accounting exam 2

1) On July 1, Ferb Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferb uses the perpetual inventory system and the gross method. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferb must make on July 5 is (are): A) Account Title Debit Credit Sales Returns and Allowances 500 Accounts Receivable 500 Merchandise Inventory 350 Cost of Goods Sold 350 B) Account Title Debit Credit Sales Returns and Allowances 500 Accounts Receivable 500 C) Account Title Debit Credit Accounts Receivable 500 Sales Returns and Allowances 500 D) Account Title Debit Credit Accounts Receivable 500 Sales Returns and Allowances 500 Cost of Goods Sold 350 Merchandise Inventory 350 E) Account Title Debit Credit Sales Returns

A) Account Title Debit Credit Sales Returns and Allowances 500 Accounts Receivable 500 Merchandise Inventory 350 Cost of Goods Sold 350

1) 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 $99,000; Allowance for Doubtful Accounts, credit balance of $1,141. What amount should be debited to Bad Debts Expense, assuming 3% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible? A) $1,829. B) $1,141. C) $2,970. D) $937. E) $4,111.

A) $1,829.

1) A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are: A) $209,000 and $191,470. B) $191,470 and $209,000. C) $525,470 and $227,000. D) $227,000 and $525,470. E) $734,000 and $191,470.

A) $209,000 and $191,470.

1) Jammer Company uses a weighted average perpetual inventory system and reports the following: Date Activities Units Acquired at Cost Units Sold at Retail August 2 Purchase 10 units @ $25 = $250 August 18 Purchase 15 units @ $28 = $420 August 29 Sales 20 units sold August 31 Purchase 14 units @ $29 = $406 What is the per unit value of ending inventory on August 31? Answers should be rounded to the nearest cent. A) $28.42 B) $25.00 C) $30.35 D) $29.00 E) $26.80

A) $28.42

1) 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: A) $291,000 B) $276,000 C) $264,000 D) $285,000 E) $249,000

A) $291,000

1) 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 An NSF check returned on a customer account $ 265 The adjusted cash balance per the books on January 31 is: A) $5,855 B) $5,335 C) $4,435 D) $4,815 E) $4,585

A) $4,435

1) Sandoval needs to determine its year-end inventory. The warehouse contains 28,000 units, of which 3,800 were damaged by flood and are not sellable. Another 2,800 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,800 units at a consignee's location. How many units should Sandoval include in its year-end inventory? A) 31,800 B) 29,000 C) 39,400 D) 35,600 E) 26,200

A) 31,800

1) Sustainable Supplies prepares the following aging of receivables analysis: Days Past Due Total Current 1 to 30 31 to 60 61 to 90 Over 90 Accounts receivable $ 57,600 $ 40,000 $ 9,000 $ 3,600 $ 2,000 $ 3,000 Percent uncollectible 1% 3% 5% 8% 11% Prepare the adjusting entry to record bad debts expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is a $500 credit. A) Debit Bad Debts Expense $840; credit Allowance for Doubtful Accounts $840. B) Debit Allowance for Doubtful Accounts $840; credit Bad Debts Expense $840. C) Debit Bad Debts Expense $1,840; credit Allowance for Doubtful Accounts $1,840. D) Debit Allowance for Doubtful Accounts $1,840; credit Bad Debts Expense $1,840. E) Debit Bad Debts Expense $1,340; credit Allowance for Doubtful Accounts $1,340.

A) Debit Bad Debts Expense $840; credit Allowance for Doubtful Accounts $840.

1) The materiality constraint, as applied to bad debts: A) Permits the use of the direct write-off method when its results approximate those of the allowance method. B) Requires use of the pledge method for bad debts. C) Requires use of the direct write-off method. D) Requires that bad debts not be written off. E) Requires that expenses be reported when paid in cash.

A) Permits the use of the direct write-off method when its results approximate those of the allowance method.

1) The operating cycle for a merchandiser that sells only for cash moves from: A) Purchases of merchandise to inventory to cash sales. B) Purchases of merchandise to inventory to accounts receivable to cash sales. C) Inventory to purchases of merchandise to cash sales. D) Accounts receivable to purchases of merchandise to inventory to cash sales. E) Accounts receivable to inventory to cash sales.

A) Purchases of merchandise to inventory to cash sales.

1) Managers use an internal control system: A) To monitor and control business activities. B) To ensure profitable operations. C) To eliminate the need for an audit. D) To guarantee a return to investors. Only if the company uses a computerized system

A) To monitor and control business activities.

