
$40,000, pretax income is
A. $46,000
B. $110,000
C. $114,000
D. $74,000
45. If a firm's beginning inventory is $70,000, goods purchased during the period cost $260,000, and the cost of
goods sold is $300,000, what is the ending inventory?
A. $30,000
B. $50,000
C. $40,000
D. $90,000
46. With the perpetual inventory method, which of the following entries would be made when inventory costing
$3,600 is sold for $5,000?
A. Inventory 5,000
B. Cost of Goods Sold 3,600
Inventory 3,600
C. Purchases 5,000
Accounts Receivable 5,000
D. Inventory 3,600
Cost of Goods Sold 5,000
Purchases 5,000
47. If cost of goods sold is $12,000 and the ending inventory balance is $6,000, the
A. Beginning inventory is $18,000
B. Net income is $6,000
C. Cost of goods available for sale is $18,000
D. Purchases are $6,000
48. If a firm's beginning inventory is $70,000, purchases are $320,000, and the cost of goods sold is $300,000,
what is its ending inventory?
A. $330,000
B. $260,000
C. $90,000
D. $30,000
49. An entry is made to close Purchases and Purchase Discounts as:
Account 35,000
A
Account 1,600
B
Account C 36,600
Based on this entry, total (gross) purchases for the year were
A. $35,000
B. $1,600
C. $36,600
D. Undeterminable, given the preceding information
50. Chyna Corporation has the following income statement for the year ended December 31, 2012:
Sales $100,000
revenue
Cost of
goods
sold:
Purchases (net) 48,000
Cost of goods available for sale $60,000
Cost of ending inventory 12,000
Gross $ 52,000
margin
Expense 30,000
s
Net $ 22,000
income
Given this information, if ending inventory was $10,000 instead of $12,000, net income would be
A. $18,000
B. $22,000
C. $20,000
D. None of these
51. For external reporting purposes, inventory shrinkage is usually combined with which account?
A. Merchandise inventory
B. Gross profit
C. Cost of goods sold
D. Operating expenses
52. A physical count would be necessary at the end of the accounting period under which inventory system?
53. Under which inventory system would a company NOT be able to specifically determine the amount of
inventory lost or stolen?
54. The inventory shrinkage account is

A. Used only with the perpetual inventory method
B. A permanent (real) account
C. A balance sheet account
D. Used only with the periodic inventory method
55. If expenses are overstated on the income statement, net income

A. Will be unaffected
B. Will be overstated
C. Will be understated
56. If the ending inventory is overstated, net income for the same period will be
A. Unaffected
B. Overstated
C. Understated
57. When the current year's ending inventory amount is overstated, the
A. Current year's cost of goods sold is overstated
B. Current year's total assets are understated
C. Current year's net income is overstated
D. Next year's income is overstated
58. If the ending inventory balance is understated, net income of the same period will be
A. Overstated
B. Understated
C. Unaffected
59. An overstatement of ending inventory in period 1 would result in income of period 2 being
A. Overstated
B. Understated
C. Correctly stated
60. Which of the following will result if the current year's ending inventory amount is understated in the cost of
goods sold calculation?
A. Cost of goods sold will be overstated
B. Total assets will be overstated
C. Net income will be overstated
D. Cost of goods sold and net income will be overstated
61. If ending inventory on December 31, 2011, is overstated by $60,000, what is the effect on net income for
2012?
A. Net income is overstated by $60,000
B. Net income is understated by $60,000
C. Net income is overstated by $120,000
D. The answer cannot be determined from the information given
62. Following are the account balances from Connery Company's income statement:

Purchases 50,000
Freight-in 6,000
Freight-out 8,000
Given this information, the cost of goods sold during 2012 is
A. $51,000
B. $46,000
C. $56,000
D. $66,000
63. Following are the account balances from Samuel Company's income statement:

Purchases 35,000
Freight-in 5,000
Freight-out 6,000
Given this information, the cost of merchandise available for sale during 2012 is
A. $65,000
B. $59,000
C. $69,000
D. $61,000
64. Exhibit 7-3


Purchases 128,000
Freight-in ?
Ending inventory ?
Refer to Exhibit 7-3. Given the information above, determine the amount of freight-in.
A. $9,600
B. $12,800
C. $6,400
D. $3,200
65. Exhibit 7-3

Purchases 128,000
Freight-in ?
Ending inventory ?
Refer to Exhibit 7-3. Given the information above, determine the amount of ending inventory.
A. $73,600
B. $105,600
C. $70,400
D. $102,400
66. Agassi Company is a wholesale electronics distributor. On December 31, 2012, it prepared the following
partial income statement:
Gross $500,400
sales
Sales 400
discount
s
Net sales $500,000
Cost of
goods
sold:
Beginnin $200,000
g
inventor
y
Net 300,000
purchase
s
Given this information, if the ending inventory balance was $210,000, what would be its gross margin?
A. $290,000
B. $300,000
C. $310,000
D. $210,000
67. Montgomery Corporation has the following account balances:

Purchases 40,000
Freight-in 500
Given this information, total cost of goods available for sale is

A. $60,000
B. $57,000
C. $58,000
D. $62,000
68. The net sales figure of XYZ Company in 2012 was $300,000. If the cost of goods available for sale was
$280,000 and gross margin was 35 percent of net sales, ending inventory must have been
A. $70,000
B. $85,000
C. $195,000
D. $105,000
69. Which inventory cost flow assumption is most often used by businesses that sell a limited number of
high-priced items?
A. Average cost
B. FIFO
D. LIFO
70. Which inventory cost flow assumption matches current costs against current revenues?
A. Average cost
B. FIFO
D. LIFO
71. Which inventory cost flow assumption best reflects the current value of inventory on the balance sheet?
A. Average cost
B. FIFO
D. LIFO
72. Which of the following would be true if inventory costs were increasing?
A. LIFO would result in lower net income and lower ending inventory amounts than would FIFO
B. FIFO would result in lower net income and higher ending inventory amounts than would LIFO
C. LIFO would result in a lower net income amount but a higher ending inventory amount than would FIFO
D. None of these would be true
73. Which of the following will occur when inventory costs are decreasing?
A. LIFO will result in lower net income and lower ending inventory than will FIFO
B. FIFO will result in lower net income and lower ending inventory than will LIFO
C. LIFO will result in a lower net income but a higher ending inventory than will FIFO
D. FIFO will result in a lower net income but a higher ending inventory than will LIFO
74. During an inflationary period, which inventory costing alternative usually results in a firm paying the lowest
income taxes?
A. FIFO
B. LIFO
C. Average cost
D. Specific identification
75. During a period of continuing inflation, which inventory cost flow alternative usually results in the highest
reported net income?
A. FIFO
B. LIFO
C. Average cost
D. All of these result in the same reported net income
76. Purchases and sales during a recent period for Bottineau Inc. were

Period
1st purchase 1,400 units ´ $ 4 1st sale 800 units ´ $14
2nd purchase 2,000 units ´ $ 6 2nd sale 1,500 units ´ $16
3rd purchase 1,000 units ´ $ 8 3rd sale 1,000 units ´ $18
4th purchase 1,000 units ´ $10 4th sale 1,000 units ´ $20
Beginning inventory was 200 units at $2 each. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used?
A. $1,600
B. $2,000
C. $5,000
D. $12,400
77. Exhibit 7-4

Period
Refer to Exhibit 7-4. Beginning inventory was 100 units at $2 each. Given this information, what is the ending inventory if the periodic LIFO
costing alternative is used?
A. $400
B. $500
C. $1,250
D. $3,100
78. Exhibit 7-4


Period
Refer to Exhibit 7-4. Beginning inventory was 100 units at $1 each. Given this information, what is the average cost per unit available for sale
during the year if the periodic inventory method is used (rounded to the nearest cent)?
A. $2.61
B. $3.10
C. $3.53
D. $3.31
79. The following information is available for Harvey Corporation for the month of June:
Beginning inventory 32 units ´ $80 = $2,560

Given this information, the average (periodic) ending inventory balance is approximately
A. $9,056
B. $4,205
C. $3,968
D. $4,320
80. Exhibit 7-5

follows:

Refer to Exhibit 7-5. Using the information above, periodic FIFO cost of goods sold is
A. $330
B. $300
C. $430
D. $350
81. Exhibit 7-5

follows:

Refer to Exhibit 7-5. Using the information above, periodic LIFO cost of goods sold is
A. $430
B. $360
C. $330
D. $300
82. Exhibit 7-5
follows:

Refer to Exhibit 7-5. Using the information above, average (periodic) cost of goods sold is
A. $450
B. $390
C. $375
D. $330
83. Exhibit 7-6

below:

7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a FIFO periodic inventory system, the ending inventory of supply number 47519 at October 31 is reported
as
A. $152,960
B. $152,288
C. $150,160
D. $150,080
84. Exhibit 7-6

below:

7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a LIFO periodic inventory system, the ending inventory of supply number 47519 at October 31 is reported
as
A. $152,960
B. $150,160
C. $150,080
D. $146,400
85. Exhibit 7-6

below:

