Accot 101 Midterm 2

25. 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?

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

3. Who is responsible for the freight costs when the terms are FOB shipping point?

b. the buyer

Expense88. One of the weaknesses of the direct write-off method is that it

b. violates the matching principle

82. Cash equivalents include

c. money market accounts and commercial paper

68. Which of the following should not be considered cash by an accountant?

c. postage stamps

24. Calculate the gross profit for Jefferson Company based on the following:

d. $226,000

37. If merchandise sold on account is returned to the seller, the seller acknowledges the return by issuing a

c. credit memo

41. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

c. credit to Merchandise Inventory

46. Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

c. credit to Merchandise Inventory

6. Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a

c. credit to Sales for $4,900

80. A $150 petty cash fund has cash of $54 and receipts of $83. The journal entry to replenish the account would include

c. debit to Cash Short and Over for $13

14. The entry to record the return of merchandise from a customer would include a

c. debit to Customer Refunds Payable

21. Using the following information, what is the amount of income from operations?

d. $29,800

78. 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 on Minor Company's May bank reconciliation should be

d. $36,500

60. Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

d. $364

100. A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of the note is

d. $7,000

104. A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is

d. debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; credit Interest Revenue, $120105. Current assets are usually listed in order

13. Inventory shrinkage is recorded when

d. there is a difference between a physical count of inventory and inventory records

2. Under the perpetual inventory system, all purchases of merchandise are debited to the account

a. Merchandise Inventory

The company's earnings per share on common stock is

$7.50

118. If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on total assets for the year?

11.9%

What is the rate earned on stockholders' equity?

13.6%

119. If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on stockholders' equity for Year 2?

14.5%

59. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

a. $108

79. Rodgers Company gathered the following reconciling information in preparing its May bank reconciliation. Calculate the adjusted cash balance per books on May 31.

a. $5,870

113. Based on the following data for the current year, what is the number of days' sales in accounts receivable?

a. 17.5

114. Based on the following data for the current year, what is the inventory turnover?

a. 2.7

116. Based on the following data for the current year, what is the number of days' sales in inventory?

a. 51.2

45. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

a. FOB shipping point

44. Merchandise inventory is classified on the balance sheet as a

b. current asset

121. The following information is available for Jase Company: Market price per share of common stock $25.00 Earnings per share on common stock $1.25 . Which of the following statements is correct?

a. The price-earnings ratio is 20, and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year.

75. Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is

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

54. All of the following are documents used for inventory control except

a. a petty cash voucher

71. 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

70. The debit balance in Cash Short and Over at the end of an accounting period is reported as

a. an expense on the income statement

110. In horizontal analysis, each item is expressed as a percentage of the

a. base year figure

90. What is the type of account and normal balance of Allowance for Doubtful Accounts?

a. contra asset, credit

34. The arrangements between buyer and seller as to when payments for merchandise are to be made are called

a. credit terms

103. The journal entry to record a note received from a customer to replace an account is

a. debit Notes Receivable; credit Accounts Receivable

94. To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a

a. debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts

93. Selling receivables is called

a. factoring

63. FIFO reports higher gross profit and net income than the LIFO method when

a. prices are increasing

64. Sarbanes-Oxley applies to

a. publicly held companies

115. Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

a. ratio of fixed assets to long-term liabilities

50. Which document establishes an initial record of the receipt of the inventory?

a. receiving report

69. The portion of an invoice that is returned with payment is a

a. remittance advice

117. The current ratio is

a. used to evaluate a company's liquidity and short-term debt paying ability

108. The percent of fixed assets to total assets is an example of

a. vertical analysis

101. A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value of the note is

b. $10,150

18. Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Merchandise Inventory account?

b. $20,580

89. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000. What is the net realizable value of accounts receivable?

b. $289,000

11. Using the following information, what is the amount of net income?

b. $29,960

26. Using the following information, what is the amount of gross profit?

b. $31,670

58. Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

b. $372

102. On October 1, Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of

b. $450

48. Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of sales discount allowable?

b. $500

87. If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?

b. Accounts Receivable

39. Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

b. Accounts Receivable—Stanton, debit $19,600; Sales, credit $19,600, andAccounts Receivable—Stanton, debit $500; Cash, credit $500

