Accounting Exam 3

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3.85% (2,220 / (55,500 + 2,200))

determines the cost of goods sold based on the actual cost of each inventory item sold

specific identification costing method

If the cost of an item of inventory is $50 and the market value is $57, the amount included in inventory according to the lower of cost or market is

$50

The following info is available for Elson Corp for fiscal year ending 1-31-12. Calculate the receivable turnover ratio net sales $450,000 operating income 120,000 net income 100,000 accounts receivable 1-31-11 175,000 accounts receivable 1-31-12 125,000

3 (450,000 / 150,000 ((175,000 + 125,000) / 2)))

The _____ method calculates cost of goods sold based on the assumption that the first unit of inventory purchased is the first unit sold

FIFO

an error whose effect on net income is corrected in the period after the error

counter balancing error

a method of estimating inventory using a company's gross profit %

gross profit method

the party that will receive the money from a promissory note at some future date

payee

The party to a promissory note who will pay the interest and principal is called the A) lender B) maker of the note C) payee of the note D) recipient of the note

Portey uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 100 units at $9 each $900 4 purchased 120 units at $9.10 each 1,092 5 sold 150 units 10 purchased 100 units at $9.50 each 950 24 sold 60 units total cost of goods available for sale 30 on hand, 110 units 2,942 Refer to the info provided for Portey. If Portey uses the weighted average inventory costing method, ending inventory at June 30th is

$1,024.82 (110 units X (1,583.82 / (70 + 100)= 1,024.82; cost of goods available for sale on June 24th= (70 X 9.05) + (100 X 9.50)

The total amount of interest for 1 year calculated annually on a $18,000 promissory note payable for 3 years at 11% is

$1,980 (18,000 X 11% X 1

suppose that lee enterprises usually generates a 40% gross profit on sales. If Lee's annual sales are $130,000 and cost of goods available for sales is $90,000, what's lee's estimated ending inventory using the gross profit method

$12,000

Entee Corp uses a periodic inventory system. The following info is available for the month of November 1 on hand, 50 units at $15 each $750 5 purchased, 115 units at $15.10 each 1,736.50 16 purchased, 75 units at $15.20 each 1,140 total cost of goods available for sale 3,626.50 30 on hand, 90 units Refer to the info provided for Entee Corp. If Entee uses the LIFO inventory costing method, the cost of goods sold for November would be

$2,272.50 ((75 X 15.20) + (75 X 15.10))

On january 2, well corp sold merchandise with a gross price of $140,000 to priority corp with terms of 2/10, n/30. How much sales discounts would be recorded if payment was received on january 8?

$2,800 (140,000 X .02)

Tickets4U.com uses a perpetual inventory system with a weighted average inventory costing method. The following info is available for the month of April 1 on hand, 30 units at $5 each $150 8 purchased 40 units at $5.35 each 214 15 sold 50 units 22 purchased 40 units at $5.20 each 208 30 on hand, 60 units Refer to the info provided for Tickets4U.com. Calculate the cost of goods sold for the units sold on April 15th

$260 (50 (((30 X 5) + (40 X 5.35)) / (30 + 40)))

If the cost of an item of inventory is $60 and the market value is $50, the amount included in inventory according to the lower of cost or market is

$50

Bradford Corp reported net accounts receivable of $380,000 and net sales of $2,600,000 for 2012. Allowance for bad debts was $40,000, ending 2012. Rounding to 2 decimal places, what's Bradford's allowance ratio for 2012?

9.52% (40,000 / (380,000 + 40,000))

Pollet Company started business at the beginning of 2012. Pollet selected the FIFO method for its inventory costing. The profits will maximize for 2012 under this method, in a period of A) rising prices B) declining prices C) stable prices D) prices fluctuating up and down at the same amount consistency throughout the year

Receivables turnover ratio measures A) a company's ability to collect its accounts receivables B) a comparison of allowance account to receivables C) the fair market value of accounts receivable D) the efficiency of the accounts payable function

in a period of rising prices, under which inventory valuation method would ending inventory have the highest assigned value a. FIFO b. LIFO c. moving average d. all methods will result in the same value

vertical analysis of accounts receivable a. calculates accounts receivable as a % of total assets b. highlights the change in accounts receivable as a % of the prior year's receivables balance c. calculates accounts receivable as a % of net sales d. both "a" and "b" are correct

During a period of increasing purchase prices, which inventory costing method will yield the lowest cost of goods sold A) any method in which the company uses a periodic system B) FIFO C) LIFO D) weighted average cost

The allowance method a. requires only one journal entry to write off uncollectible accounts and record bad debt expense b. uses a contra asset account to report accounts receivable at net realizable value c. is not recommended by GAAP d. is only used if the amount of accounts receivable is immaterial

When accounting for a note receivable a. interest revenue is never recorded until payment is received b. interest receivable is normally reported as a current asset c. interest rates are normally stated at semi annual rates d. the note receivable is recorded at issuance with a credit entry

Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with revenue on the income statement? A) the % of receivables approach B) the % of sales approach C) the % of accounts written off approach D) the direct write off approach

Which one of the following statements regarding changing inventory costing methods is true A) a change in inventory costing methods can be justified if the change is made after the completed financial period B) changing inventory costing methods violates consistency C) one place that the reader of an annual report would be able to identify that a company changed inventory costing methods is the statement of stockholders' equity D) tax advantages are valid justification for changing inventory costing methods

Accounts receivable are a. recorded at the time cash is received b. netted with a liability account to be presented on the balance sheet at net worth c. recorded when a revenue is earned but cash has not yet been received d. reported as unearned revenue until payment is received

Horizontal analysis of inventory a. calculates inventory as a % of total assets b. calculates cost of goods sold as a % of revenues c. highlights the change in inventory as a % of the prior year's inventory balance d. both "a" and "b" are correct