7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60
Refer to Exhibit 7-6. If Martin Inc. uses a periodic average cost inventory system, the ending inventory of supply number 47519 at October 31 is
reported as (round the average cost to the nearest cent)
A. $152,232
B. $150,160
C. $150,080
D. $146,400
86. With LIFO, cost of goods sold is $780,000, and ending inventory is $180,000. If FIFO ending inventory is
$260,000, how much is FIFO cost of goods sold?
A. $860,000
B. $780,000
C. $700,000
D. $260,000
87. Which of the following factors are used in calculating a company's inventory turnover?
A. Cost of goods sold and average working capital
B. Average accounts receivable and net sales
C. Net sales and average inventory
D. Average inventory and cost of goods sold
88. Which of the following factors are used in calculating a company's number of days' sales in inventory?
A. Average inventory and 365
B. Inventory turnover and 365
C. Cost of goods sold and 365
D. Average accounts payable and 365
89. The two ratios that help a company measure how effectively it is managing its inventory are
A. Inventory turnover and number of days' sales in inventory
B. Inventory turnover and number of days' purchases in accounts payable
C. Number of days' sales in inventory and number of days' purchases in accounts payable
D. Accounts receivable turnover and number of days' sales in inventory
90. Which ratio tells how many times a year a company is replenishing its inventory?
91. Which ratio tells how much long it takes a company to pay its suppliers?
92. Monica Mills Co. began the year with $100,000 in inventory and ends the year with $300,000. Purchases
during the year amounted to $1,660,000. The number of days' sales in inventory for the year was
A. 43.98 days
B. 8.30 days
C. 7.30 days
D. 50.00 days
93. Andromeda, Inc., purchased $100,000 of inventory during the year and had average receivables and
payables of $46,575 and $21,918, respectively. The number of days' purchases in accounts payable was
approximately
A. 60 days
B. 170 days
C. 80 days
D. 128 days
94. During the current calendar year, Bowman Corporation purchased $660,000 of inventory. The beginning
inventory balance was $84,000, and the inventory balance at year-end was $120,000. The inventory turnover for
the current year was
A. 5.20 times
B. 5.50 times
C. 6.12 times
D. 7.86 times
95. The following information was taken from the records of Kane Company:

Net income 112,500
Given this information, Kane's inventory turnover is

A. 5.68
B. 5.40
C. 10.11
D. 1.33
96. The December 31, 2012, balance sheet and income statement for Santana Company are presented below:
Santan
a
Compa
ny
Balanc
e Sheet
Decem
ber 31,
2012
Assets Liabi
lities
and
Stock
holde
rs'
Equit
y
Cash $ 96,000 Acco $ 243
unts ,000
Payab
le
Accou 560,000 Inco 67,000
nts me
Receiv Taxes
able Payab
le
ory es
Payab
le
Plant 770,000 Bond 760,00
and s 0
Equip Payab
ment le
ble mon 0
Assets Stock
Retai 244
ned ,000
Earni
ngs
Total
Liabilit
ies and
Santana
Compan
y
Income
Stateme
nt
For the
Year
Ended
Decemb
er 31,
2012
Net $1,800,000
sales
revenue
Cost of 945,000
goods
sold
Gross $ 855,000
margin
Operatin 567,000
g
expenses
(includin
g
$40,000
of bond
interest)
Income $ 288,000
before
taxes
Income 115,000
taxes
Net $ 173,000
income
Addition
al
informat
ion:
Total assets (12/31/11) $2,400,000
Inventory (12/31/11) 238,500
Given this information, Santana's inventory turnover during 2012 was

A. 4
B. 5
C. 7
D. 8
97. The December 31, 2012, balance sheet and income statement for Santana Company are presented below.
Santan
a
Compa
ny
Balanc
e Sheet
Decem
ber 31,
2012
Assets Liabilities and

Stockholders' Equity
Cash $ 96,000 Acco $ 243
unts ,000
Payab
le
Accou 560,000 Inco 67,000
nts me
Receiv Taxes
able Payab
le
ory es
Payab
le
Plant 770,000 Bond 720,50
and s 0
Equip Payab
ment le
ble mon 0
Assets Stock
Retai 244
ned ,000
Earni
ngs
Total
Liabilit
ies and
Santana
Compan
y
Income
Stateme
nt
For the
Year
Ended
Decemb
er 31,
2012
Net $1,800,000
sales
revenue
Cost of 945,000
goods
sold
Gross $ 855,000
margin
Operatin 567,000
g
expenses
(includin
g
$40,000
of bond
interest)
Income $ 288,000
before
taxes
Income 115,000
taxes
Net $ 173,000
income
Addition
al
informat
ion:
Total assets (12/31/11) $2,400,000
Inventory (12/31/11) 238,500
Accounts payable (12/31/11) 287,000
Given this information, Santana's number of days' purchases in accounts payable during 2012 was
A. 75
B. 80
C. 98
D. 102
98. The following information is available for Belden Company:
Cost of goods sold for 2012 $3,600,000

Inventories at December 31, 2011 1,050,000
Inventories at December 31, 2012 930,000
Assuming that a business year consists of 360 days, the number of days' sales in inventory for 2012 was
A. 49.5
B. 93
C. 99
D. 105
99. The following information is available for Lendo Company:
Lendo Company
Partial Balance Sheet
December 31, 2012 and 2011
2012 2011
Accounts receivable $500,000 $470,000
Allowance for uncollectible accounts (25,000) (20,000)
Net accounts receivable $475,000 $450,000
Inventories at lower of cost or market $600,000 $550,000
Lendo
Compan
y
Partial
Income
Stateme
nt
For the
Years
Ended
Decemb
er 31,
2012
and
2011
2009 2008
Net $2,500,000 $2,200,000
credit
sales
Net cash 500,000 400,000
sales
Net $3,000,000 $2,600,000
sales
Cost of $2,800,000 $1,800,000
goods
sold
Selling, 300,000 270,000
general,
and
administ
rative
expenses
.
Other 50,000 30,000
expenses
Total operating expenses $2,350,000 $2,100,000
Lendo's inventory turnover for 2012 is computed by
A. $2,000,000 / $575,000
B. $2,350,000 / $600,000
C. $2,800,000 / $575,000
D. $3,000,000 / $575,000
100. How many years does it take for an inventory error to correct itself assuming the ending inventory count in
the second year is correct?
A. 1
B. 2
C. 3
D. 4
101. When ending inventory is overstated in period 1, net income in period 2 will be
A. Understated
B. Overstated
C. Stated correctly
102. An understatement of purchases results in cost of goods sold being

A. Overstated
B. Understated
C. Stated correctly
103. Under the periodic inventory method, if an inventory purchase has been made and recorded but has NOT
yet arrived (and thus is not counted), the financial statements will
A. Overstate assets
B. Overstate net income
C. Understate net income
D. Understate revenues
104. The misclassification of Freight-in as an operating expense will result in

A. An overstatement of cost of goods sold
B. An overstatement of gross margin
C. An overstatement of net income
105. Golva Company sold $15,000 of inventory on December 31. This sale was recorded in the books and was
also included in the ending inventory count. How will this information affect the financial statements?
D. The financial statements will not be affected
106. Cait Company sold $5,000 of inventory on December 31, 2011. This sale was recorded in the books and
was also included in the ending inventory count. How will this information affect the financial statements for
2012?
D. Beginning inventory will be understated by $5,000
107. Which inventory cost flow assumption will provide the same amounts for ending inventory and cost of
goods sold under both the periodic and perpetual inventory systems?
A. FIFO
B. LIFO
C. Average cost
D. NIFO
108. Under certain methods of inventory cost flow assumption, the amount of cost of goods sold can be affected
by when the sale occurs. Which of the following methods is NOT affected by when the sale occurs?
A. LIFO
B. FIFO
C. Average cost
109. Under which system must a determination of the "last in" units be evaluated at the time of each individual
sale?
A. Perpetual system
B. Periodic system
C. Both perpetual and periodic systems
D. Neither periodic nor perpetual systems
110. The following information is available for Waggoner Corporation for the month of June:
Beginning inventory 16 units ´ $40 = $640

Given this information, the perpetual LIFO ending inventory balance is

A. $1,080
B. $960
C. $1,032
D. $1,188
111. Exhibit 7-7


Refer to Exhibit 7-7. Assuming the perpetual FIFO inventory method is used, what is the cost of Iliescu's ending inventory?
A. $3,000
B. $3,446
C. $3,276
D. $3,546
112. Exhibit 7-7


Refer to Exhibit 7-7. Assuming the perpetual LIFO inventory method is used, what is the cost of Iliescu's ending inventory?
A. $3,546
B. $3,376
C. $3,268
D. $3,124
113. Exhibit 7-7


Refer to Exhibit 7-7. Assuming the perpetual LIFO inventory method is used, what is Iliescu's cost of goods sold?
A. $16,986
B. $17,244
C. $17,328
D. $17,174
114. Monango Clothing Store sells jackets. During January, its inventory records of one brand of designer
jackets were as follows:
Beginning inventory 10 jackets ´ $44 = $440

