Question :
69.Why the inventory and cost of goods sold accounts attractive : 1254436
69.Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud?
A. There are few if any procedures that can check for fraud in these accounts.
B. These accounts are more significant than most other accounts.
C. There are no adequate methods of record keeping for inventory.
D. Cost of goods sold and Inventory accounts are not attractive targets of fraud.
70.On December 31, 2013, Owen Corporation overstates the ending inventory account by $4,000. How will this affect Retained Earnings in the December 31, 2014 balance sheet?
A. Retained Earnings will be overstated by $4,000.
B. Retained Earnings will be understated by $4,000.
C. Retained Earnings will be correctly stated.
D. Cannot be determined with the above information.
71.An overstatement of ending inventory results in which of the following in the present period?
A. Overstatement of total assets.
B. Overstatement of cost of goods sold.
C. Understatement of net income.
D. Understatement of retained earnings.
72.Zeus Company understated its ending inventory. Which of the following answers correctly states the effect of the error in the present period?
A. Overstatement of total assets and cost of goods sold.
B. Understatement of total assets and gross margin.
C. Understatement of liabilities and retained earnings.
D. Overstatement of cost of goods sold and retained earnings.
73.Under the perpetual inventory system, the best estimate of the amount of inventory is:
A. shown on the previous period’s financial statements.
B. provided by application of the gross margin method.
C. the book balance in the inventory account.
D. the beginning inventory balance minus sales for the period.
74.The gross margin method requires all but which of the following elements of information?
A. Total sales for the present period.
B. The ending inventory for the present period.
C. Amount of purchases during the present period.
D. The beginning inventory for the present period.
75.Which of the following circumstances is not a reason to compute an estimate of the amount of inventory?
A. To evaluate the accuracy of a physical count of goods.
B. To complete the company’s annual income tax return.
C. To prepare monthly or quarterly financial statements without incurring the expense of taking a physical inventory.
D. To support an insurance claim for a loss due to theft of inventory.
76.When using the gross margin method to estimate inventory, which of the following is a step in the computation?
A. Add the amount goods available for sale to estimated cost of goods sold.
B. Add estimated gross margin to sales.
C. Subtract estimated cost of goods sold from the amount of goods available for sale.
D. Subtract estimated goods available for sale from beginning inventory.
77.Lewiston Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company’s records revealed sales of $50,000; beginning inventory of $5,000 and purchases of $35,000. The estimated amount of ending inventory would be:
A. $10,000.
B. $30,000.
C. $20,000.
D. $16,000.
78.An error that results in overstating ending inventory would have what effect on the company’s financial statements in the current year?
A. Ending inventory will be overstated, COGS will be understated and net income, retained earnings and equity will be overstated.
B. Ending inventory will be overstated, COGS will be overstated and net income, retained earnings and equity will be overstated.
C. Ending inventory will be overstated, COGS will be understated and net income, retained earnings and equity will be understated.
D. Ending inventory will be overstated, COGS will be overstated and net income, retained earnings and equity will be understated.