The following info was presented in the balance sheet of Diablo Company as of 12-31-12 Trade accounts receivable, net of allowance for doubtful accounts of 255,000 $1,700,000 Which of the following statements is true? A) diablo expects that $1,955,000 of accounts receivable will be collected after year end B) the balance in the accounts receivable account in diablo's general ledger is $1,700,000 C) the net realizable value diablo's accounts receivable is $1,700,000 D) diablo expects to collect only $1,445,000 from its customers

What effects occur on a retail store's accounting equation when it records purchase of merchandise on account, assuming the use of a perpetual inventory system A) assets and equity increase B) assets and equity decrease C) assets and liabilities increase D) no net effect

Refer to the info provided for Shelton Brothers inc. The effect of recording the payment on July 15th will include A) a decrease to purchases for $15,000 B) an increase to inventory for $14,850 C) a decrease to cash for $15,000 D) a decrease to accounts payable for $15,000

The allowance for bad debts represents A) bad debt losses incurred in the current period B) the amount of uncollected accounts written off to date C) the difference between total sales made on credit and the amount collected from those credit sales D) the difference between the recorded value of accounts receivable and the net realizable value of accounts receivable

The following data concern Digital Corp for 2012 Credit sales during the year $2,400,000 Account receivable-12-31-12 410,000 Allowance for bad debts-12-31-12 55,000 Bad debts expense for the year 35,000 Refer to the info provided for Digital Corp. What are the effects on the accounting equation when Digital writes off a bad debt under the allowance method? A) assets increase and liabilities decrease B) assets and equity decrease C) assets increase and equity decreases D) no effect on overall assets or equity

Which inventory cost flow method assigns the cost of the most recent items purchased to cost of goods sold? A) specific identification B) weighted average C) FIFO D) LIFO

vertical analysis of inventory a. calculates inventory as a % of total assets b. calculates cost of goods sold as a % of revenues c. highlights the change in inventory as a % of the prior year's inventory balance d. both "a" and "b" are correct

The _____ method calculates cost of goods sold based on the assumption that the last unit of inventory purchased is the first unit sold

LIFO

the difference between the LIFO inventory reported on the balance sheet and what inventory would be if reported on a FIFO basis

LIFO reserve

recognition of bad debts expense at the point in time at which the accounts receivable is deemed uncollectible and written off

direct write off method

Cost of goods sold is equal to the beginning inventory plus the cost of net purchases minus _____ _____

ending inventory

a company can calculate its days in inventory ratio by dividing the 365 days per year by its _____ _____ _____

inventory turnover ratio

the ratio of a company's cost of goods sold to its average inventory is called its _____ _____ _____

inventory turnover ratio

An overstatement error in the inventory account in the current period will result in an understatement of _____ _____ in the next period

net income

updates the inventory account each time inventory is bought or sold

perpetual inventory system

a written promise to pay a specific sum of money on demand or at some specific date in the future

promissory note

To encourage prompt payment, sellers offer a _____ _____

sales discount

Entee Corp uses a periodic inventory system. The following info is available for the month of November 1 on hand, 50 units at $15 each $750 5 purchased, 115 units at $15.10 each 1,736.50 16 purchased, 75 units at $15.20 each 1,140 total cost of goods available for sale 3,626.50 30 on hand, 90 units Refer to the info provided for Entee Corp. If Entee uses the FIFO inventory costing method, the amount assigned to the November 30th inventory would be

$1,366.50 ((75 X 15.20) + (15 X 15.10))

$1,917.18 ((150 X (1,992 /220))=1,358.18; (60 X ((1,583.82 / (70 + 100))= 558.99; Total= 1,358.18 + 558.99= 1,917.18)) ((70 X 9.05) + (100 X 9.50))

Ready Corp's accounts receivable balance after posting net collections from customers for 2012 is $190,000. Management feels that uncollected accounts should be based on the following aging of accounts receivable and uncollected percentages. There are $120,000 that are 1-30 days past due at 3% and $70,000 that are 31-60 days past due at 8%. The net realizable value of the accounts receivable is

$180,800 (190,000- ((120,000 X 0.03) + (70,000 X 0.08)))

Shirey uses a periodic inventory system. At the end of January, 20 units were on hand. The following additional info is available for the month of January. 1 beginning inventory: 10 units at $2 each $20 20 purchased 90 units for $3 each 27o cost of goods available for sale 290 Refer to the info provided for Shirey. If Shirey uses the weighted average method of inventory costing, how much is cost of goods sold for January

$232 (80 X (290 / 100))

The following data concern Bolt Corp for 2012 Accounts receivable-1-1-12 $455,000 Credit sales during 2012 900,000 Collections from credit customers during 2012 825,000 Allowance for bad debts before adjustment for 2,100 the year Estimated uncollected accounts based on an 29,000 aging analysis Refer to info provided for Bolt Corp. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2012?

$27,100 (29,200-2,100)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If aspen uses the aging of accounts receivable method to estimate its bad debts, what amount will be reported as bad debt expense for 2012?

