INTACC - CHAPTER 13

Question 1

The gross profit method assumes that

a. The amount of gross profit is the same as in prior years.

b. Sales and cost of goods sold did not change.

c. Inventory values have not increased.

d. The relationship between selling price and cost of goods sold is similar in prior years.

Answer 1

d. The relationship between selling price and cost of goods sold is similar in prior years.

Question 2

The gross profit method is not valid when

a. There is substantial increase in the quantity of inventory.

b. There is substantial increase in the cost of inventory.

c. The gross margin percentage changes significantly.

d. All ending inventory is destroyed by fire

Answer 2

c. The gross margin percentage changes significantly.

Question 3

Which statement is not valid about the gross profit method?

a. It may be used by auditors.

b. It is an acceptable accounting procedure.

c. It may be used for interim statements.

d. It may be used for annual statements.

Answer 3

d. It may be used for annual statements.

Question 4

Which is not a basic assumption of the gross profit method?

a. The beginning inventory plus net purchases equals total goods to be accounted for.

b. Goods not sold must be on hand.

c. The sales reduced to cost basis when deducted from the sum of beginning inventory and net purchases would result to inventory on hand.

d. The amount of purchases and the amount of sales remain relatively unchanged from the previous period.

Answer 4

d. The amount of purchases and the amount of sales remain relatively unchanged from the previous period.

Question 5

How is the gross profit method used in relation to inventory?

a. To verify the accuracy of the perpetual inventory record

b. To verify the accuracy of the physical iventory

c. To estimate the cost of goods sold

d. To provide a FIFO inventory value

Answer 5

c. To estimate the cost of goods sold