Accounting 210 Exam 2

A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a: Multiple Choice $0 gain or loss. $20,000 gain. $20,000 loss. $40,000 loss. $60,000 gain.

$0 gain or loss.

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable$35,000debitAllowance for uncollectible accounts 500creditNet Sales 180,000credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared? Multiple Choice $1,275 $1,775 $1,500 $1,080 $2,500

$1,080

A company has beginning inventory of 10 units at a cost of $10 each on February 1. On February 3, it purchases 20 units at $12 each. 12 units are sold on February 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that are sold? Multiple Choice $120 $124 $128 $130 $140

$124

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3? Multiple Choice $5,000 $15,000 $15,125 $20,000 $13,750

$13,750

Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $13,162. Franklin's August bank statement shows $14,237 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit$4,500 Outstanding checks$3,900 Bank service fees, not yet recorded by company$50 The bank collected on a note receivable, not yet recorded by the company$1,725 The adjusted cash balance should be: Multiple Choice $18,737 $10,337 $14,887 $13,112 $14,837

$14,837

Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product. ProductQuantityCost per unit Market per unitJelly150$2.00 2.15 Jam370$2.65 2.50 Marmalade260$3.10 3.05 Multiple Choice $2,040.50. $2,086.50. $2,018.00. $2,109.00. $2,053.50.

$2,018.00.

The following information is available for Fenton Manufacturing Company at June 30: Cash in bank account$11,455 Inventory of postage stamps$74 Money market fund balance$10,400 Petty cash balance$350 NSF checks from customers returned by bank$867 Postdated checks received from customers$791 Money orders$290 A nine-month certificate of deposit maturing on December 31 of current year$6,000 Based on this information, Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of: Multiple Choice $28,495 $29,286 $23,286 $12,095 $22,495

$22,495

Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: Year 1 Year 2 Beginning inventory$120,000 $130,000 Cost of goods purchased 250,000 275,000 Cost of goods available for sale 370,000 405,000 Ending inventory 130,000 135,000 Cost of goods sold$240,000 $270,000 Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be: Multiple Choice $291,000 $276,000 $264,000 $285,000 $249,000

$291,000

A company had the following purchases and sales during its first year of operations: PurchasesSalesJanuary:10 units at $1206 unitsFebruary:20 units at $1255 unitsMay:15 units at $1309 unitsSeptember:12 units at $1358 unitsNovember:10 units at $14013 units On December 31, there were 26 units remaining in ending inventory. Using the periodic LIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.) Multiple Choice $3,405. $3,270. $3,200. $3,364. $5,400.

$3,200.

A company had the following purchases and sales during its first year of operations: PurchasesSalesJanuary:10 units at $1206 unitsFebruary:20 units at $1255 unitsMay:15 units at $1309 unitsSeptember:12 units at $1358 unitsNovember:10 units at $14013 units On December 31, there were 26 units remaining in ending inventory. Using the periodic FIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.) Multiple Choice $3,405. $3,200. $3,445. $3,540. $3,270.

$3,540.

Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is: Multiple Choice $374,000 $384,000 $460,000 $422,000 $438,000

$384,000

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information: Cash balance per company books on January 30$4,725 Deposits in transit at month-end$1,800 Outstanding checks at month-end$520 Bank service charges$25 EFT automatically deducted monthly, not yet recorded by Maxi$380 An NSF check returned on a customer account$265 The adjusted cash balance per the books on January 31 is: Multiple Choice $5,855 $5,335 $4,055 $4,815 $4,585

$4,055

On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $95,250; Allowance for Doubtful Accounts, credit balance of $921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible? Multiple Choice $5,715. $6,636. $4,794. $5,770. $5,660. Explanation

$4,794.