Using this information, perpetual LIFO cost of goods sold is

A. $860
B. $750
C. $796
D. $806
115. The ceiling, or the maximum market amount at which inventory can be carried on the books, is equal to
A. Current replacement cost
B. Net realizable value
C. Historical cost
D. Selling price
116. The floor, or the minimum market amount at which inventory can be carried on the books, is equal to
A. Selling price less estimated selling costs
B. Current replacement cost
C. Net realizable value less normal profit margin
D. Historical cost
117. Inventories are carried in the accounting records at cost, EXCEPT when
A. The inventory is damaged
B. The market value of the inventory falls below its acquisition cost
C. Either the inventory is damaged or the market value of the inventory falls below its acquisition cost
D. The market price rises above cost
118. Inventory is usually carried in the accounting records at

A. Lower of cost or market
B. Market
C. Cost
D. Selling price
119. Inventory valued at lower of cost or market can never be recorded at amounts below its
A. Net realizable value
B. Net realizable value minus a normal profit margin
C. Sales price
D. Ceiling
120. Exhibit 7-8

Product A $12 $ 9 $10 $ 8
Product B $15 $16 $18 $14
Refer to Exhibit 7-8. The net realizable value of product B is

A. $15
B. $16
C. $18
D. $14
121. Exhibit 7-8
Product A $12 $ 9 $10 $ 8
Product B $15 $16 $18 $14
Refer to Exhibit 7-8. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product A should be
valued is
A. $12
B. $9
C. $10
D. $8
122. Commodity X sells for $18.00; selling expenses are $3.60; normal profit is $4.50. If the cost of
Commodity X is $11.70 and the replacement cost is $10.00, the lower of cost or market is
A. $8.10
B. $9.00
C. $9.90
D. $11.70
123. A firm is writing its inventory down to the lower of cost or market. It has determined the following per unit
costs and market prices for its product:
Original cost $104

Sales price 120
Selling cost 20
Normal profit 18
Replacement cost 78
Given these data, the firm should value its inventory at a per unit cost of
A. $104
B. $100
C. $82
D. $78
124. Which of the following statements is true of the gross margin method of estimating the dollar amount of
ending inventory?
A. It is helpful in estimating inventory when a fire burns the warehouse
B. It uses the current gross margin percentage in its calculation
C. It is a method of estimating ending inventory that can be used only in retail firms
D. All of these statements are true
125. The use of the gross profit method assumes
A. The amount of gross profit is the same as in prior years
B. Sales and cost of goods sold have not changed from previous years
C. Inventory values have not increased from previous years
D. The relationship between selling price and cost of goods sold is similar to prior years
126. The gross profit method of estimating inventory would NOT be useful when
A. A periodic system is in use and inventories are required for interim statements
B. Inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data required for
inventory valuation are not available
C. There is a significant change in the mix of products being sold
D. The relationship between gross profit and sales remains stable over time
127. A firm had a beginning inventory balance of $1,000, net purchases of $35,000, and sales of $40,000. Its
gross margin percentage was 25 percent. Using the gross margin method, the ending inventory balance is
A. $1,000
B. $7,000
C. $6,000
D. $10,000
128. Penn Company needs an estimate of its ending inventory balance. The following information is available:

Net purchases 100,000
Gross margin percentage 30%
Given this information, when using the gross margin estimation method, ending inventory is approximately
A. $1,000
B. $9,000
C. $19,000
D. $11,650
129. The following information is available for the Segura Company for the three months ended June 30:
Inventory, April 1 $1,200,000

Purchases 4,500,000
Freight In 300,000
Sales 6,400,000
The gross margin was 25 percent of sales. What is the estimated inventory balance at June 30?
A. $880,000
B. $933,000
C. $1,200,000
D. $1,500,000
130. The following information appears in Gordon Company's records for the year ended December 31:
Inventory, January 1 $ 325,000

Purchases 1,150,000
Freight in 30,000
Sales 1,700,000
Sales returns 15,000
On December 31, a physical inventory revealed that the ending inventory was only $210,000. Gordon's gross profit on net sales has remained
constant at 30 percent in recent years. Gordon suspects that some inventory may have been pilfered by one of the company's employees. At
December 31, what is the estimated cost of missing inventory?
A. $75,000
B. $82,500
C. $210,000
D. $292,500
131. The following information is available for Velva Company for its most recent year:
Net sales $7,200,000

Freight in 180,000
The gross margin is 40 percent of net sales. What is the cost of goods available for sale?
A. $3,360,000
B. $3,840,000
C. $4,800,000
D. $4,880,000
132. Minot Company's inventory balance on December 31, 2012 was $775,000 before considering the
· Goods were in transit from a vendor to Minot on December 31, 2012. The invoice price was $62,500, and the goods were shipped FOB
· Goods were purchased from a vendor on December 31, 2012. The invoice price was $83,000, with terms FOB shipping point. The goods
were shipped the same day as purchase and received on January 7, 2013.
· Goods were shipped to Minot Company FOB destination on December 23, 2012, from a vendor. The invoice price was $31,250. The
goods were received on January 2, 2013.
Minot Company also had the following information available:
· Minot had goods consisting of $15,000 on consignment with a customer that were not included in the ending inventory balance.
· Minot had goods on consignment from a vender of $25,000 that were included in the ending inventory balance.
Given the above information, compute Minot Company's inventory balance on December 31, 2012.
$775,000 + $62,500 + $83,000 + $15,000 - $25,000 = $910,500
133. Compute the missing numbers for the following three partial income statements:
Dickison Beulah Grafton

Company Company Company
Beginning inventory $ 65,000 $25,400 (e) $______
Purchases 106,000 (c) ______ 246,000
Purchase returns and allowances (a) ______ 1,600 10,200
Goods available for sale 167,600 (d) ______ 348,400
Ending inventory (b) ______ 23,000 86,800
Cost of goods sold 133,000 67,200 (f) ______
a. $3,400 [$65,000 + $106,000 - $167,600]

b. $34,600 [$167,600 - $133,000]
c. $66,400 [$90,200 + $1,600 - $25,400]
d. $90,200 [$67,200 + $23,000]
e. $112,600 [$348,400 + $10,200 - $246,000]
f. $261,600 [$348,400 - $86,800]
134. Prepare journal entries to record the following four transactions for the Labatt Company using the
perpetual inventory method. (Omit explanations for the entries.)

June 1 Inventor 15,000
y
9 Account 1,500
s
Payable
Inventory 1,500
10 Account 13,500
s
Payable
Inventory 270
Cash 13,230
15 Cash 12,000
Sales Revenue 12,000
Cost of 6,615
Goods
Sold
Inventory 6,615
[($15,00
0-
$1,500 -
$270) ´
0.50 =
$6,615]
135. Prepare journal entries to record the following four transactions for Labatt Company using the periodic
inventory method. (Omit explanations for the entries.)

June 1 Purchase 15,000

s
9 Account 1,500
s
Payable
Purchase Returns 1,500
10 Account 13,500
s
Payable
Purchase Discounts 270
Cash 13,230
15 Cash 12,000
Sales Revenue 12,000
136. Jahn Company had the following balances in its general ledger at December 31, 2012:
Inventory (as of January 1, 2012) $240,000

Purchases 440,000
For the year 2012, Jahn Company's electronic sales registers showed a total cost of goods sold of $480,000. Assuming that a physical count of
inventory on December 31, 2012, revealed inventory on hand costing $185,000, complete the following:
a. Prepare the journal entries needed to adjust the inventory records and close the related purchases accounts, assuming the periodic inventory
method is used.
b. Prepare any entries necessary to adjust the inventory records and close the appropriate accounts, assuming the perpetual inventory method
is used, but that the information preceding beginning inventory, purchases, and purchase returns and allowances is known.
a. Inventor 435,000
y
Purchase 5,000
Returns
and
Allowan
ces
Purchases 440,000
To close
the
purchase
s
accounts
.
Cost of 490,000
Goods
Sold
Inventory 490,000
To
record
the Cost
of Goods
Sold and
adjust
Inventor
y to
$185,00
0
balance.
($440,00
0+
$240,00
0-
$5,000 -
$185,00
0=
$490,00
0)
b. Inventor 10,000
y
Shrinkag
e
Inventory 10,000
To
adjust
the
inventor
y
balance
for the
shortage
revealed
in the
physical
count
($240,00
0+
$440,00
0-
$5,000 -
$480,00
0=
$195,00
0;
$195,00
0-
$185,00
0=
$10,000)
.
Cost of goods sold has already been determined under the perpetual method. No entry is needed to record cost of goods sold.
137. Compute the missing numbers in the following income statements:
Year 1 Year 2
Sales revenue $50,000 (d) ______

