ACC111 Exam #2 Multiple Choice

During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method. A. True B. False

A. True

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is required in the company's accounts? A. debit Accounts Payable; credit Cash B. debit Cash; credit Accounts Receivable C. debit Cash; credit Accounts Payable D. debit Accounts Receivable; credit Cas

A. debit Accounts Payable; credit Cash

Inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error? A. net income is understated B. net income is overstated C. cost of goods sold is understated D. inventory reported on the balance sheet is overstate

A. net income is understated

The primary difference between the periodic and perpetual inventory systems is that a A. periodic system determines the inventory on hand only at the end of the accounting period B. periodic system keeps a record showing the inventory on hand at all times C. periodic system provides an easy means to determine inventory shrinkage D. periodic system records the cost of the sale on the date the sale is made

A. periodic system determines the inventory on hand only at the end of the accounting period

A company has net sales of $770,300 and cost of goods sold of $556,300. Its net income is $21,910. The company's gross margin and operating expenses, respectively, are: A. $214,000 and $192,090. B. $214,000 and $236,380. C. $534,390 and $236,380. D. $236,380 and $534,390. E. $747,920 and $192,090.

A. $214,000 and $192,090.

A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you must add $90 to the bank statement balance. A. True B. False

A. True

In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records. A. True B. False

A. True

When the terms of sale are FOB shipping point, the buyer pays the freight charges. A. True B. False

A. True

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would be included on the bank reconciliation as a(n) A. addition to the balance per the company's records B. addition to the balance per the bank statement C. deduction from the balance per the bank statement D. deduction from the balance per the company's record

A. addition to the balance per the company's records

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This item would be included in the bank reconciliation as a(n) A. deduction from the balance per the company's records B. addition to the balance per the bank statement C. deduction from the balance per the bank statement D. addition to the balance per the company's record

A. deduction from the balance per the company's records

Norfolk Sporting Goods purchases merchandise with an invoice price of $21,000 and credit terms of 2/10,n/30. Norfolk pays within the discount period. What is the balance in the inventory account for this purchase? A. $21,000 B. $20,580 C. $30,000 D. $29,400

B. $20,580 RATIONALE: Balance in Inventory account = Invoice Price - Discount as per credit term = [$21,000 - (2% × $21,000)]= $21,000 - $420 = $20,580

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as cash payment in full on June 23 is: ( Single Choice) A. $700 B. $686 C. $685 D. $650

B. $686

Under the periodic inventory system, the cost of goods sold is equal to the beginning inventory plus the cost of merchandise purchased plus the ending inventory. A. True B. False

B. False

Kristin's Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of the following would NOT be included in the year-end inventory? A. Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin's Boutique as of December 31. B. Kristin has in its warehouse merchandise on consignment from Abby Co. C. Kristin has sent merchandise to various retailers on a consignment basis. D. Kristin has inventory on hand which has been returned by customers because of wrong size

B. Kristin has in its warehouse merchandise on consignment from Abby Co.

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded? A. debit Cash, $2,000; credit Inventory, $1,250 B. debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Goods Sold, $1,250; credit Inventory, $1,250 C. debit Cash, $1,250; credit Sales, $1,250 D. debit Accounts Receivable, $2,000; credit Sales, $2,000; and debit Cost of Goods Sold, $1,250 ;credit Inventory, $1,250

B. debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Goods Sold, $1,250; credit Inventory, $1,250

Ending inventory is made up of the oldest purchases when a company uses A. first-in, first-out B. last-in, first-out C. average cost D. retail method

B. last-in, first-out

Inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and stockholders' equity? A. net income is overstated, assets are overstated, and stockholders' equity is understated B. net income is overstated, assets are overstated, and stockholders' equity is overstated C. net income is understated, assets are understated, and stockholders' equity is understated D. net income is understated, assets are understated, and stockholders' equity is overstat

B. net income is overstated, assets are overstated, and stockholders' equity is overstated

Atlantis Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are: A. understated, overstated B. overstated, understated C. overstated, overstated D. understated, understated

B. overstated, understated

Which of the following items should not be included in the cost of ending inventory? A. purchased units in transit, shipped FOB shipping point B. purchased units in transit, shipped FOB destination C. units on hand in the warehouse D. sold units in transit, not invoiced, and shipped FOB destination

B. purchased units in transit, shipped FOB destination

When goods are purchased for resale by a company using a periodic inventory system: A. purchases on account are debited to Merchandise Inventory B. purchases on account are debited to Purchases C. purchase returns are debited to Purchase Returns and Allowances D. freight costs are debited to Purchases

B. purchases on account are debited to Purchases

A company purchased $2,800 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $600 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals: A. $600. B. $2,406. C. $2,134. D. $2,200. E. $2,800.