$50,000 (75,000-25,000)

Wilsonwear uses a perpetual inventory system. The following info is available for the month of March 1 on hand, 25 units at $2 each $50 4 sold 20 units for $10 each 200 22 purchased 130 units at $4 each 520 26 sold 120 units for $10 each 1,200 Refer to the info provided for Wilsonwear Corp. If Wilsonwear uses the FIFO inventory costing method, how much is cost of goods sold for March

$510 ((25 X 2) + (115 X 4))

Harold's Five & Dime is merchandising company that uses the periodic inventory system. Selected account balances are listed below Sales $175,000 Gross purchases 90,000 Beginning inventory 23,000 Ending inventory 17,000 Purchase returns and allowances 3,000 Purchase discounts 7,000 Transportation in 4,000 Sales discounts 8,000 Sales returns and allowances 5,000 Calculate Harold's net purchases

$84,000 (90,000 + 4,000 - 3,000 - 7,000)

The following info is available for Elson Corp for fiscal year ending 1-31-12. Calculate the allowance ratio net sales $450,000 operating income 120,000 net income 100,000 accounts receivable 1-31-11 175,000 accounts receivable 1-31-12 125,000

12.5% (25,000 / (175,000 + 25,000))

CG films generates cost of goods sold of $135,000 for the year. Inventory at the beginning and ending of the year was $40,000 and $46,000. Calculate CG's inventory turnover ratio

3.1

How will the payee of the promissory note record the note on its books? A) the promissory note will be recorded as an asset B) the promissory note will be recorded as a liability C) the promissory note will be recorded as a equity D) the promissory note will be recorded as an expense

If a company does not update the inventory and cost of goods sold accounts during the period, it means company is using A) the periodic inventory system B) the perpetual inventory system C) both the periodic and the perpetual inventory system D) neither the periodic nor the perpetual inventory system

Shelton Brothers uses a periodic inventory system. It purchased merchandise from BXP on account inc on 7-7-12, for $15,000. The credit terms were 1/10, n/30. Shelton paid the amount due on July 15. Refer to the info provided for Shelton Brothers Inc. What effect does recording the purchase of merchandise on 7-7-12, have on Shelton's accounting equation A) assets and liabilities increase B) liabilities increase and equity decreases C) assets and equity increases D) liabilities and equity decrease

The days in inventory ratio A) measures the length of time it takes to acquire, sell, and replace the inventory B) is computed by dividing the cost of merchandise sold by 365 C) measures the length of time it takes to sell the merchandise on credit and collect the account receivable D) is about the same for all industries

Under the direct write off method a. bad debt expense increases only when a receivable is deemed uncollectible b. a contra asset account is used to estimate the amount of receivables that will be uncollectible c. the matching principle of accounting is not violated d. the income statement approach is used to estimate bad debt expense

What effects on a retail store's accounting equation occur when the retail store pays a 3rd party carrier to transport inventory to its warehouse A) no net effect B) assets and equity increase C) assets decrease and liabilities increase D) equity decreases and liabilities increase

When inventories are written down due to the application of the lower of cost or market (LCM) rule, which of the following is usually increased? A) cost of goods sold B) inventories C) operating expenses D) accumulated

which inventory costing method generally results in less current taxes paid by the company a. LIFO b. FIFO c. moving average d. all methods result in the same taxes paid

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 inventory $55,000 $46,000 cost of sales 120,000 110,000 total assets 500,000 490,000 cash flow from operations 320,000 289,000 net sales 390,000 360,000 capital expenditures 15,000 13,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's income statement A) cost of sales increased by 9.09% during 2012 B) cost of sales increased by 11% during 2012 C) cost of sales is 30.76% of net sales in 2012 D) cost sales more than double the inventory in 2012

A (change in costs of sales= 120,000 - 100,000= 10,000 increase) (% change= 10,000 / 110,000)

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 inventory $55,000 $46,000 cost of sales 120,000 110,000 total assets 500,000 490,000 cash flow from operations 320,000 289,000 net sales 390,000 360,000 capital expenditures 15,000 13,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet A) inventory increased by 19.57% during 2012 B) inventory increased by 26% during 2012 C) inventory is 11% of total assets in 2012 D) the total assets is $500,000 in 2o12

A (change in inventory= 55,000 - 46,000= 9,000 increase) (% change= 9,000 / 46,000- 19.57%)

Forrest Corp uses the direct write off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write off a customer's account balance A) assets and liabilities decrease B) assets and equity decrease C) equity and liabilities decrease D) assets increase and equity decreases

How are purchase returns and purchase discounts recorded by a company using the periodic inventory system A) as a reduction to the purchases account B) in contra accounts to the purchases account C) as operating expenses D) as miscellaneous expenses

If a company understates its inventory, what are the effects on cost of goods sold and net income for the current year A) cost of goods sold will be understated and net income will be overstated B) cost of goods sold will be overstated and net income will be understated C) both cost of goods sold and net income will be understated D) both cost of goods sold and net income will be overstated

If a company uses the allowance method to account for doubtful accounts, when will the company's equity decrease? A) at the date a customer's account is written off B) at the end of the accounting period when an adjusting entry for bad debts is recorded C) at the date a customer's account is determined to be uncollected D) when the accounts receivable amount becomes past due

Inventory turnover A) is computed by dividing average inventory by cost of merchandise sold B) measures the relationship between the volume of goods sold and amount of inventory carried C) increases the risk of loss from damaged merchandise D) is computed by dividing the beginning inventory plus the ending inventory by 2

Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending inventory was overstated by $5,000 Refer to the info provided for Ronn Industries. Determine the financial statement effects of the inventory error for 2013 A) expenses will be understated and net income will be overstated B) expenses will be overstated and net income will be understated C) both expenses and net income will be overstated D) both expenses and net income will be understated

When an inventory item is sold under a perpetual inventory system a. the inventory account is not affected b. inventory is decreed and cost of goods sold is increased c. inventory is increased and cost of goods sold is increased d. neither inventory nor cost of goods sold is affected until the end of the current period