Beginning inventory 12,400 (e) ______
Purchases 30,600 $42,000
Purchase returns and allowances 1,000 600
Ending inventory (a) ______ (f) ______
Cost of goods sold (b) ______ 32,000
Gross margin 14,000 35,000
Expenses 7,600 (g) ______
Net income (or loss) (c) ______ 19,600
a. 6,000 [$12,400 + $30,600 - $1,000 - $36,000]

b. 36,000 [$50,000 - $14,000]
c. 6,400 [$14,000 - $7,600]
d. 67,000 [$35,000 + $32,000]
e. 6,000 [same as year 1 ending inventory]
f. 15,400 [$6,000 + $42,000 - $600 - $32,000]
g. 15,400 [$35,000 - $19,600]
138. Ling Company's inventory records for the current year are as follows:
Number
of Units Cost per Unit Total Cost
Beginnin 2,200 $3.00 $ 6,600
g
inventor
y
First 3,000 $2.90 8,700
purchase
Second 3,500 $2.80 9,800
purchase
Third 2,800 $2.70 7,560
purchase
Fourth 2,500 $2.60 6,500
purchase
Goods available for sale 14,000 $39,160
Units sold during the year 9,000
a. FIFO periodic
b. LIFO periodic
a. FIFO 2, ´ $2.60 = $ 6,500

5
0
0
2, ´ 2.70 = 6,750
5
0
0
$13,250
b. LIFO 2, ´ $3.00 = $ 6,600

2
0
0
2, ´ 2.90 = 8,120
8
0
0
$14,720
c. A
v
er
a
g
e
c
o
st
(
$
3
9,
1
6
0/
1
4,
0
0
0
)
=
$
2.
7
9
7
p
er
u
ni
t
´
5,
0
0
0
u
ni
ts
=
$
1
3,
9
8
5
139. Hillsboro Company's inventory records for November are as follows::

9 Purchase 10,000 52.00
15 Sales 15,000
24 Purchase 14,000 50.00
26 Sales 10,000
30 Purchase 4,000 45.00
a. FIFO periodic
b. LIFO periodic
a. FIFO 6,000 ´ $50.00 = $300,000

4,000 ´ 45.00 = 180,000
$480,000
b. LIFO 7,000 ´ $55.00 = $385,000

3,000 ´ 52.00 = 156,000
$541,000
c. Cost of goods available

for sale:
7,000 ´ $55 385,000
10,000 ´ $52 520,000
14,000 ´ $50 700,000
4,000 ´ $45 180,000
$1,785,000
Average cost:
$1,785,000 ¸ (7,000 +
10,000 + 14,000 +
4,000) = $51
Average cost of ending
inventory: 10,000 ´ $51
= $510,000
140. The following information was taken from the records of Colfax Company:

Cost of goods sold 4,050,000
Purchases 3,250,000
Beginning accounts payable 825,000
Ending accounts payable 975,000
Net income 562,500
Given this information, compute the following ratios for Colfax Company.
a. Inventory turnover
b. Number of days' sales in inventory
c. Number of days' purchases in accounts payable
a. Inventory turnover: $4,050,000 ¸ [($675,000 + $750,000) ¸ 2] = 5.684

b. Number of days' sales in inventory: 365 ¸ 5.684 = 64.22 days
c. Number of days' purchases in accounts payable: 365 ¸ [$3,250,000 ¸ ($825,000 + $975,000) ¸ 2] = 101.08 days
141. The financial statements of Alphonso, Inc., reflect the following data:
Sales $1,000,000 Begi $80,10

nnin 0
g
Inve
ntor
y
Cost of 250,000 Endi 84,170
Goods ng
Sold Inve
ntor
y
Beginnin Begi
g nnin
Account g
s Acc
ount
s
Ending Endi
Account ng
s Acc
ount
s
You are analyzing the company's statements to determine how much of the company's operating cycle must be financed through external financing.
1. Determine the length of the company's operating cycle.

2. Determine the number of days the company will need external financing.
3. Identify the means of obtaining the necessary external financing.
1. Inventor = Cost of goods sold ¸ Average inventory
y
turnover
= $250,000 ¸ [($80,100 + $84,170)/2]
= 3.04
Number = 365 ¸ 3.04 = 120 days

of days,
sales in
inventor
y
Account = Sales ¸ Average accounts receivable

s
receivabl
e
turnover
= $1,000,000 ¸ [($420,000 + $403,045)/2]
= 2.43
Average = 365 ¸ 2.43 = 150 days

collectio
n period
Operatin = 120 days + 150 days = 270 days

g cycle
2. Cost of $250,000
goods
sold
Add: 4,070
Increase
in
inventor
y
Purchase $254,070
s
Number
of days'
purchase
s
in = 365 days ¸ (Purchases/Average accounts
accounts payable)
payable
= 365 ¸ [$254,070/($69,000 + $70,216)/2)]
= 365 ¸ 3.65
= 100 days
Operatin 270 days

g cycle
Less: 100 days
Number
of days'
purchase
s in
accounts
payable
Number 170 days
of days
company
will need
external
financin
g
3. a. Borrowing
b. Issuing additional shares of stock
c. Charging interest on their credit card sales
142. The following data are available for Toltec Company:
Year 1 Year 2
Beginning inventory $ 90,000 $ 60,000
Purchases 150,000 180,000
Cost of goods available for sale 240,000 240,000
Ending inventory 60,000 50,000
Cost of goods sold 180,000 190,000
Based on these data, answer the following three independent questions:
a. If ending inventory in year 1 is understated by $5,000 (it is recorded as $55,000), how much is cost of goods sold in year 1?
b. Assuming the same error as in (1), how much is total cost of goods sold for the two years combined?
c. If beginning inventory in year 2 is understated by $15,000 (it is recorded as $45,000), how much is cost of goods sold in year 2?
(a) (b) (c)

Year 1 Year 2
Beginning inventory $ 90,000 $ 90,000 $ 55,000 $ 45,000
Purchases 150,000 150,000 180,000 180,000
Cost of goods available for sale $240,000 $240,000 $235,000 $225,000
Ending inventory 55,000 55,000 50,000 50,000
Cost of goods sold $185,000 $185,000 $185,000 $175,000
$370,000
143. Palermo Company is a wholesaler of sporting goods. The activity for NBA-sanctioned basketballs during
November is shown below:

5 Purchase 1,500 43.00
9 Sales 1,800
17 Purchase 2,400 44.00
23 Sales 1,900
29 Purchase 800 45.00
Given this information, compute the cost of ending inventory using the following inventory costing methods:
a. FIFO perpetual
b. LIFO perpetual
a. FIFO 1,200 ´ $44.00 = $52,800
800 ´ 45.00 = 36,000
$88,800
b. LIFO 700 ´ $40.00 = $28,000

500 ´ 44.00 = 22,000
800 ´ 45.00 = 36,000
$86,000
c. Average cost on [(1,000 ´ $40) + (1,500 ´

November 9: $43)]/2,500
= $41.80 per unit
$41.80 ´ 700 = $29,260
Average cost on [$29,260 + (2,400 ´
November 23: $44)]/3,100 = $43.50 per
unit
$43.50 ´ 1,200 = $52,200
Average cost on
November 30:
$52,200 + (800 ´ $45.00)
= $88,200
144. Rawson Company's inventory records for April are as follows::

April 1 Inventory 3,500 $110.00
9 Purchase 5,000 104.00
15 Sales 7,500
24 Purchase 7,000 100.00
26 Sales 5,000
30 Purchase 2,000 90.00
a. FIFO perpetual
b. LIFO perpetual
a. FIFO 3,000 ´ $100.0 = $300,0
0 00
2,000 ´ 90.0 = 180,0
0 00
$480,0
00
b. LIFO 1,000 ´ $110.0 = $110,0

0 00
2,000 ´ $100.0 = 200,00
0 0
2,000 ´ 90.0 = 180,0
0 00
$490,0
00
c. Average cost on April [(3,500 ´ $110) +

15: (5,000 ´
$104)]/8,500
= $106.47 per unit
$106.47 ´ 1,000 =
$106,470
Average cost on April [$106,470 + (7,000 ´
26: $100)]/8,000 =
$100.81 per unit
$100.81 ´ 3,000 =
$302,430
Average cost on April $302,430 + (2,000 ´
30: $90.00) = $482,430
145. Rhame Company has the following information related to its two products:
Product M $ 96 $ 72 $ 80 $ 64
Product N $120 $128 $144 $112
Given the above information, determine the following items:
a. Net realizable value of each product.

b. Normal profit margin for each product.
c. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product M should be valued.
d. Assuming that the lower of cost or market rule is applied to individual products, the amount at which product N should be valued.
a. Product M: $80
Product N: $144
b. Product M: $80 - $64 = $16
Product N: $144 - $112 = $32
c. Lower of cost or market: $72
d. Lower of cost or market: $120
146. Feldman Company has the following inventory information for the current year:
Net
Replacement Realizable
Item Quantity Unit Cost Cost Value Floor
1A 100 $34 $36 $45 $41
2A 150 16 13 19 14
3A 50 25 20 21 18
4A 200 41 36 35 34
Determine the total inventory cost to appear on Feldman's balance sheet under the lower of cost or market rule assuming
a. The rule is applied to inventory as a whole.

