Penn Foster – Accounting for Merchandising MCQs



1. Committing a fraud because the employee feels that it will be easy to do is indicative of which part of the fraud triangle?
A. Rationalization
B. Perceived pressure
C. Perceived opportunity
D. Realization
2. Goods available for sale are $350,000; beginning inventory is $24,000; ending inventory is $32,000; and cost of goods sold is $275,000. The inventory turnover is
A. 11.46.
B. 8.59.
C. 12.50.
D. 9.82.
3. Besides using an overstatement of earnings to inflate a company’s stock price, overstating earnings may also be used to
A. avoid paying raises to employees.
B. avoid paying dividends to stockholders.
C. ensure larger bonuses to upper management at year-end.
D. deflate the amount of taxes the corporation pays.
4. Meranda Company reports the following inventory information:
What is the total value of the merchandise under LCM (lower-of-cost or market)?
Quantity Unit Cost
Unit Market
APD 3838 325 $56.78 $55.32
CPZ 1212 506 $92.31 $92.78
IXL 4039 817 $77.89 $79.31
EOD 3902 382 $19.38 $19.02
DKS 4823 626 $33.46 $30.74
A. $154,832.90
B. $156,230.80
C. $157,147.60
D. $158,545.60
5. If current assets decrease and current liabilities increase, the current ratio
A. decreases.
B. remains the same.
C. increases.
D. will change based on the change in total assets.
6. Which of the following would probably not cause inventory shrinkage?
A. Correct counting of all inventory
B. Spills of items
C. Employee theft
D. Spoilage of items
7. Which of the following would probably not need to be disclosed in a footnote?
A. A change in depreciation method
B. A material change in estimated shrinkage
C. Change of inventory methods
D. A 10% increase in sales
8. Which of the following may not limit the effectiveness of internal control systems in an organization?
A. Poorly designed controls
B. Understanding of policies and procedures
C. Costs not worth benefits
D. Duties not segregated
9. Isaiah Sporting Goods uses the perpetual average cost method of determining inventory costs. Below is the inventory record for Product C124:
What is the average cost per unit after the receipt of the May 17 inventory (rounded to the nearest cent)?
Date Received Sold Cost/Unit Balance
April 22 534 $6.58 $3,513.72
May 17 433 $6.70 $2,901.10
June 21 389 $6.76 $2,629.64
August 2 436 $6.44 $2,807.84
A. $6.63
B. $6.00
C. $7.40
D. $6.55
10. Goods such as milk, bread, and cheese would probably be costed using the _______ method of
inventory costing.
B. specific-identification
C. average
11. A drawback to using _______ when inventory costs are rising is that the company reports lower net  income.
C. average costing
D. specific-identification costing
12. The balance sheet format that lists assets above liabilities is the _______ form.
A. alphabetical
B. account
C. report
D. liquidity
13. One of the biggest factors in implementing SOX was
A. reviewing the financial reports.
B. establishing internal control procedures.
C. disclosing deficiencies in internal controls.
D. the cost of implementing the system.
14. To pay the least income tax possible in periods of rising inventory costs, the company should use which inventory costing method?
A. Average cost
D. Specific identification
15. Which items may not limit the effectiveness of internal control systems in an organization?
A. Properly designed controls
B. Costs not worth benefits
C. Overriding controls
D. Collusion
16. A company’s current ratio increased from 1.23 to 1.45. What does this mean?
A. This means that current assets decreased and current liabilities decreased.
B. There isn’t enough information to explain the increase.
C. This means that current assets increased and current liabilities increased.
D. This means that current assets increased and current liabilities decreased.
End of exam
17. A company’s gross profit percentage decreases from 58% to 51%. What does this mean?
A. This means that net income will be higher.
B. This means that net income will be lower.
C. We can’t determine anything definite from the information given.
D. This means that there will be a net loss.


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