C. $2,134.

On September 12, Vander Company sold merchandise in the amount of $6,400 to Jepson Company, with credit terms of 5/10, n/30. The cost of the items sold is $4,600. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is (are): A. Account Debit Sales 6,400; Credit Accounts Receivable 6,400 B. Account Debit Sales 6,400; Credit Accounts Receivable 6,400; Debit Cost of Goods Sold 4,600; Credit Merchandise Inventory 4,600 C. Account Debit Accounts Receivable 6,400; Credit Sales 6,400 D. Account Debit Accounts Receivable 6,400; Credit Sales 6,400; Debit Cost of Goods Sold 4,600; Credit Merchandise Inventory 4,600 E. Account Debit Accounts Receivable 4,600; Credit Sales 4,600

C. Account Debit Accounts Receivable 6,400; Credit Sales 6,400

On September 12, Vander Company sold merchandise in the amount of $4,600 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $3,175. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $400 and the cost of the merchandise returned is $280. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A. Account Debit Cash 4,600.00; Credit Accounts Receivable 4,600.00 B. Account Debit Cash 3,175.00; Credit Accounts Receivable 3,175.00 C. Account Debit Cash 4,116.00; Credit Sales Discounts 84.00; Credit Accounts Receivable 4,200.00 D. Account Debit Cash 4,516.00; Credit Accounts Receivable 4,516.00 E. Account Debit Cash 4,516.00 Sales Discounts 84.00; Credit Accounts Receivable 4,600.00

C. Account Debit Cash 4,116.00; Credit Sales Discounts 84.00; Credit Accounts Receivable 4,200.00

On September 12, Vander Company sold merchandise in the amount of $7,600 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,900. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is: A. Account Debit Purchases 7,600; Credit Accounts Receivable 7,600 B. Account Debit Purchases 4,900; Credit Accounts Receivable 4,900 C. Account Debit Purchases 7,600; Credit Accounts Payable 7,600 D. Account Debit Merchandise Inventory 7,600; Credit Accounts Payable 7,600 E. Account Debit Accounts Payable 4,900; Credit Merchandise Inventory 4,900

C. Account Debit Purchases 7,600; Credit Accounts Payable 7,600

Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system? A. Purchases B. Transportation In (Freight in) C. Cost of Goods Sold D. Purchase Discounts

C. Cost of Goods Sold

A company purchased $2,800 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $700 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is: A. Debit Merchandise Inventory $2,100; credit Cash $2,100. B. Debit Cash $2,100; credit Accounts Payable $2,100. C. Debit Accounts Payable $2,100; credit Merchandise Inventory $63; credit Cash $2,037. D. Debit Accounts Payable $2,800; credit Cash $2,800. E. Debit Accounts Payable $2,100; credit Cash $2,100.

C. Debit Accounts Payable $2,100; credit Merchandise Inventory $63; credit Cash $2,037.

The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory system would be A. Debit Inventory 1,600; Credit Accounts Payable 1,600 B. Debit Office Supplies1,600; Credit Accounts Payable 1,600 C. Debit Purchases 1,600; Credit Accounts Payable 1,600 D.Debit Purchases 1,600; Credit Accounts Receivable 1,600

C. Debit Purchases 1,600; Credit Accounts Payable 1,600

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be A. assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000 B. assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement C. assets, retained earnings, and net income all overstated by $70,000 D. assets and retained earnings overstated by $70,000; and net income understated by $70,00

C. assets, retained earnings, and net income all overstated by $70,000

Multiple-step income statements show A. gross profit but not income from operations B. neither gross profit nor income from operations C. both gross profit and income from operations D. income from operations but not gross profit