b. The rule is applied on an item-by-item basis.
Item Qty Original Cost Market LCM

Value
1A 100 100 ´ $34 = $ 3,400 100 ´ $41 = $ 4,100 $ 3,400
2A 150 150 ´ 16 = 2,400 150 ´ 14 = 2,100 2,100
3A 50 50 ´ 25 = 1,250 50 ´ 20 = 1,000 1,000
4A 200 200 ´ 41 = 8,200 200 ´ 35 = 7,000 7,000
$15,250 $14,200 $13,500
a. $14,200
b. $13,500
147. Hughes Medical Supply, a retail business, had net sales of $92,400 during January. Purchases of
merchandise during the month amounted to $42,700, of which $27,400 had been paid for by the end of January.
The merchandise purchased had a retail sales value of $59,000. On January 1, inventory on hand cost $26,180
and had a retail sales value of $39,400. Traditionally, Hughes' gross margin percentage has been 30 percent.
Use the gross margin estimation method to determine the cost of Hughes' inventory at the end of January.
Sales $92,400
revenue
Cost of
goods
sold
Purchases 42,700
Goods available for sale $68,880
Less: Ending inventory 4,200
Gross margin (0.30 ´ $92,400) $27,720
Ending $ 4,200
inventor
y at cost
148. The following information is available for the Williston Company for the month ended September 30:
Inventory, September 1 $ 600,000

Purchases 2,250,000
Freight In 150,000
Sales 3,200,000
The gross margin was 40 percent of sales. What is Williston's estimated inventory balance at September 30?
Cost of goods available for sale: $600,000 + $2,250,000 + $150,000 = $3,000,000