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: Multiple Choice $10,000 $5,000 $5,500 $20,000 $9,250

$5,000

A company had the following purchases and sales during its first year of operations: PurchasesSalesJanuary:10 units at $1206 unitsFebruary:20 units at $1255 unitsMay:15 units at $1309 unitsSeptember:12 units at $1358 unitsNovember:10 units at $14013 units On December 31, there were 26 units remaining in ending inventory. Using the perpetual LIFO inventory costing method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.) Multiple Choice $8,670. $5,400. $5,470. $5,130. $5,305.

$5,400.

Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory. Multiple Choice $50,000 $53,000 $52,000 $51,500 $53,200

$52,000

A company had the following purchases and sales during its first month of operations: January 1Purchased 10 units at $4.00 per unitJanuary 9Sold 6 units at $12.00 per unitJanuary 17Purchased 8 units at $5.50 per unitJanuary 27Sold 7 units at $12.00 per unit Using the perpetual weighted average method, what is the value of cost of goods sold? (Round weighted average costs per unit to 2 decimal places.) Multiple Choice $40.00. $59.00. $25.00. $24.00. $23.35.

$59.00.

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the amount of accumulated depreciation at the end of the second year? $48,133. $45,600. $86,133. $23,750. $81,600.

$81,600.

A flood destroyed a company's warehouse contents on September 12. The following information was the only information that was salvaged: Inventory, beginning: $28,000 Purchases for the period: $17,000 Sales for the period: $55,000 Sales returns for the period: $700 The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory using the gross profit method? Multiple Choice $9,705. $25,995. $29,250. $44,000. $45,000.

$9,705.

Perfection Company had cost of goods sold of $853,000, ending inventory of $70,500, and average inventory of $71,600. Its inventory turnover equals: Multiple Choice 11.9. 1.0. 6.0. 30.6. 14.0.

11.9.

Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750.The company's gross profit rate for November of the current year was: Multiple Choice 35.9% 18.8% 81.2% 64.1% 58.6%

64.1%

Freeman Co. had net sales of $4.2 million and ending accounts receivable of $0.8 million. Its days' sales uncollected equals: Multiple Choice 5.3 days. 69.5 days. 19.2 days. 11.5 days. 292 days.

69.5 days.

Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is: Multiple Choice 37.8. 9.7. 68.3. 7.1. 51.7.

9.7.

Assume that the custodian of a $450 petty cash fund has $62 in coins and currency plus $383 in receipts at the end of the month. The entry to replenish the petty cash fund will include: Multiple Choice A debit to Cash for $378. A debit to Cash Over and Short for $5. A debit to Petty Cash for $383. A credit to Cash for $383. A credit to Cash Over and Short for $5.

A debit to Cash Over and Short for $5.

The entry to establish a petty cash fund includes: Multiple Choice A debit to Cash and a credit to Petty Cash. A debit to Cash and a credit to Cash Over and Short. A debit to Petty Cash and a credit to Cash. A debit to Petty Cash and a credit to Accounts Receivable.

A debit to Petty Cash and a credit to Cash.

Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record: Multiple Choice A gain on sale of $2,000. A loss on sale of $2,000. A loss on sale of $5,000. A gain on sale of $5,000. A loss on sale of $45,000.

A loss on sale of $5,000.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is: Multiple ChoiceAccounts Receivable—A. Hopkins2,000 Allowance for Doubtful Accounts 2,000Cash2,000 Accounts Receivable—A. Hopkins 2,000CorrectCash2,000 Bad debts expense 2,000Accounts Receivable—A. Hopkins2,000 Bad debts expense 2,000Cash2,000 Accounts Receivable—A. Hopkins 2,000Allowance for Doubtful Accounts2,000 Accounts Receivable—A. Hopkinse 2,000Accounts Receivable—A. Hopkins2,000 Cash 2,000Cash2,000 Accounts Receivable—A. Hopkins 2,000

Accounts Receivable—A. Hopkins2,000 Allowance for Doubtful Accounts 2,000Cash2,000 Accounts Receivable—A. Hopkins 2,000 Correct

Cash equivalents: Multiple Choice Are short-term, highly liquid investment assets. Include 6-month certificates of deposit. Include checking accounts. Are recorded in petty cash. Include money orders.