1) Garza Company had sales of $149,000, sales discounts of $2,225, and sales returns of $3,575. Garza Company's net sales equals: A) $5,800. B) $143,200. C) $146,775. D) $149,000. E) $154,800.

B) $143,200.

1) A company had the following purchases and sales during the month of November: Date Activities Units Acquired at Cost Units Sold at Retail November 1 Beginning inventory 5 units @ $38 = $190 November 2 Purchase 10 units @ $40 = $400 November 6 Purchase 6 units @ $43 = $258 November 8 Sales 8 units @ $82 Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale? A) $574 B) $510 C) $530 D) $522 E) $514

B) $510

1) In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information: Cash balance per company books on April 30 $ 6,255 Deposits in transit at month-end $ 1,340 Outstanding checks at month-end $ 660 Bank charge $ 65 Note collected by bank on Donahue's behalf $ 730 A check paid to Donahue during the month by a customer is returned by the bank as NSF $ 520 The adjusted cash balance per the books on April 30 is: A) $8,120 B) $6,400 C) $5,800 D) $6,920 E) $4,400

B) $6,400

if a check correctly written and paid by the bank for $623 is incorrectly recorded in the company's books for $632, how should this error be treated on the bank reconciliation? A) Subtract $9 from the book balance. B) Add $9 to the book balance. C) Add $9 to the bank's balance. D) Subtract $9 from the bank's balance and add $45 to the book's balance. E) Subtract $9 from the bank's balance.

B) Add $9 to the book balance.

1) A promissory note: A) Is a short-term investment for the maker. B) Is a written promise to pay a specified amount, usually with interest, either on demand or at a stated future date. C) Is a liability to the payee. D) Is created when a company sells its receivables to a finance company or bank. E) Cannot be used in payment of an account receivable.

B) Is a written promise to pay a specified amount, usually with interest, either on demand or at a stated future date.

1) At the end of the current year, using the aging of accounts 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 debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Account Title Debit Credit Bad Debts Expense 15,750 Allowance for Doubtful Accounts 15,750 B) Account Title Debit Credit Bad Debts Expense 15,375 Allowance for Doubtful Accounts 15,375 C) Account Title Debit Credit Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125 D) Account Title Debit Credit Accounts Receivable 15,750 Bad Debts Expense 375 Sales 16,125 E) Account Title Debit Credit Accounts Receivable 16,125 Allowance for Doubtful Accounts 16,125

C) Account Title Debit Credit Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125

1) On March 12, Fret Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Fret uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600, and the cost of the merchandise returned is $350. Babson pays the invoice on March 20 and takes the appropriate discount. The journal entry that Fret makes on March 20 is: A) Account Title Debit Credit Cash 7,800 Accounts Receivable 7,800 B) Account Title Debit Credit Cash 4,500 Accounts Receivable 4,500 C) Account Title Debit Credit Cash 7,056 Sales Discounts 144 Accounts Receivable 7,200 D) Account Title Debit Credit Cash 7,056 Accounts Receivable 7,056 E) Account Title Debit Credit Cash 7,644 Sales Discounts 156 Accounts Receivable 7,800

C) Account Title Debit Credit Cash 7,056 Sales Discounts 144 Accounts Receivable 7,200

1) Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: Year 1 Year 2 Beginning inventory $ 122,000 $ 130,400 Cost of goods purchased 250,400 277,000 Cost of goods available for sale 372,400 407,400 Ending inventory 130,400 135,400 Cost of goods sold $ 242,000 $ 272,000 Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,400 and 2) ending inventory at the end of Year 2 was overstated by $6,400. Given this information, the correct cost of goods sold figure for Year 2 would be: A) $251,000 B) $287,400 C) $293,800 D) $265,600 E) $278,400

C) $293,800

1) 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? A) Decrease in net income; no effect on total assets. B) No effect on net income; no effect on total assets. C) Decrease in net income; decrease in total assets. D) Increase in net income; no effect on total assets. E) No effect on net income; decrease in total assets.

C) Decrease in net income; decrease in total assets.

1) Which of the following is not accomplished with an internal control system? A) Protect assets. B) Ensure reliable accounting. C) Guarantee a return to investors. D) Uphold company policies. E) Promote efficient operations.

C) Guarantee a return to investors.

1) Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used? A) FIFO and LIFO B) LIFO and weighted-average cost C) Specific identification and FIFO D) FIFO and weighted-average cost E) LIFO and specific identification

C) Specific identification and FIFO

1) Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $3,900 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is: A) Account Title Debit Credit Accounts Receivable—A. Hopkins 3,900 Allowance for Doubtful Accounts 3,900 B) Account Title Debit Credit Allowance for Doubtful Accounts 3,900 Bad debts expense 3,900 C) Account Title Debit Credit Accounts Receivable—A. Hopkins 3,900 Bad debts expense 3,900 Cash 3,900 Accounts Receivable—A. Hopkins 3,900 D) Account Title Debit Credit Allowance for Doubtful Accounts 3,900 Accounts Receivable—A. Hopkins 3,900 E) Account Title Debit Credit Cash 3,900 Accounts Receivable—A. Hopkins 3,900 A) Account Title Debit Credit Accounts Receivable—A. Hopkins 3,900 Allowance for Doubtful Accounts 3,900

D) Account Title Debit Credit Allowance for Doubtful Accounts 3,900 Accounts Receivable—A. Hopkins 3,900

1) The interest accrued on $7,800 at 8% for 75 days is: (Use 360 days a year.) A) $73. B) $728. C) $312. D) $130. E) $62.

D) $130.

1) Which of the following statements regarding merchandise inventory is false? A) Merchandise inventory is reported on the balance sheet as a current asset. B) Merchandise inventory refers to products a company owns and intends to sell. C) Merchandise inventory cost includes the cost to buy the goods, ship them to the store, and make them ready for sale. D) Merchandise inventory appears on the balance sheet of a service company. E) Purchasing merchandise inventory is part of the operating cycle for a business.

D) Merchandise inventory appears on the balance sheet of a service company.

1) Assuming the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in: A) An increase in the expenses of the current period. B) An increase in current assets. C) A reduction in equity. D) No effect on the expenses of the current period. E) A reduction in current liabilities.

D) No effect on the expenses of the current period.

1) A company uses the perpetual inventory system and recorded the following entry: Account Title Debit Credit Accounts Payable 2,500 Merchandise Inventory 50 Cash 2,450 This entry reflects a: A) Purchase of merchandise on credit. B) Return of merchandise. C) Sale of merchandise on credit. D) Payment of the account payable less a 2% cash discount taken. E) Payment of the account payable less a 1% cash discount taken.

D) Payment of the account payable less a 2% cash discount taken.

1) A buyer of $7,000 in merchandise inventory failed to take advantage of the vendor's credit terms of 2/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of: A) $70. B) $1,050. C) $700. D) $100. E) $140.

E) $140.

1) B. Lopez Company reports net sales of $200,000 and cost of goods sold of $50,000. Using the numbers provided, B. Lopez Company's gross profit is: A) $200,000. B) $50,000. C) $250,000. D) $100,000. E) $150,000.

E) $150,000.

1) A company had the following purchases and sales during the month of November: Date Activities Units Acquired at Cost Units Sold at Retail November 1 Beginning inventory 5 units @ $20 = $100 November 2 Purchase 10 units @ $22 = $220 November 6 Purchase 6 units @ $25 = $150 November 8 Sales 8 units @ $55 Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale? A) $304 B) $296 C) $288 D) $280 E) $276

E) $276

1) The following information is available for Birch Company at December 31: Cash in registers $ 2,840 Investment maturing in 9 years $ 15,500 Accounts receivable $ 1,600 Cash in bank account $ 22,931 Accounts payable $ 700 Cash in petty cash fund $ 250 Inventory of postage stamps $ 23 U.S. Treasury bill maturing in 15 days $ 10,500 Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of: A) $37,421 B) $38,821 C) $52,021 D) $41,544 E) $36,521

E) $36,521

1) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: A) $3,600 B) $3,568 C) $3,632 D) $2,800 E) $4,400

E) $4,400

1) Which of the following is not a limitation of internal control policies and procedures? A) Human error. B) Human fraud. C) Cost-benefit constraint. D) Collusion. E) Establishing responsibilities.

E) Establishing responsibilities.

1) Which of the following is not revealed by maintaining separate accounts receivable information for each customer? A) How much each customer has purchased on credit. B) How much each customer has paid. C) How much each customer still owes. D) Which customers still owe money. E) When the customer intends to pay outstanding balances.

E) When the customer intends to pay outstanding balances.