Which inventory costing method results in the highest inventory balance during a period of rising purchase prices A) weighted average cost B) FIFO C) LIFO D) both FIFO and LIFO result in the same inventory balance

a company overstates its ending inventory by $2,000. Which of the following is true concerning the effect of this error on cost of goods sold in the year of the error a. cost of goods sold will be unaffected b. cost of goods sold will be understated c. cost of goods sold will be overstated d. cannot tell from given info

a company purchases a unit of inventory for $1.50, another for $2 an then a third for $2.50. The company then sells one unit for $4.50. The company uses a perpetual inventory system. Given these facts, which of the following is true? a. ending inventory under FIFO is $1.50 b. cost of goods sold under LIFO is $2.50 c. cost of goods sold under moving average is $4.50 d. ending inventory under LIFO is $4.50

what principle or assumption results in the use of lower of cost or market a. historical cost b. conservatism c. going concern d. materiality

when inventory is bought under a perpetual inventory system, what happens to the inventory and cost of goods sold accounts a. no change, increase b. increase, no change c. increase, increase d. decrease, no change

which of the following statements is true? i. accounts receivable may be reported as a current asset or a current liability ii. accounts receivable are reported at net realizable value on the balance sheet a. i only b. ii only c. both i and ii d. neither i or ii

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet? A) net sales increased by $2,300 or 10% during 2012 B) net accounts receivable increased $12,300 or 28.47% during 2012 C) net accounts receivable is 12% of total assets in 2012 D) the total assets is $462,500 in 2011

B (change in net accounts receivable= $55,500 - 43,200= $12,300 increase, % change= $12,300 / 43,200 = 28.47%)

For which type of merchandise would a company most likely use the specific identification method of inventory costing A) gasoline held in storage tanks B) cases of bottled water C) fine jeweler D) barbie dolls

The lower of cost or market rule applies to the write down of inventory values when market value exceeds cost. Why does this rule NOT allow for write ups in inventory value? A) write ups in inventory value are more uncertain than write downs B) the most prudent approach to preparing financial statements involves avoidance of pessimistic projections regarding the company's future prospects C) writing up inventory to market value would be inconsistent with the conservatism principle D) write ups in inventory value are inconsistent with the matching principle

When the market value of inventory items has declined below their cost, which method would be the most appropriate in complying with GAAP? A) weighted average B) LIFO C) lower of cost or market D) FIFO

Which of the following is not true of the sales returns and allowance account a. it's a contra revenue account b. it's increased when sales are returned c. it's a contra expense account d. it's a temporary account that's zeroed out during the closing process

a company understates its ending inventory by $2,000. Which of the following is true concerning the effect of this error on cost of goods sold in the year after the error (assuming no other errors) a. cost of goods sold will be unaffected b. cost of goods sold will be understated c. cost of goods sold will be overstated d. cannot tell from given info

a counterbalancing inventory error will result in a. an overstatement of income b. an understatement of income c. both an overstatement and understatement of annual income that offset each other such that total net income over the 2 years is correct d. cannot tell from given info

a horizontal analysis of cost of goods sold yields a % of 14%. Given that change, which of the following would cause the greatest concern for the company a. sales increased 20.1% b. operating expenses increased 14.2% c. sales decreased 10.8% d. inventory increased 12.4%

if a company uses a periodic inventory system and returns an inventory item to a vendor, the company would record the return as a. a decrease to the inventory account b. an increase to the cost of goods sold account c. an increase to the purchase returns and allowances account d. an increase to the purchase discounts account

suppose that lee enterprises usually generates a 25% gross profit on sales. If lee's annual sales are $100,000, what's lee's estimated cost of goods sold using the gross profit method a. $0 b. $25,000 c. $75,000 d. $100,000

the allowance ratio a. is calculated by dividing bad debt expense by gross accounts receivable b. is normally a ratio that companies try to keep as high as possible c. indicates how much of a company's receivables is estimated to be uncollectible d. is calculated using income statement accounts

the cost of goods sold account represents the cost of inventory a. remaining in a company's inventory account at year end and classified as ending inventory b. purchased during the year plus inventory sold c. sold during the year d. available for sale at the beginning of the year

the cost of inventory under a perpetual system does not include which of the following? a. inventory price b. freight charges c. sales commissions d. sales taxes on inventory purchase

which of the following inventory costing methods is not based on an assumption about the cost of inventory sold a. FIFO b. LIFO c. specific identification d. moving average

which of the following is not true of a note receivable a. a note receivable can be reported as a current asset or a non current asset depending on the maturity date of the receivable b. a note receivable is normally acquired through the acceptance of a promissory note in settlement of a debt c. when a note receivable is received for services rendered, the revenue is not reported until the maturity date of the note d. the entity borrowing the money is considered the maker of the note

which of the following statements is correct? i. the receivables turnover ratio is indicative of a company's ability to collect its receivables ii. companies normally strive to maintain a high receivables turnover ratio a. i only b. ii only c. both i and ii d. neither i nor ii

Stephen Inc. has an inventory turnover rate of 8 times Refer to the info provided for Stephen Inc. If its cost of goods sold is $150,000 then the company A) will report sales of $1,200,000 B) will report gross margin of $1,200,000 C) will have average inventory of $18,750 D) sells its inventory 1,200 times per year

C (150,000 / 8)

Augustus, Inc. buys designer clothes to sell in its retail stores. Since much of the merchandise comes from NY and Europe. Augustus must pay freight charges to get the merchandise shipped in. Which of the following statements must be true? A) transportation in, paid by Augustus, is added to the inventory account under the periodic system B) transportation in, paid by Augustus, is subtracted from purchases under the periodic system C) freight charges are only paid by a buyer in a periodic system D) transportation in is included in the total cost of purchases used to determine cost of goods sold in a periodic system

If a company uses an allowance method of accounting for bad debts A) it uses a liability account called the allowance for bad debts account B) it will record bad debts only when an account is determined to be uncollected C) it does not have to reduce accounts receivable when the account is written off D) it will report accounts receivable in the balance sheet at their net realizable value

Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending inventory was overstated by $5,000 Refer to the info provided for Ronn Industries. Determine the effects of the inventory errors for 2012 A) assets and equity would have been overstated by $5,000 on the balance sheet; expenses and net income would have been understated by $5,000 on the income statement B) assets and equity would have been overstated by $5,000 on the balance sheet; expenses would have been overstated by $5,000 on the income statement, thus net income would have been understated by $5,000 C) assets and equity would have been understated by $5,000 on the balance sheet; expenses would have been overstated by $5,000 on the income statement, thus net income would have been understated by $5,000 D) assets and equity would have been overstated by $5,000 on the balance sheet; expenses would have been understated by $5,000 on the income statement, thus net income would have been overstated by $5,000

Which is not true of the % of receivables approach to estimating bad debt expense a. it's calculated in 2 steps b. it's a function of a company's receivables balance c. it results in a meaningful net realizable value d. it always results in less bad debt expense compared to the % of sales approach

Which method of inventory costing is NOT acceptable for financial accounting purposes A) specific info B) FIFO C) LIFO D) retail cost

Which of the following statements regarding the application of the lower of cost or market method is true? A) generally, historical cost is lower than the market value so the lower of cost or market rule is applied B) when the lower of cost or market method is used, inventories are valued at their selling price C) the lower of cost or market method is most commonly applied on a total inventory basis because it's a more conservative approach D) the lower of cost or market method is an exception to the historical cost principle

a company purchases a unit of inventory for $1.50 and then later purchases a second for $2. The company then sells one unit for $4.50. After the sale, the company purchases an additional unit for $2.50. The company uses a perpetual inventory system. Given these facts, which of the following is true? a. cost of goods sold under FIFO is $1.50 b. ending inventory under LIFO is $4 c. cost of goods sold under moving average is $1.75 d. all of the above are true

which inventory costing method should a grocer use a. LIFO b. FIFO c. moving average d. a grocer can use any of the inventory costing methods

which of the following is not a part of the process to calculate costs of goods sold under a periodic inventory system a. count the ending inventory on hand at the end of the period b. assign a cost to the ending inventory using an inventory costing method c. use the cost of goods sold model to calculate cost of goods sold d. each of the above part is part of the process

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 inventory $55,000 $46,000 cost of sales 120,000 110,000 total assets 500,000 490,000 cash flow from operations 320,000 289,000 net sales 390,000 360,000 capital expenditures 15,000 13,000 Refer to the selected data provided for Max's Tire Center. What's Max's inventory turnover in 2012? A) the inventory turnover is 2.10 in 2012 B) the inventory turnover is 2.61 in 2012 C) the inventory turnover is 2.08 in 2012 D) the inventory turnover is 2.38 in 2012

D (120,000 / (55,000 + 46,000 / 2))

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 inventory $55,000 $46,000 cost of sales 120,000 110,000 total assets 500,000 490,000 cash flow from operations 320,000 289,000 net sales 390,000 360,000 capital expenditures 15,000 13,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's income statement in 2012 A) cost of sales increased by 9.09% during 2012 B) cost of sales is $390,000 in 2012 C) cost of sales is 30.77% of total assets in 2012 D) cost of sales is 30.77% of total sales in 2012

D (120,000 / 390,000)

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's income statement? A) net sales increased by $10,000 or 2.78% during 2012 B) net sales is $360,000 in 2012 C) capital expenditures is 100% of total assets in 2012 D) cost of goods sold is 50% of net sales in 2012

D (185,000 / 370,000)

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 inventory $55,000 $46,000 cost of sales 120,000 110,000 total assets 500,000 490,000 cash flow from operations 320,000 289,000 net sales 390,000 360,000 capital expenditures 15,000 13,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in 2012? A) inventory increased by 19.57% during 2012 B) inventory is 14.10% of net sales in 2012 C) inventory is 8.20% of total assets in 2012 D) inventory is 11% of total assets in 2012

D (55,000 / 500,000)

calculates the cost of goods sold based on the assumption that the last unit of inventory available for sale is the first one sold

LIFO costing method

The difference between the inventory reported on the balance sheet by LIFO basis and what inventory would be if reported on a FIFO basis is called a _____ _____

LIFO reserve

a schedule used to organize accounts receivable according to the length in time each has been outstanding

aging schedule

a method of estimating bad debts expense on the basis of either net credit sales or accounts receivable at the end of period

allowance method

requires inventory to be reported at its market value if market value is lower than the inventory's cost

lower of cost or market rule

updates the inventory account only at the end of an accounting period

periodic inventory system

Under the _____ inventory system, the inventory account is updated after each purchase or sale

perpetual

a temporary delay in the payment of income taxes

tax deferral

Entee Corp uses a periodic inventory system. The following info is available for the month of November 1 on hand, 50 units at $15 each $750 5 purchased, 115 units at $15.10 each 1,736.50 16 purchased, 75 units at $15.20 each 1,140 total cost of goods available for sale 3,626.50 30 on hand, 90 units Refer to the info provided for Entee Corp. If Entee uses the weighted average cost method, the amount assigned to the November 30th ending inventory would be

$1,359.94 (90 X (3,626.50 / 240))

The following info is from Filmore's 2012 accounting records Sales $182,000 Beginning inventory 28,000 Purchases 126,500 Gross profit % 40% Refer to the info provided for Filmore Enterprises. Using the gross profit method, estimate Filmore's cost of goods sold at year end

$109,200 (182,000 X 40= 72,800; 182,000 - 72,800)

The following info is from Silvermark's 2012 accounting records gross purchases $201,000 transportation in 8,000 inventory 1-1-12 26,500 inventory 12-31-12 28,100 purchase returns and allowances 9,000 refer to the info provided for Silvermark Enterprises. Using the cost of goods sold model, how much will Silvermark report as its cost of goods sold in its 2012 income statement?