28. Kaden Co. sells merchandise on credit to Jase Co. for $9,600. The invoice is dated July 15 with terms of 1/15, net If Jase Co. chooses not to take the discount, by when should the payment be made?

b. August 29

19. The Corbit Corp. sold merchandise for $10,000 cash. The cost of the merchandise sold was $7,590. The journal entries to record this transaction under the perpetual inventory system would be

b. Cash 10,000 Sales 10,000 Cost of Merchandise Sold 7,590 Merchandise Inventory 7,590

49. Generally, the revenue account for a merchandising business is entitled

b. Fees Earned

56. The inventory method that assigns the most recent costs to cost of merchandise sold is

b. LIFO

31. Which of the following accounts has a normal credit balance?

b. Sales

73. A voucher is usually supported by

b. a purchase order

20. When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry?

b. debit Merchandise Inventory; credit Accounts Payable

9. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

b. debit to Cash and a credit to Sales

7. When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a

b. debit to Cash; a credit to Merchandise Inventory

33. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a

b. debit to Merchandise Inventory

4. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

b. debit to Merchandise Inventory

32. What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

b. income from operations

72. The bank reconciliation

b. is part of the internal control system

67. When a firm uses internal auditors, it is adhering to which of the following internal control elements?

b. monitoring

65. The objectives of internal control are to

b. provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports are accurate, and laws and regulations are complied with

96. At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year, previously written off accounts of $120 are reinstated and accounts totaling $740 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be

c. $140

5. Calculate income from operations for Jonas Company based on the following data:

c. $173,500

47. Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. Pound Co. paid the invoice within the discount period. What is the sales amount to be recorded in the above transactions?

c. $24,990

42. Using the following information, what is the cost of merchandise sold?

c. $31,330

120. If net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2?

c. $4.02

57. The inventory data for an item for November are :Nov. 1Inventory20 units at $19 4Sold10 units 10Purchased30 units at $20 17Sold20 units 30Purchased10 units at $21Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

c. $590

43. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold was $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

c. $7,972

What is the percentage increase in sales from the preceding year to the current year?

c. 30%

Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.

c. 34%

22. When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit

c. Accounts Payable

97. Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct regarding the entry to record estimated uncollectible receivables?

c. Allowance for Doubtful Accounts will be credited

23. Which account is not classified as a selling expense?

c. Cost of Goods Sold

10. Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

c. Sales Tax Payable for $420

36. Which of the following accounts will not be found in the Cost of Merchandise Sold section of the income statement for a company using the periodic inventory method?

c. Selling Expense

8. President's salaries, depreciation of office furniture, and office supplies are

c. administrative expenses

12. Multiple-step income statements show

c. both gross profit and income from operations

15. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as

c. cash sales

99. The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:

d. $750

112. Based on the following data, what is the accounts receivable turnover?

d. 25

27. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

d. Cost of Merchandise Sold

29. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are

d. FOB destination

16. Which of the following accounts usually has a debit balance?

d. Merchandise Inventory

76. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the company. This item is a(n)

d. addition to the balance per company's records

17. Where are selling and administrative expenses found on the multiple-step income statement?

d. after gross profit

74. Journal entries based on the bank reconciliation are required in the company's accounts for

d. book errors

66. Which one of the following below is not an element of internal control?

d. cost-benefit considerations

1. If the physical count of inventory revealed $158,000 of merchandise on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shrinkage?

d. debit Cost of Merchandise Sold, $5,000; credit Merchandise Inventory, $5,000

98. Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a

d. debit to Accounts Receivable

5481. Entries are made to the petty cash account when

d. establishing the fund

92. A debit balance in the Allowance for Doubtful Accounts

d. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

86. A note receivable due in 18 months is listed on the balance sheet under the caption

d. investments

40. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

d. makes no journal entry for the freight

91. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

d. management estimates the amount of uncollectibles

77. What entry is required in the company's accounts to record outstanding checks?

d. no entry is required

105. Current assets are usually listed in order

d. of liquidity

35. In credit terms of 3/15, n/45, the "3" represents the

d. percent of the cash discount

30. The inventory system employing accounting records that continuously disclose the amount of inventory is called

d. perpetual

38. Which of the following items would not affect the cost of merchandise inventory acquired during the period?

d. sales commissions

55. Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

d. specific identification

124. Which of the following would appear as an extraordinary item on the income statement?

loss from land condemned for public use