Estimated gross margin: $3,200,000 ´ 40% = $1,280,000
Estimated cost of goods sold: $3,200,000 - $1,280,000 = $1,920,000
Estimated ending inventory: $3,000,000 - $1,920,000 = $1,080,000
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d’Argenson says, he “mutters his Paternosters and prayers in church
with customary decency,” and he is putting off to some future time
his perfect conversion. When he is urged to eat meat in Lent for the
sake of his health, he answers that one ought not to sin on all sides.
At another time he is heard congratulating himself on his rheumatic
pains, because, says he, his sufferings are an expiation for his faults.
One day when he is sending alms to a poor man, he exclaims: “Let
this poor man ask God to show mercy to me, for I greatly need it.”
When the feasts of the Church draw near, they occupy his mind and
disturb it; when he dares not communicate, through fear of sacrilege,
his soul is filled with sadness, and the flatteries of his courtiers
cannot give peace to his conscience.
His remorse takes the form of ennui. Dissatisfied with himself, he
often reflects that he is endangering his salvation for so-called
pleasures from which he frequently gains nothing but physical and
moral fatigue, which are still harder to endure. Egotism does not
prevent him from yielding to disgust. As is remarked by M. Capefigue
himself, great admirer as he is of royal pleasures, the capital defect
of the King’s character is to allow the immense ennui which
consumes him to become too evident. “He suffers the terrible
chastisement imposed by satiety, that cold branding of both soul and
body; he experiences the emptiness and impotence of sensuality.”
Such also is the conclusion of the Goncourts in their fine work,
Les Maîtresses de Louis XV. “Ennui,” they say, “is the sovereign’s
evil genius. It strikes with impotence all his fortunate natural
endowments; it ages, disarms, extinguishes his will, it stifles his
conscience as well as his kingly appetites. Ennui is the private
torturer of his sluggish existence, of his heavy hours.... So true is this
that the story of a king’s amours is also the story of the ennui of a
man.”
The Memoirs of the Duke de Luynes fully confirm this
appreciation. He says in them: “The King’s temperament is neither
gay nor lively; it is even hypochondriacal. Details concerning
maladies, operations, very often matters that concern anatomy, and
questions about where one expects to be buried, are, unfortunately,
the subjects of his ordinary conversation.” “Where would you like to
be buried?” he asks M. de Souvré one day. “At Your Majesty’s feet,”
replies the courtier, who is noted for his frankness. Louis XV. remains
pensive, because he has just been reminded that kings are not
immortal. How well these profound words of Pascal apply to Louis
XV.: “It does not require a very lofty soul to understand that there is
no true and solid satisfaction here below, that all our pleasures are
but vanities, that our woes are infinite, and that in fine death, which
threatens us every instant, must put us in a few years, and
perchance in a few days, in an eternal state of happiness, or misery,
or annihilation. Between us and heaven, hell or nothingness, there
is, then, nothing but life, which is the most fragile of all things in the
world; and heaven being certainly not for those who doubt whether
their soul is immortal, they have nothing to expect but hell or
nothingness. Nothing is more real than this, nor more terrible. Do all
that the brave demand of us, and yet there is the end which awaits
the most beautiful of lives.” Here is the secret of the King’s
implacable sadness. Like all men who have but half a religion, he
finds in it not consolations, but terrors. The feasts of the Church are
not joys but tortures to him.
His monarchical faith is like his religious faith; it disturbs rather
than reassures him. He feels himself unworthy to be the anointed of
the Lord. His conscience as a king troubles him as much as his
conscience as a Christian. He esteems neither himself nor those
who surround him. He willingly agrees with his minister of foreign
affairs, the Marquis d’Argenson, a monarchist who talks like a
republican, that “Numerous and magnificent courts, the bait of fools
and the wicked, will never make the splendor of royalty. There will
always be display enough in decency.... Be persuaded that the
greatest vice of monarchical governments is what is called the court.
To begin with the monarch, it is from him that all vices are drawn,
and from him that they spread as from the box of Pandora.” But do
not exaggerate, do not force the note. Recollect especially that
republican courts—and there are such, for democrats in power also
have their courtiers—are neither more rigid nor more moral than
those of kings and emperors.
It must always be remembered that a real difference exists
between the royalty of Louis XIV. and that of Louis XV. Louis XIV.
performed his kingly duties with the facility of a great actor playing
his part, or, better, with the dignity of an officiating priest. Louis XV.,
on the contrary, in spite of his noble bearing and the successful
beginnings of his reign, is almost ashamed of his royal dignity. He
does not like what is grand; what he prefers are small apartments,
little suppers, petty conversations. At times the monarch is not even
a private gentleman; he is a bourgeois who makes up his own
kitchen accounts, who saves candle-ends, who haggles with his
domestics, who leads a mean and grovelling existence. It is not he
who would have chosen the haughty device of the Sun King: Nec
pluribus impar. The beams of the royal star dazzle his eyes. What
pleases him is not the splendid glittering Gallery of Mirrors, but smart
residences, little dwellings hid in verdure; Choisy for example,
where, as the Duke de Luynes puts it, he is almost like a private
person who takes pleasure in doing the honors of his château.
But neither let us forget that from time to time Louis XV. has
inklings of greatness, dreams of glory and power. He is not the
sluggard king that badly informed historians portray. Military instincts
revive in him. The pride of his race awaked. “The King amidst his
troops, becomingly uniformed in white or blue or jonquil, his hat
placed coquettishly above his ear, the white cord, the shoulder-knot
on his coat, himself starts the gay speeches, the tales of gallantry.
The nobleman goes to battle in ruffles and powdered hair, with
perfume on his Brussels lace handkerchief; elegance has never
done harm to courage, and politeness is nobly allied to bravery.”[18]
1745 is a triumphant year, the year of Fontenoy, one of our
greatest national victories. There Louis XV. and the Dauphin behave
like sons of Henri IV. Voltaire’s enthusiasm when he celebrates this
great day is not made to order, and the advocate Barbier is sincere
in exclaiming that the reign of Louis XV. is the finest in all French
history.
Nor let us believe that this monarch, over-lauded by his
contemporaries but too much decried by history, is as indolent as
people like to say. On the contrary, he works, and works a great deal.
He not merely presides with the greatest regularity at the ministerial
council, but he busies himself in a very special way with military and
diplomatic affairs. If he readily agrees with what is proposed by his
ministers without troubling himself to contradict them, it is because
apart from official politics he has a secret policy whose springs he
personally controls.[19] His intentions are good, he loves France
sincerely. What then will ruin him? Two defects which are nearly
always inseparable: sensuality and indecision.
Sensuality enfeebles, enervates; the man who is its victim can no
longer either act or will. In the end he arrives at that commonplace
benevolence, that insignificant good nature, that absence of
character and energy, those inconsistencies and hesitations which
rob sovereigns as well as private individuals of the very notion of just
ideas and the courage of salutary resolutions. Louis XV. comes from
the arms of his mistresses without force enough left to be a king.
Distrust and timidity form the basis of his character. “He knows he
is badly served,” says M. Boutaric; “absolute master, he has only to
speak to be obeyed, and, fortified by conscience, he can command,
but he is so timid, let us say the word, so pusillanimous, that after
having carefully sought the best way and seen it clearly, he nearly
always decides, although with regret, for the worst which is proposed
to him by his ministers or his mistresses. It is of public notoriety that
when the King proposes anything in council, his opinion is always
combated, and that, after making a number of objections, the prince
always ends by adopting that of his counsellors, knowing, meantime,
that he is doing wrong, and muttering to himself, ‘So much the
worse; they would have it.’” Thus he illustrates those lines of Horace:
—
“Video meliora proboque,
Deteriora sequor.”
JEANNE D’ALBRET
There are moments when, to use the expression of Duclos, he
affects to regard himself as a disgraced prince of the blood without
any credit at court. One day when the Queen is complaining of the
opposition made to one of her recommendations by a minister, he
says: “Why don’t you do as I do? I never ask anything of those
people.” In spite of his omnipotence he feels himself always under
the necessity of employing subterfuges and underhand expedients.
According to a man who knew him well and saw him every day, Le
Roy, master of the hounds, he considered dissimulation the most
needful quality for a sovereign. “His hobby,” says the Marquis
d’Argenson, “is to be impenetrable.” Another of his defects is to
consider that very honest men are generally not very able. Hence
the great number of disreputable men whom he intrusts with most
important positions. With such a system he is doomed to perpetual
fluctuations, to that variability which is the sign of weakness. He will
hesitate between peace and war, between a Prussian and an
Austrian alliance, between the Parliamentarians and their enemies,
between the Jesuits and the Jansenists. He has a horror of the
philosophers, and he will make Voltaire a gentleman of the chamber
and lodge Quesnay in an entresol of the palace of Versailles. He
sincerely believes in the truth of the Catholic religion, and he will take
as his mistress, counsellor, and directress the friend of the
Encyclopedists. By conviction and principle he is essentially
conservative, and he will be the precursor of the Revolution.
“Oh! how well the word feebleness,” exclaims D’Argenson,
“expresses the passions of certain men endowed with good nature
and facility. They see and approve the best and they follow the
worst. Their virility is but a prolongation of childhood. Frequently they
mistake the shadow of pleasure for pleasure itself. Youthfulness,
childishness, self-love without pride, their acts of firmness are but
obstinacy and revolt.... With this sad character a prince thinks he
governs well when he simply does not govern at all. Every one
deceives him, and he is the chief of his own betrayers. He has
mistresses for whom he has no predilection, and absolute ministers
in whom he does not confide. All the defects of which foreigners
accuse Frenchmen are found in him; contrasts everywhere, the
effects of a too frivolous imagination which overmasters judgment;
wasted talents, good taste which nothing can satisfy, exactness in
little things, inconstancy and lack of enthusiasm in great ones ...;
memory without remembrance; patience and calm, promptitude and
kindness, mystery and indiscretion, avidity for new pleasures,
disgust and ennui, momentary sensibility succeeded by general and
complete apathy ... total, a good master without humanity.”
Having thus drawn the portrait of Louis XV., D’Argenson says in
speaking of the Queen: “She attracts by certain attentions, she
repels by making her friendship too common. Her rank is a rallying
signal and, since the King has declared mistresses, those who
inveigh against scandal attach themselves to her for the sake of
displeasing the King and the favorite. Their murmurs are
proportioned to the royal patience.”
In 1745 Marie Leczinska, who is the King’s senior by seven years,
has arrived at the age of forty-two. When her tenth child was born,
July 15, 1737, Madame Louise, who was one day to become a
Carmelite, some one asked the King, who already had six living
children, if the little princess should be called Madame Seventh. He
answered: “Madame Last.” Thenceforward the Queen was
neglected. Her husband has treated her with frigid politeness, but
has always kept her at a distance; he never speaks to her except
before witnesses. On New Year’s day he gives her no presents. Not
the least intimacy, the slightest unconstraint. The short daily visits he
pays her are matters of decorum, formalities of etiquette. The Queen
eats by herself. Between her apartments and those of the King there
is a barrier which she never crosses. The familiar life and the cabinet
suppers are not for her. Separated from each other by the Peace
Salon, the Gallery of Mirrors, and the Council Chamber, each of the
spouses has a life apart.
Marie Leczinska is the only person who maintains at Versailles
the ceremonious representation of the court of the great King, not
through pride, but out of respect for principles. By eleven o’clock in
the morning she has already heard one Mass, seen the King for an
instant, received her children and the little entries; at noon the state
toilette and the great entries. At one o’clock Marie Leczinska hears a
second Mass. At two o’clock she dines in public,[20] served by her
maid of honor and four ladies in full dress. A low balustrade
separates her from a crowd, always curious to be present at this
repast and to contemplate the features of a justly honored queen.
Toward six in the evening she plays the game of loto then in fashion,
the Cavagnole. When the King is present, she never sits down until
he bids her do so, and ’tis a wonder if the pair exchange a few
syllables. At ten the Queen withdraws, and after supper she sees a
very restricted circle: the Duke and Duchess de Luynes, Mesdames
de Villars and de Chevreuse, Minister Maurepas, Cardinals de
Tencin and de Luynes, President Hénault, Moncrif, and sometimes
old Fontenelle. On Sundays the presentation of ladies takes place. It
is also the day chosen for the taking of tabourets. The ceremonies
occur in the room called the Queen’s Salon,[21] contiguous to the
sleeping-chamber. The sovereign’s chair is placed at the back of the
room on a platform covered by a canopy.[22] “By a few words, a nod,
a glance, a smile, Marie Leczinska knows how to encourage the lady
presented, whose embarrassment soon yields to a gentle confidence
as the Queen addresses to her one of those remarks which remain
engraven in the heart.”[23]
To sum up, neglected as she is by her husband, the Queen is
happier than he, because she has the great boon, the supreme
good, which he has not: peace of heart. “What comparison is there,”
says a great preacher, “between the frightful remorse of conscience,
that hidden worm which gnaws incessantly, that sadness of crime
which undermines and depresses, that weight of iniquity which
crushes, that interior sword which pierces and which we cannot draw
out, and the amiable sadness of penitence which works
salvation?”[24] This expression “amiable sadness” is most applicable
to the Queen. Doubtless she suffers profoundly at seeing Louis XV.
throw himself down the declivity of scandal. But, far from
recriminating, she offers her sufferings to God. Gentle and pious
victim, she finds ineffable consolations at the foot of the altar. Instead
of avenging herself on the King by reproaches and bitter speeches,
she prays for him. Her calmness, resignation, charity, her Christian
virtues, and exquisite affability, make her the object of universal
veneration. She is called nothing but the Good Queen.
The Dauphin[25] is not less esteemed than his mother. In 1745 he
is sixteen years old. He is a pious, well-taught, well-intentioned
young man. He has made serious studies. His favorite reading is
Plato, Cicero, Tacitus, Lucretius, Horace, Virgil, Juvenal. He knows
by heart the finest passages of the philosophers and poets of
antiquity. For him were made those magnificent editions of the
Louvre, Ad usum Delphini, one of the most precious monuments of
contemporary typography.
Full of respect for his father, he never speaks to him but in the
tone of profound submission. He effaces himself, he holds himself in
restraint. He says: “A Dauphin should employ one half his mind in
concealing the other half.” Louis XV. is suspicious; it is well not to
offend him.
The Dauphin marries at Versailles, February 23, 1745, an Infanta
of Spain, daughter of Philip V., Marie Thérèse Antoinette Raphaelle,
younger sister of that Infanta Marie Anne Victoire whom Louis XV.
was to have married. The affront of sending back that princess is
thus repaired. The marriage festivities are splendid; no such pomp
had ever been seen. “As the King has need of money,” writes
Barbier, “especially for the very considerable expenses of the
Dauphin’s marriage, a great many tontines are raised.” The day that
the Dauphiness arrived at Étampes, the King, who went to meet her,
said: “Here is a good day’s work done.” She replied: “Sire, this is not
what I dreaded most; I flattered myself you would receive me kindly. I
am more afraid of to-morrow and the next day; everybody will be
looking at me, and I shall perhaps find less favorable dispositions.”
The new Dauphiness is not pretty, but she is sympathetic. Her
amiability wins everybody. She says to Madame de Brancas that she
does not understand how one can become angry, and that if any
possible case arose to make it necessary, she would beg some one
the day before to do so in her stead.
This marriage diverts the King, who no longer thinks of the poor
Duchess de Châteauroux, who has been dead two months.
Pleasures tread on each other’s heels. The court is dazzling. How
superb are these Versailles festivities, the last term of elegance and
luxury! What a magnificent masked ball[26] in the radiant Gallery of
Mirrors, glittering sanctuary of ecstasy and apotheosis, modern
Olympus which seems made for goddesses and gods! Imagine that
aristocratic crowd which swarms up the Ambassadors’ Staircase,
streams through the grand apartments of the King, the halls of
Venus, Diana, Mars, Mercury, and Apollo, the War Salon, to be
present at the fairy-like ball given in the gallery under the vaulted
ceilings decorated by Lebrun’s magic brush! Fancy the animation,
the tumult of good company, the harmonious orchestras, the witty or
gallant conversations, the bright eyes glowing behind their masks,
the colossal mirrors reflecting the richest and most varied costumes:
fabulous divinities, great lords and châtelaines of the Middle Ages,
Watteau’s shepherds and shepherdesses; chandeliers innumerable,
pyramids of candles, baskets of flowers, a rain of diamonds and
precious stones, and, to heighten still more the bewildering charm,
the mysterious presence of that monarch, the handsomest man in all
the kingdom, who hides his royalty under the folds of his domino!
In our civilian and democratic century we find it very difficult to get
a perfect notion of such festivities. “We children of a wretched and
bloody revolution,” as M. Capefigue says, “see these galleries of
glass and gilding inundated with people in rough clothing, with noisy,
hobnailed shoes, like a muddy torrent spreading over a parterre of
tulips and variegated roses.” Let us not forget that there was chivalry
and courage, carelessness and gaiety, animation and native wit,
charm and elegance, in the last fortunate days of the French nobility.
If the men who shone at that period should return, they would find
ours mean and irksome.
The noise of battle succeeds the echoes of the orchestras. Two
months and a half after this fine ball Louis XV. and his son are with
the army. The King wishes that the Dauphin, although but sixteen
years old, should set an example, and at Fontenoy the young man
excites the admiration of old soldiers by his ardor and courage.
Louis XV. is a happy father. His son is a model of filial respect. His
six daughters, Mesdames Elisabeth, Henriette, Adelaide, Victoire,
Sophie, and Louise, all of whom with the exception of Madame
Adelaide were educated in the convent of Fontevrault, have the most
religious sentiments and display profound affection for their father.
Only one of them is married, the eldest, Madame Elisabeth, who
espoused in 1739 the Infant Don Philip, son of the King of Spain,
and with whom Louis XV. did not part without keen sorrow. In 1745
only two of his daughters, Henriette and Adelaide, are with him. The
other three, Victoire, Sophie, and Louise, are still at Fontevrault, and
it is singular that this king, so affectionate to his children, should
leave them in a convent eighty leagues from Versailles when it would
be so easy to place them, if not close beside him, at least in some
neighboring convent.
In order to complete this sketch of the royal family in 1745, it
remains to say a few words about the Duke d’Orléans and his son,
the Duke de Chartres.
Born in 1703, and widowed since 1726 of a princess of Baden,
the Duke d’Orléans, only son of the regent, seldom shows himself at
court. The premature death of his wife, whom he had the misfortune
of losing after two years of marriage, had inspired him with extremely
grave and Christian reflections. His tastes have become those of an
anchorite. In 1730 he resigned his position as Colonel-general in
order to be more at liberty to make very frequent retreats at the
Abbey of Sainte Geneviève. In 1742 he finally renounced all political
action, and quitted the Council of State in order to install himself
definitively in his dear abbey, where he leads the life of a monk,
between prayer and study. He has left the administration of his
property to his mother, keeping for himself only an income of one
million eight hundred thousand livres, which he spends almost
entirely in works of charity.
’Tis a curious type this prince, so little like his father; this Christian,
pious to asceticism, who sleeps on straw, drinks only water, does
without fire in winter, who composes but will not print austere works,
a translation of the Psalms with commentaries, part of the Old
Testament and some of the Epistles of Saint Paul, a treatise against
the theatre, historical and theological dissertations,—a monastic
prince whom the court has inclined to the cloister, who at his death
(February 4, 1752) will bequeath his library to the Dominicans, his
medals to the Abbey of Sainte Geneviève, and whose funeral oration
will be composed by Jean Jacques Rousseau.
His son, the Duke de Chartres, is twenty years old in 1745. A
brilliant and brave young prince, who has distinguished himself as
colonel at the battle of Dettingen, and as lieutenant-general at the
siege of Fribourg. Married in 1743 to Louise Henriette de Bourbon-
Conti, he loves the world as much as his father dislikes it, and he will
be one of the principal actors in the theatre of the little apartments.
So long as the Dauphin has no male children, it is the Orléans
branch which, according to the renunciations of the treaty of Utrecht,
must ascend the throne of France in case of the death of Louis XV.
and his son. But on both sides of the Pyrenees the practical value of
these renunciations is contested. When Louis XV. fell seriously ill
before his marriage, in 1721, Philip V. made ready to reclaim the
crown of France if the young King should die. When the Dauphin,
who as yet has no heir, will himself be in danger of death, Madame
du Hausset will write in her Memoirs: “The King would be in despair
at having a prince of the blood as his recognized successor. He does
not like them, and looks at them so distantly as to humiliate them.
When his son recovered, he said: ‘The King of Spain would have
had a good chance.’ It is claimed that he was right in this, and that it
would have been justice; but that if the Duke d’Orléans had had a
party, he might have claimed the throne.”
We have just outlined the portraits of the members of the royal
family in 1745. We are about to study the character of the woman
who, issuing from the middle classes, was to exercise a real
domination over the King and all his court during twenty years.
II
THE BEGINNINGS OF THE MARQUISE DE POMPADOUR
T here are names which are the abridgment of an entire society.