$198,400 (201,000 - 9,000 + 8,000 + 26,500 - 28,100)

Metal Company sold merchandise to Steel Corp on 12-1-12, for $150,000, and accepted a promissory note for payment in the same amount. The note has a term of 3 months and an annual interest rate of 8%. Metal's accounting period ends on December 31st Refer to the data provided for Metal Company. What amount should Metal recognize as interest revenue on the maturity date of the note

$2,000 (150,000 X 8% X 2/12)

under the lower of cost or market rule, an inventory item with a selling price of $6, a historical cost of $2.50, and a replacement cost of $3.50 would be reported at

$2.50

The following info is from Silvermark's 2012 accounting records gross purchases $201,000 transportation in 8,000 inventory 1-1-12 26,500 inventory 12-31-12 28,100 purchase returns and allowances 9,000 refer to the info provided for Silvermark Enterprises. How much will Silvermark report as net purchases for 2012

$200,000 (201,000 - 9,000 + 8,000)

Billit Corp is a merchandising company. Selected account balances are listed below sales $500,000 purchases 225,000 beginning inventory 16,000 ending inventory 30,000 operating expenses 148,000 income tax expense 10,000 beginning retained earnings 53,000 dividends 15,000 Calculate the cost of goods sold for Billit Corp

$211,000 (16,000 + 225,000 - 30,000)

Shirey uses a periodic inventory system. At the end of January, 20 units were on hand. The following additional info is available for the month of January. 1 beginning inventory: 10 units at $2 each $20 20 purchased 90 units for $3 each 27o cost of goods available for sale 290 Refer to the info provided for Shirey. If Shirey uses FIFO inventory costing method, how much is cost of goods sold for January

$230 ((10 X 2) + (70 X 3))

The following data concern Bolt Corp for 2012 Accounts receivable-1-1-12 $455,000 Credit sales during 2012 900,000 Collections from credit customers during 2012 825,000 Allowance for bad debts before adjustment for 2,100 the year Estimated uncollected accounts based on an 29,000 aging analysis Refer to info provided for Bolt Corp. If the aging approach is used to estimate bad debts, what should the balance in the allowance for bad debts account be after the bad debts adjustment

$29,200

$312 (20 X (364 / (30 + 40)) + 208)

Data for Collusion Corp for the year ended 12-31-12, are presented below credit sales $2,000,000 sales returns and allowances 40,000 accounts receivable (12-31-12) 610,000 allowances for bad debts (before adjustment at 12-31-12) 15,000 estimated amount of uncollected accounts based on aging analysis 55,000 Refer to the info provided for Collusion Corp. If Collusion uses the aging of accounts receivable approach to estimate its bad debts, what among will be reported as bad debt expense for 2012?

$40,000 (55,000-15,000)

The following info is from Filmore's 2012 accounting records Sales $182,000 Beginning inventory 28,800 Purchases 126,500 Gross profit % 40% Refer to the info provided for Filmore Enterprises. Using the gross profit method, estimate Filmore's ending inventory at year end

$46,100 (28,800 + 126,500 - 109,200)

$520 ((20 X 2) + (120 X 4))

Shirey uses a periodic inventory system. At the end of January, 20 units were on hand. The following additional info is available for the month of January. 1 beginning inventory: 10 units at $2 each $20 20 purchased 90 units for $3 each 27o cost of goods available for sale 290 Refer to the info provided for Shirey. If Shirey uses the LIFO inventory costing method, how much is inventory on the balance sheet at the end of January

$50 ((10 X 2) (10 X 3))

Data for Collusion Corp for the year ended 12-31-12, are presented below credit sales $2,000,000 sales returns and allowances 40,000 accounts receivable (12-31-12) 610,000 allowances for bad debts (before adjustment at 12-31-12) 15,000 estimated amount of uncollected accounts based on aging analysis 55,000 Refer to the info provided for Collusion Corp. If Collusion estimates its bad debts at 2% of net credit sales, what will be the balance in the allowance for bad debts account after the adjustment for bad debts?

$54,200 (15,000+39,200)

$60 (15 X 4)

a company that uses the FIFO costing method reports cost of goods sold for the year of $10,000. Had it used the LIFO method, cost of goods sold would have been $12,000. How much in taxes could the company have deferred in the current year if it had used the LIFO method? assume a 30% tax rate

$600

Croggins Cane Company has a beginning balance in its inventory account of $15,000 and the ending balance is $10,000. Cost of goods sold is $80,000. According to the cost of goods sold model, what was the amount of inventory purchased during the year

$75,000 (80,000 + 10,000 - 15,000)

The following info is available for Elson Corp for fiscal year ending 1-31-12. Calculate the days in receivables ratio net sales $450,000 operating income 120,000 net income 100,000 accounts receivable 1-31-11 175,000 accounts receivable 1-31-12 125,000

121.66 (450,000 / 150,000 (175,000 + 125,000) / 2)= 3, 365 / 3)

150

153.60 (120,000 / (55,000 + 46,000) / 2) (365 / 2.38)

A sales invoice that bears the notation 2/10 means customer can receive _____ discount if they pay within _____ days

2%, 10

Stephen Inc. has an inventory turnover rate of 8 times Refer to the info provided for Stephen Inc. Calculate the company's days in inventory ratio

45.625 days (365 / 8)

Bradford Corp reported net credit sales of $3,200,000 and cost of goods sold of $2,600,000 for 2012. On 1-1-12, accounts receivable was $450,000. Amounts owed by customers increased by $50,000 during 2012. Rounding to 2 decimal places, what's Bradford's days in receivables ratio for 2012?