Are short-term, highly liquid investment assets.

Land improvements are: Multiple Choice Assets that increase the usefulness of land, and like land, are not depreciated. Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation. Included in the cost of the land account. Expensed in the period incurred. Also called basket purchases.

Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.

Managers place a high priority on internal control systems because the systems assist managers in all of the following except: Multiple Choice Promoting efficient operations. Protecting assets. Upholding company policies. Ensuring reliable accounting. Assuring that no loss will occur.

Assuring that no loss will occur.

At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Multiple Choice Bad Debts Expense15,750 Allowance for Doubtful Accounts 15,750Bad Debts Expense16,125 Allowance for Doubtful Accounts 16,125Bad Debts Expense15,375 Allowance for Doubtful Accounts 15,375Correct Accounts Receivable15,750 Bad Debts Expense375 Sales 16,125Accounts Receivable16,125 Allowance for Doubtful Accounts 16,125

Bad Debts Expense15,375 Allowance for Doubtful Accounts 15,375

Another name for a capital expenditure is: Multiple Choice Revenue expenditure. Asset expenditure. Long-term expenditure. Contributed capital expenditure. Balance sheet expenditure.

Balance sheet expenditure.

The cost of land would not include: Multiple Choice Purchase price. Cost of parking lot lighting. Costs of removing existing structures. Fees for insuring the title. Government assessments.

Cost of parking lot lighting.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except: Multiple Choice Prenumbered inventory tickets. A manager confirms that all inventories are ticketed only once. Counters confirm the validity of inventory existence, amounts, and quality. Second counts by a different counter. Counters of inventory should be those who are responsible for the inventory.

Counters of inventory should be those who are responsible for the inventory.

At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is: Multiple Choice Debit Cash $1,000; credit Sales $1,000. Debit Cash $1,010; credit Sales $1,010. Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10. Debit Cash $1,000; debit Cash Over and Short for $10; credit Sales $1,010. Debit Cash Over and Short $10; credit Cash $10.

Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.) Multiple Choice Debit Cash $4,060; credit Notes Receivable $4,060 Debit Notes Receivable $4,000; credit Cash $4,000 Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,060 Debit Notes Receivable $4,060; credit Sales $4,060 Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is: Multiple Choice Debit Depletion Expense $93,750; credit Natural Resources $93,750. Debit Cash $112,500; credit Natural Resources $112,500. Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750. Debit Cash $93,750; credit Accumulated Depletion $93,750. Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.

Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.

On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the direct write-off method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets? Multiple Choice Decrease in net income; no effect on total assets. No effect on net income; no effect on total assets. Decrease in net income; decrease in total assets. Increase in net income; no effect on total assets. No effect on net income; decrease in total assets.

Decrease in net income; decrease in total assets.

The accounts receivable turnover is calculated by: Multiple Choice Dividing net sales by average accounts receivable. Dividing net sales by average accounts receivable and multiplying by 365. Dividing average accounts receivable by net sales. Dividing average accounts receivable by net sales and multiplying by 365.

Dividing net sales by average accounts receivable.

Internal control policies and procedures have limitations not including: Multiple Choice Human error. Human fraud. Cost-benefit principle. Collusion. Establishing responsibilities.

Establishing responsibilities

The number of days' sales uncollected is used to: Multiple Choice Measure how many days of sales remain until the end of the year. Determine the number of days that have passed without collecting on accounts receivable. Identify the likelihood of collecting sales on account. Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash. Measure the amount of cash sales during a period.

Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.

A remittance advice is a(n): Multiple Choice Explanation for a payment by check. Bank statement. Internal voucher. Electronic funds transfer. Cancelled check.

Explanation for a payment by check.