Such is that gay name which rhymes so well with “amour,” which
seems made expressly for a grande dame after the manner of
Lancret or Watteau, which would fit so well a comic opera or a
pastoral, which is worthy to figure in the Temple of Cnidos and to be
celebrated by the pretty little verses of the Abbé de Bernis, which
evokes so many souvenirs of immoral elegance and factitious
sentimentality of boudoirs and alcoves, comedies and gewgaws,
pleasures and intrigues: the Marquise de Pompadour. Woman,
name, title, all are alike gracious, pretty, sprightly; but nothing is
simple, nothing true. The character is that of a comedienne
perpetually on the stage. The beauty owes a great part of its prestige
to the refinements of luxury and the artifices of the toilette. The
marquisate is a contraband one.
The future favorite seems predestined almost from the cradle to
her part. She is a little marvel, an infant prodigy. She is only nine
years old when a fortune-teller by cards predicts to her that she will
be the mistress of Louis XV. This prediction delights her family; they
believe in it as if it were written in the Gospels, and they decide to do
all in their power to realize it. Aid yourself, and hell will aid you. She
who was one day to call herself Madame the Marquise de
Pompadour was then named Jeanne Antoinette Poisson. Born in
Paris, December 29, 1721, she had a father who was vulgar even to
indecency, François Poisson, former clerk of the Paris brothers, who
was condemned to be hanged in 1726 for malversations, but
rehabilitated in 1741 after several years of exile. Her mother was a
Demoiselle de la Motte, daughter of the provision contractor of the
Hôtel des Invalides, a very pretty woman, guilty of many infidelities to
her husband, and very richly subsidized by a gallant farmer-general,
M. Lenormand de Tournehem. The financier imagines, possibly with
good reason, that he is the father of little Antoinette. Hence he gives
her the most careful education. She is taught everything except
virtue. Jéliotte teaches her singing and the harpsichord, Guibaudet
dancing, Crébillon declamation. She is an actress, a musician, an
accomplished singer. She imitates la Gaussin and la Clairon
marvellously. She rides admirably. She dresses ravishingly. She is as
pretty as Cupid. Nobody tells a story so well as she. She is pleasing,
amusing, delightful. Her mother, enthusiastic over such charms,
exclaims: “She is a morsel for a king!”
But how to justify the prediction of the sorceress? The place of
king’s mistress is occupied by none but very great ladies: a
Countess de Mailly, a Countess de Vintimille, a Duchess de
Châteauroux. Can little Poisson aspire to the same rôle? If she
persists in such schemes, will not people say that the keg always
smells of the herring? Will the Duke de Richelieu permit a
bourgeoise to supplant the nobility in this fashion? Mademoiselle
Poisson does not allow herself to be discouraged. She has her fixed
idea. She believes in what she calls her star. Her marriage is the first
rung of the ambitious ladder. March 9, 1741, she marries a rich
young man, M. Lenormand d’Étioles, deputy farmer-general, nephew
of M. Lenormand de Tournehem, Madame Poisson’s lover. The bride
is nineteen, the husband twenty-four years old; he is madly in love,
and as his wife tells him she will never betray him unless for the
King, he mutters: “Then I can be very easy.”
The young wife is presently the fashion. She is the gem of that
financial society which has made such headway since the latter
years of Louis XIV. President Hénault writes to Madame du Deffand,
July, 1742: “At Madame de Montigny’s I met one of the prettiest
women I have ever seen, Madame d’Étioles. She understands music
perfectly, sings with all possible gaiety and taste, knows a hundred
ballads, and plays comedy at Étioles on a stage as fine as that of the
Opera, with machinery and changes of scenes.”
She prepares her success skilfully. The trumpets of fame are at
her disposal. Voltaire, Montesquieu, Fontenelle, the Abbé de Bernis,
are her friends. At Paris, in her house in rue Croix-des-Petits-
Champs, and at Étioles in her château near Corbeil, she leads a life
of luxury and pleasures. She is an enchantress, a siren. But she has
only one desire,—to make the King the objective point of all this
magic. She would scorn any other conquest.
The man she must have is Louis XV. To arrive at this conquest
she will exhaust the resources of feminine coquetry. Never were
manœuvres more persevering, artifices more sagacious. She has to
play the enamoured woman, the passionate woman, to pursue the
King when he hunts in the forest of Sénart, to pass and repass, like a
graceful apparition, like the goddess of the forests, through the midst
of the escort with their dogs and horses, sometimes robed in azure
in a rose-colored phaeton, sometimes in rose in a phaeton of blue.
One day she is on horseback; another day she drives herself, in an
elegant conch shell of rock crystal, two chestnut horses swift as
lightning. The King inquires the name of this elegant and pretty
woman. Then he sends her some of his game. Madame d’Étioles
has good hopes. The Duchess de Châteauroux is dead; she is sure
of replacing her.
The masked balls given at the time of the Dauphin’s marriage are
excellent opportunities to display one’s self. At the Hôtel de Ville ball
the prettiest women of the bourgeoisie are grouped together on a
platform hung with velvet, silk, and gold. Madame d’Étioles appears
as Diana the huntress, powdered, the quiver on her shoulder, the
silver arrow in her hand. For an instant she takes off her mask and
pretends to let fly an arrow at the King. “Beautiful huntress,” cries the
King, “the darts you discharge are fatal.” Then she resumes her
mask and slips into the crowd, but dropping her lace handkerchief as
she goes. Louis XV. picks it up and, sultan-like, launches it with a
gallant hand at the beautiful unknown. “The handkerchief is thrown,”
people mutter on all sides.
Madame d’Étioles is about, then, to reach her goal. She has no
reproach to make against her husband, by whom she has had two
children: a son born in 1741, who only lived six months, and a
daughter, Alexandrine, born in 1743, who will live until 1754. This
husband is an excellent man, gentle, affectionate, easy to live with,
much in love with his wife, not at all jealous, happy and proud to be
the husband of the prettiest woman in Paris. But what would you
have? Madame d’Étioles has taken it into her head to be the King’s
mistress. ’Tis a fantasy of a coquettish woman which she must
absolutely realize.
Taking advantage of her husband’s stay in the country, and
protected by one of her relatives, Bivet, valet de chambre to the
Dauphin, she makes her way into the palace of Versailles and
parades a romantic passion for Louis XV. She says she is menaced
by M. d’Étioles’ vengeance and begs the King to shelter her. The
monarch is affected and installs her mysteriously in the chamber
formerly occupied by Madame de Mailly. Poor M. d’Étioles, on his
return to Paris, learns what has befallen him. He faints away at the
fatal tidings, and afterwards writes his wife a letter so touching that
Louis XV., after reading it, cannot avoid saying: “Madame, you have
a very honest husband.” In despair at first, the betrayed husband at
last resigns himself. He does not try to contend with a king, and
repairs philosophically to the south of France, to make an inspection
into finances which is part of his official duties as deputy farmer-
general.
At court there is great commotion. It seems impossible to imagine
that a woman of the middle classes, une robine, as D’Argenson
says, can replace a great lady like the Duchess de Châteauroux.
The Duke de Luynes writes in his Memoirs, March 11, 1745: “All the
masked balls have given occasion for talk concerning the King’s new
amours, and principally of a Madame d’Étioles, who is young and
pretty. It is said that for some time she is nearly always here, and
that she is the King’s choice. If such is the fact, it can hardly be
anything more than a case of gallantry, and not of mistress.”
Louis XV., who is fond of mystery, amuses himself at first by being
discreet. He conceals his new favorite. “It is not known where she is
lodged,” writes the Duke de Luynes, April 23, 1745, “but,
nevertheless, I think it is in a little apartment that Madame de Mailly
had, and which adjoins the little cabinets; she does not live here all
the time, but comes and goes to Paris.”
A few days later, May 5, 1745, the King sets off for the army with
the Dauphin. But Madame d’Étioles has the good sense not to rejoin
him there. Nor does she remain at Versailles, but withdraws to her
château of Étioles, near Corbeil, where Voltaire and the Abbé de
Bernis keep her company. Louis XV., much more occupied with his
new mistress than with the war, writes her letter upon letter. The
Abbé de Bernis counsels the favorite who, with such a secretary,
cannot fail to reply to her royal lover in the most charming and
gallantly turned epistles. We read in the Memoirs of the Duke de
Luynes (June 19, 1745): “Madame d’Étioles is still in the country,
near Paris, and has never wanted to go to Flanders. The King is
more in love than ever; he writes and sends couriers to her at every
moment.”
All France uttered a cry of enthusiasm on learning the victory of
Fontenoy (May 11, 1745). But could one believe it? The person first
felicitated by Voltaire on account of that glorious day was neither
Louis XV. nor Marshal de Saxe, but Madame d’Étioles. Before writing
his poem on Fontenoy, the obsequious poet addressed the favorite
in these stanzas:—
“Quand César, ce héros charmant,
Dont tout Rome fut idolâtre,
Gagnait quelque combat brillant,
On en faisait son compliment
À la divine Cléopâtre.
“Quant Louis, ce héros charmant,
Dont tout Paris fait son idole,
Gagne quelque combat brillant,
On doit en faire compliment
À la divine d’Étiole.”[27]
France, always maddened by success, is in a real delirium. The