C. both gross profit and income from operations

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is required in the company's accounts? A. debit Accounts Payable; credit Cash B. debit Cash; credit Accounts Receivable C. debit Cash; credit Accounts Payable D. debit Accounts Receivable; credit Cas

C. debit Cash; credit Accounts Payable

In periods of rising prices, LIFO will produce: A. higher net income than FIFO B. the same net income than FIFO C. lower net income than FIFO D. higher net income than average costing

C. lower net income than FIFO

Minor Company had checks outstanding totaling $19,200 on its April bank reconciliation. In May, Minor Company issued checks totaling $64,900. The May bank statement shows that $47,600 in checks cleared the bank in May. A check from one of Minor Company's customers of $300 was also returned marked "NSF." The amount of outstanding checks onMinor Company's May bank reconciliation should be A. $28,400 B. $36,800 C. $17,300 D. $36,500

D. $36,500 RATIONALE: Amount of outstanding checks on the May bank reconciliation = Outstanding checks appearing on the April bank reconciliation + Checks issued in May - Checks cleared in May = $19,200 + $64,900 -$47,600 = $36,500

What is the major difference between a periodic and perpetual inventory system? A. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account. B. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory. C. Under the periodic inventory system, all adjustments such as purchase returns and allowances and discounts are accounted for in separate accounts D. All of the answers are correct

D. All of the answers are correct

Which of the following is not included in the cost of merchandise inventory? A. Purchase discounts. B. Purchase returns and allowances. C. Freight costs paid by the buyer. D. Freight costs paid by the seller. E. Purchase price of inventory.

D. Freight costs paid by the seller.

7. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. This item would be included on the bank reconciliation as a(n) A. deduction from the balance per company's records B. addition to the balance per bank statement C. deduction from the balance per bank statement D. addition to the balance per company's record

D. addition to the balance per company's record

Where are selling and administrative expenses found on the multiple-step income statement? A. before gross profit B. after sales and before gross profit C. after net income and before expenses D. after gross profit

D. after gross profit

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is: A. outstanding checks B. deposits in transit C. a bank error D. bank service charges

D. bank service charges

If the physical count of inventory revealed $158,000 of inventory on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shrinkage? A. debit Inventory, $158,000; credit Cost of Goods Sold, $158,000 B. debit Inventory, $5,000; credit Cost of Goods Sold, $5,000 C. debit Cost of Goods Sold, $163,000; credit Inventory, $158,000 D. debit Cost of Goods Sold, $5,000; credit Inventory, $5,000

D. debit Cost of Goods Sold, $5,000; credit Inventory, $5,000 RATIONALE: Inventory shrinkage = Account balance of Inventory - Physical inventory on hand = $163,000 - $158,000= $5,000Adjusting entry to record inventory shrinkage: debit Cost of Goods Sold, $5,000; credit Inventory, $5,000

In the normal operation of business, you receive a check from a customer and deposit it into your checking account.With your bank statement you are advised that this check for $775 is "NSF." The bank also informs you that due to theamount of activity on your business account the monthly service charge is $75. During a bank reconciliation, you will A. subtract both values from balance according to bank B. add both values to balance according to books C. add both values to balance according to bank D. subtract both values from balance according to book

D. subtract both values from balance according to book

A company purchased $11,200 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $1,100, was added to the invoice amount. On June 20, it returned $1,760 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals: A. $8,821. B. $11,760. C. $12,300. D. $11,860. E. $10,257.

E. $10,257.

On February 3, Smart Company sold merchandise in the amount of $2,300 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $1,590. Smart uses theperpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is: A. Debit Cash 1,590; Credit Accounts Receivable 1,590 B. Debit Cash 2,300; Credit Accounts Receivable 2,300 C. Debit Cash 2,220; Credit Sales Discounts 32; Credit Accounts Receivable 2,252 D. Debit Cash 1,510; Credit Accounts Receivable 1,510 E. Debit Cash 2,254; Credit Sales Discounts 46; Credit Accounts Receivable 2,300

E. Debit Cash 2,254; Credit Sales Discounts 46; Credit Accounts Receivable 2,300