54.15 (3,200,000 / (450,000 + 500,000) / 2=6.74, 365 / 6.74)

The following selected financial info is available for Medina for the year ended 12-31-12 Net sales $450,000 Cost of goods sold 299,500 Inventory 1-1-12 48,400 Inventory 12-31-12 49,670 Refer to the info provided for Medina Enterprises. Calculate the days in inventory ratio

59.76 days (365 / 6.108)

6,108 times (299,500 / (48,400 + 49,670))

6.74 (3,200,000 / (450,000 + 500,000) / 2))

Ahi Corp purchased merchandise on account from Yudder Inc. on 12-12-12. On 12-13-12, Ahi returned damaged merchandise to Yudder and was granted an adjustment on its account. Ahi uses the periodic inventory system. What effect does the merchandise return have on Ahi's accounting equation A) assets and equity decrease B) assets and liabilities decrease C) liabilities decrease and equity increases D) liabilities and equity decrease

Horizontal analysis of accounts receivable: a. calculates accounts receivable as a % of total assets b. highlights the change in accounts receivable as a % of the prior year's receivables balance c. calculates accounts receivables as a % of net sales d. both "a" and "b" are correct

Records Inc. received payment of a $20,000 accounts receivable within 10 days. The terms were 2/10, n/30. Records would show a A) trade discount of $400 B) trade allowance of $400 C) sales discount of $400 D) sales allowance of $400

The % of sales approach to estimating bad debt expense a. is considered a balance sheet approach b. focuses on getting the allowance for bad debts account as accurate as possible c. matches expenses and revenues better than the % of receivables approach d. is calculated using gross margin

If the amount assigned to ending inventory is INCORRECT, then A) the balance sheet is affected, but the income statement is not B) the income statement is affected, but the balance sheet is not C) the balance sheet is affected, but cost of goods sold is not D) both the balance sheet and income statement are affected

calculates the cost of goods sold based on the assumption that the first unit of inventory available for sale is the first unit sold

FIFO costing method

The understatement of ending inventories is one period leads to an _____ of cost of goods sold in the same period

overstatement

the amount of cash the maker is to pay the payee on the maturity date of the note

maturity value

the party that agrees to repay the money for a promissory note at some future date

maker

a departure from the cost basis of accounting may be necessary when the _____ _____ of the inventory is less than its cost to the company

market value

According to the _____ principle, bad debt expense must be recorded in the period related to the sale

matching

the date the promissory note is due

maturity date

_____ _____ are receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid

notes receivable

an asset resulting from accepting a promissory note as payment for products sold or services rendered

notes receivable

$1,000 (150,000 X 8% X 1/12)

Portey uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 100 units at $9 each $900 4 purchased 120 units at $9.10 each 1,092 5 sold 150 units 10 purchased 100 units at $9.50 each 950 24 sold 60 units total cost of goods available for sale 30 on hand, 110 units 2,942 Refer to the info provided for Portey. If Portey uses the LIFO inventory costing method, ending inventory at June 30th is

$1,010 ((40 X 9.50) + (70 X 9))

Which of the following is an accurate description of the allowance for bad debts A) contra account B) liability account C) revenue account D) expense account

Which inventory cost flow method assigns the average unit cost to all units whether sold or left in ending inventory A) specific identification B) weighted average C) FIFO D) LIFO

Portey uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 100 units at $9 each $900 4 purchased 120 units at $9.10 each 1,092 5 sold 150 units 10 purchased 100 units at $9.50 each 950 24 sold 60 units total cost of goods available for sale 30 on hand, 110 units 2,942 Refer to the info provided for Portey. If Portey uses the FIFO inventory costing method, the amount of ending inventory reported on the balance sheet is

$1,041 ((10 X 9.10) + (100 X 9.50))

Jensan uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 50 units at $15 each $750 4 purchased 115 units at $15.10 each 1,736.50 5 sold 100 units 10 purchased 75 units at $15.20 each 1,140 24 sold 50 units total cost of goods available for sale 300 on hand, 90 units 3,626.50 The June 30th inventory included 45 units from the June 4th purchase and 45 units from the June 10th purchase. Refer to the info provided for Jensan Co. Jensan's cost of ending inventory at June 30th under the specific identification method is

$1,363.50 ((45 X 15.10) + (45 X 15.20))

Portey uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 100 units at $9 each $900 4 purchased 120 units at $9.10 each 1,092 5 sold 150 units 10 purchased 100 units at $9.50 each 950 24 sold 60 units total cost of goods available for sale 30 on hand, 110 units 2,942 Refer to the info provided for Portey. If Portey uses the FIFO inventory costing method, cost of goods sold for the month of June is

$1,901 (June 5: (100 X 9) + (50 X 9.10)= 1,355; June 24: (60 X 9.10)= 546; Total= 1,355 + 546)

Portey uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 100 units at $9 each $900 4 purchased 120 units at $9.10 each 1,092 5 sold 150 units 10 purchased 100 units at $9.50 each 950 24 sold 60 units total cost of goods available for sale 30 on hand, 110 units 2,942 Refer to the info provided for Portey. If Portey uses the LIFO inventory costing method, cost of goods sold for the month of June is

$1,932 (June 5: (120 X 9.10)=1,092 (30 X 9)= 270; June 24: (60 X 9.50)= 570; Total= 1,092 + 270 + 570)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If aspen uses 4% of net credit sales to estimate its bad debts, what will be the balance in the allowance for bad debts account after the adjustment for bad debts

$103,000 (25,000 + 78,000)

Outlook Department Store's accounts receivable balance after posting net collections from customers for 2012 is $180,000. The customers took advantage of sales discounts of $15,000. Management aged the accounts receivable and estimate for uncollected account percentages as follows $90,000 Current at 2% $50,000 1-30 days past due at 5% $30,000 31-60 days past due at 10% $10,000 60+ days past due at 25% The net realizable value of the accounts receivable is