Parliament of Paris sends a deputation to Lille to felicitate the King
on his victory and entreat him “so far as may be, not to expose in
future his sacred person, on which the welfare and safety of the
State depend.” All the supreme courts of the kingdom imitate that of
Paris, and the first president of the court of taxes exclaims in his
address to the King: “Your Majesty’s conquests are so rapid that the
point is how to safeguard the faith of our descendants and lessen the
wonder of miracles, lest heroes should dispense themselves from
following, and people from believing, in them.” But the conquest
which chiefly preoccupies Louis XV. is that of his new mistress.
In July, 1745, she proudly displays eighty amorous epistles from
the gallant sovereign; the motto on the seal is: Discreet and faithful;
one of them is addressed: À la Marquise de Pompadour, and
contains the brevet conferring this title. The new marquise instantly
discards the name of Étioles, leaves off her husband’s arms,
substitutes three towers in their place, and puts her servants in
grand livery. This marquisate enchants Voltaire; he has become the
official poet, courtier, and familiar of the favorite, and his complaisant
muse thus celebrates the official accession of the new royal
mistress:—
“Il sait aimer, il sait combattre;
Il envoie en ce beau séjour
Un brevet digne d’Henri quatre,
Signé: Louis, Mars et l’Amour.
Mais les ennemis out leur tour,
Et sa valeur et sa prudence
Donnent à Gand, le même jour,
Un brevet de ville de France.
Ces deux brevets, si bien venus,
Vivront tous deux dans la mémoire.
Chez lui, les autels de Vénus
Sont dans le temple de la Gloire.”[28]
The democrats, perhaps, are in a trifle too much of a hurry to

erect a statue to Voltaire.

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Fraud Examination 3rd Edition Albrecht Test Bank

2. Which of the following is an inventory account for a retailer?

3. Which inventory account consists of partially finished products?

8. Inventory accounting is most complex in

10. Which of the following is NOT an inventory in a manufacturing company?

14. Cost of goods sold is equal to

19. A perpetual inventory system is most often used when

20. A periodic inventory system is most often used when

30. Company D makes the following entry in its accounting records:

This entry would be made when

31. The perpetual method of accounting for inventory

41. Exhibit 7-1

42. Exhibit 7-1

43. Exhibit 7-2

Sales revenue $200,000

Refer to Exhibit 7-2. Given the information above, gross margin is

Sales revenue $200,000

49. An entry is made to close Purchases and Purchase Discounts as:

54. The inventory shrinkage account is

55. If expenses are overstated on the income statement, net income

Inventory, January 1, 2012 $34,000

Inventory, January 1, 2012 $25,000

64. Exhibit 7-3

Beginning inventory $ 64,000

Beginning inventory $ 64,000

Sales revenue $100,000

Given this information, total cost of goods available for sale is

Purchases During the Period Sales During the

Purchases During the Period Sales During the

78. Exhibit 7-4

Purchases During the Period Sales During the

Beginning inventory 32 units ´ $80 = $2,560

80. Exhibit 7-5

Beginning inventory 10 pairs ´ $22 = $220

81. Exhibit 7-5

Beginning inventory 10 pairs ´ $22 = $220

Beginning inventory 10 pairs ´ $22 = $220

83. Exhibit 7-6

Date Balance/Transaction Units Cost

84. Exhibit 7-6

Date Balance/Transaction Units Cost

85. Exhibit 7-6

Date Balance/Transaction Units Cost

Beginning inventory $ 135,000

Given this information, Kane's inventory turnover is

Given this information, Santana's inventory turnover during 2012 was

Assets Liabilities and

98. The following information is available for Belden Company:

Cost of goods sold for 2012 $3,600,000

99. The following information is available for Lendo Company:

102. An understatement of purchases results in cost of goods sold being

104. The misclassification of Freight-in as an operating expense will result in

Beginning inventory 16 units ´ $40 = $640

Given this information, the perpetual LIFO ending inventory balance is