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a: Multiple Choice Payer. Pledger. Factor. Payee. Pledgee.

Factor

The account receivable turnover measures: Multiple Choice How long it takes to sell accounts receivable to a factor. How often, on average, receivables are received and collected during the period. The relation of cash sales to credit sales. How long it takes to sell merchandise inventory. All of the options are correct.

How often, on average, receivables are received and collected during the period.

A promissory note: Multiple Choice Is a short-term investment for the maker. Is a written promise to pay a specified amount of money at a certain date. Is a liability to the payee. Is another name for an installment receivable. Cannot be used in payment of an account receivable.

Is a written promise to pay a specified amount of money at a certain date.

A 90-day note issued on April 10 matures on: Multiple Choice July 9. July 10. July 11. July 12. July 13.

July 9.

The inventory valuation method that results in the lowest taxable income in a period of inflation is: Multiple Choice LIFO method. FIFO method. Weighted-average cost method. Specific identification method.

LIFO method.

A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records? Multiple Choice Land $75,000; Land Improvements, $30,000; Building, $45,000. Land $75,000; Land Improvements, $30,800; Building, $46,200. Land $82,750; Land Improvements, $33,100; Building, $49,650. Land $80,250; Land Improvements, $32,100; Building, $48,150. Land $77,500; Land Improvements; $31,000; Building; $46,500.

Land $82,750; Land Improvements, $33,100; Building, $49,650.

The calculation of total asset turnover is: Multiple Choice Gross profit divided by average total assets. Average total assets divided by gross profit. Net sales divided by average total assets. Average total assets multiplied by net sales. Net assets multiplied by total assets.

Net sales divided by average total assets.

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except: Multiple Choice Cost of goods sold. Gross profit. Net sales. Current assets.

Net sales.

The straight-line depreciation method and the double-declining-balance depreciation method: Multiple Choice Produce the same total depreciation over an asset's useful life. Produce the same depreciation expense each year. Produce the same book value each year. Are acceptable for tax purposes only. Are the only acceptable methods of depreciation for financial reporting.

Produce the same total depreciation over an asset's useful life.

The impact of technology on internal controls includes: Multiple Choice Reduced processing errors. Elimination of the need for regular audits. Elimination of the need to bond employees. Elimination of separation of duties. Elimination of fraud.

Reduced processing errors.

A change in an accounting estimate is: Multiple Choice Reflected in past financial statements. Reflected in future financial statements and also requires modification of past statements. Reflected in current and future years' financial statements, not in prior statements. Not allowed under current accounting rules.

Reflected in current and future years' financial statements, not in prior statements.

The LIFO conformity rule: Multiple Choice Requires when LIFO is used for tax reporting, it is also used for financial reporting. Requires a company to use one method of inventory valuation exclusively. Requires that all companies in the same industry use the same accounting methods of inventory valuation. Is also called the taxation principle. Is only applicable to the automotive industry.

Requires when LIFO is used for tax reporting, it is also used for financial reporting.

Plant assets are defined as: Multiple Choice Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business. Current assets. Held for sale. Intangible assets used in the operations of a business that have a useful life of more than one accounting period. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business.

The expense recognition principle, as applied to bad debts, requires: Multiple Choice That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions. The use of the direct write-off method for bad debts. The use of the allowance method of accounting for bad debts. That bad debts be disclosed in the financial statements. That bad debts not be written off.

The use of the allowance method of accounting for bad debts.

The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: Multiple Choice Accelerated depreciation. Declining-balance depreciation. Straight-line depreciation. Units-of-production depreciation.

Units-of-production depreciation.

A set of procedures and approvals for verifying, approving and recording liabilities for eventual cash payment, and for issuing checks for payment only of verified, approved, and recorded liabilities is referred to as a(n): Multiple Choice Internal cash system. Petty cash system. Cash disbursement system. Voucher system. Cash control system.

Voucher system.