Answer the following five questions as to what you believe to be either TRUE OR FALSE by placing an X to the right of T for TRUE or F for FALSE.

T F 1. The two merchandise inventory systems are the Perpetual and the Slow Motion.

T F 2. Sales – Cost of Goods Sold = Greatest Profits

T F 3. Under the Perpetual System, at the time of a sale of merchandise, a business must: record the sale, the accounts receivable or cash received, the cost of the merchandise sold and corresponding reduction from inventory.

T F 4. The FIFO method of inventory valuation are initials that stand for:
First – In – Forever – Out.

T F 5. A business buys merchandise with the terms 7/10 net 30. That would mean that the business would receive a 10% discount on the purchase price paid provided that the business makes the payment to the seller within 7 days but otherwise, must pay the full amount within 30 days.

PART II – MULTIPLE CHOICE

6. The methods of inventory valuation we learned include the following except for:

A. LIFO – Last In First Out

B. Specific Identification

C. Weighted Average

D. Standard Deviation or SD

7. Under the Perpetual Inventory System, inventory when sold is credited or reduced from the asset account and moved into which of the following expense accounts:

A. Inventory Expense

B. Purchases

C. Cost of Goods Sold

D. Merchandise Expense
PART III – Mini Problems
Journalize the following sales transactions for Ellen’s Sportswear. Explanations are not required. As a reminder, you need to record both the journal entry for both the sales and the cost of goods sold/inventory in problem number 10.

8. April 2 – Ellen’s Sportswear purchased dresses for $1,000 on Account with terms 2/10 net 30.
9. April 8 – Ellen’s Sportswear paid for the dresses they purchased on April 2 taking advantage of the discount by paying $980 instead of $1,000.
10. May 10, Ellen’s Sportswear sold $10,000 of women’s sportswear for Cash received where Cost of the goods is $5,000.

Information to be used for Problems 11 and 12 and 13:

Melanie’s Purple Dress Business uses the Perpetual Inventory System.

Melanie’s Purple Dress Business purchased and sold the following merchandise in May:

May 1 Purchased 100 dresses at $100 each or $1,000

May 2 Sold 50 dresses from the dresses that were purchased on May 1

May 5 Purchased 100 more dresses at $110 each or $1,100

May 20 Sold 100 more dresses from the dresses that were purchased on May 1

11. Calculate the ending inventory for Melanie’s Purple Dress Business using the Specific Identification Method.
12. Calculate the ending inventory for Melanie’s Purple Dress Business using the First-In-First-Out or FIFO method.
13. Calculate the ending inventory for Melanie’s Purple Dress Business using the Last-In-Last-Out Method or LIFO method.

For Extra Credit, the ending inventory for Melanie’s Dress Business using the Weighted Average Method.

Questions 14-20 follow for chapters 7, 8 and 9.
PART IV

14. Some of the special journals we learned include the following except for:

A. Cash Disbursements Journal

B. Sales Journal

C. Cash Receipts Journal

D. Inventory Journal

15. Items get posted from the Purchase and the Sales Journal to the General Ledger and to the:

A. Subsidiary Ledger for each vendor or customer

B. Income Statement

C. Balance Sheet

D. Substantive Ledger

16. The procedure of reconciling a business’s cash account to the bank statement is called:

A. Bank Reconciliation

B. Bank to Book Reconciliation

C. Cash Internal Control Reconciliation

D. General Ledger Reconciliation

17. One of the Internal Controls discussed include:

A. Separation of duties

B. Having the company’s bookkeeper handle the cash deposits

C. Keep the accounting records unlocked

D. Allow the company’s bookkeeper to skip vacations

18. Two methods for calculating uncollectable accounts receivable are: the off method and the method.
19. Under the Direct Write off method for uncollectable accounts receivable, the journal entry for $200 owed by a customer that won’t pay would be:

__ Debt Expense $200
Accounts Receivable $200

20. Under one of the Allowance Methods, the computation of the Allowance for Bad Debts is calculated by using the __ method, often based upon receivables that are 30 days, 60 days or 90 days outstanding.

Sample Solution