$170,200 ((90,000 X 0.02) + (50,000 X 0.05) + (30,000 X 0.10) + (10,000 X 0.25))

$2,250 (45,000 X 10% X 6/12)

Jensan uses a perpetual inventory system and had the following inventory transactions for the month of June 1 on hand, 50 units at $15 each $750 4 purchased 115 units at $15.10 each 1,736.50 5 sold 100 units 10 purchased 75 units at $15.20 each 1,140 24 sold 50 units total cost of goods available for sale 300 on hand, 90 units 3,626.50 The June 30th inventory included 45 units from the June 4th purchase and 45 units from the June 10th purchase. Refer to the info provided for Jensan Co. What's the cost of goods sold for June under the specific identification method

$2,263 ((50 X 15) + (70 X 15.10) + (30 X 15.20))

The following data concern Profile Corp for 2012 Accounts receivable-1-1-12 $250,000 Credit Sales during 2012 1,000,000 Collections from credit customers during 2012 750,000 Allowance for bad debts-1-1-12 20,000 Estimated uncollected accounts based on an 45,000 aging analysis Refer to the info provided for Profile Corp. If the aging method is used to estimate bad debts, what amount should be recorded as bad debt expense for 2012?

$25,000 (45,000-20,000)

Data for Leno, Inc. for 2012 are presented below Credit sales during the year $3,200,000 Accounts receivable-12-31-12 325,000 Allowance for bad debts-12-31-12 35,000 Bad debt expense for the year 20,000 Refer to the info given above for Leno, Inc. What amount will Leno show on its year end balance sheet for the net realizable value of its accounts receivable

$290,000 (325,000-35,000)

Lubing Company sold merchandise the Lewing Corp, on 12-1-12, for $100,000. Lubing accepted a promissory note from Lewing Corp for $100,000. The note has a term of 6 months and an annual interest rate of 9%. Lubing's accounting period ends on 12-31-12 Refer to the info provided for Lubing Company. What amount should Lubing recognize as interest revenue on the maturity date of the note

$3,750 (100,000 X 9% X 5/12)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If Aspen estimates its bad debts at 8% of accounts receivable to estimate its bad debts, what will be the balance in the allowance for bad debts account after the adjustment for bad debts?

$33,600 (420,000 X 8%)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If aspen uses the aging of accounts receivable method to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

$345,000 (420,000-75,000)

The following journal entry was included in the accounting records of Jonase, Inc. Feb. 11 Cost of goods sold 7,000 inventory 7,000 This entry is needed when Jonase records the A) cost of merchandise sold B) sales price of merchandise sold C) cost of merchandise returned by a customer D) net effect of a sales transaction

$355,000 (410,000-55,000)

Data for Collusion Corp for the year ended 12-31-12, are presented below credit sales $2,000,000 sales returns and allowances 40,000 accounts receivable (12-31-12) 610,000 allowances for bad debts (before adjustment at 12-31-12) 15,000 estimated amount of uncollected accounts based on aging analysis 55,000 Refer to the info provided for Collusion Corp. If Collusion estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2012?

$39,200 (2,000,000-40,000=1,960,000, 1960,000 X 0.02)

The following data concern Profile Corp for 2012 Accounts receivable-1-1-12 $250,000 Credit Sales during 2012 1,000,000 Collections from credit customers during 2012 750,000 Allowance for bad debts-1-1-12 20,000 Estimated uncollected accounts based on an 45,000 aging analysis Refer to the info provided for Profile Corp. If the aging method is used to estimate bad debts, find the balance in the allowance for bad debts after the bad debt expense adjustment for 2012

$45,000

$450 (20,000 X 9% X 3/12)

Data for Collusion Corp for the year ended 12-31-12, are presented below credit sales $2,000,000 sales returns and allowances 40,000 accounts receivable (12-31-12) 610,000 allowances for bad debts (before adjustment at 12-31-12) 15,000 estimated amount of uncollected accounts based on aging analysis 55,000 Refer to the info provided for Collusion Corp. If Collusion uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

$555,000 (610,000-55,000)

$750 (100,000 X 9% X 1/12)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If aspen estimates its bad debts at 4% of net credit sales, what amount will be reported as bad debt expense for 2012?

$78,000 ((2,100,000-150,000) X 0.04)

Data for Aspen Corp for the year ended 12-31-12, are presented below Credit sales $2,100,000 sales returns 150,000 gross accounts receivable (12-31-12) 420,000 allowance for bad debts (before adjustment at 12-31-12) 25,000 estimated amount of uncollected accounts based on an aging analysis 75,000 Refer to the info provided for aspen corp. If Aspen estimates its bad debts at 8% of accounts receivable, what amount will be reported as bad debt expense for 2012?

$8,600 (420,000 X 8%= 33,600, 33,600 - 25,000)

Union Corp reported net credit sales of $2,500,000 and cost of goods sold of $1,800,000 for 2012. Its beginning balance of accounts receivable was $350,000. The accounts receivable balance decreased by $50,000 during 2012. Rounded to 2 decimal places, what's Union's accounts receivable turnover ratio for 2012?

7.69 (2,500,000 / (350,000 + 300,000 / 2))

2 methods of accounting for uncollectible accounts are the A) direct write off method and the allowance method B) allowance method and the accrual method C) allowance method and net realizable method D) direct write off method and the accrual method

During 2012, the accounts receivable turnover ratio for Upward Company increased tom 10-15 times per year. Which one of the following statements is the most likely explanation for the change? A) the company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections B) the company has decreased sales to its most credit worthy customers C) the company has increased the amount of time customers have to pay their accounts before they're past due D) the company has extended credit to more risky customers in order to increase the accounts receivable turnover ratio

On 10-1-12, Nadal Company received a $50,000 promissory note from Borg Company. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of 9-9-13 Refer to the info provided for Nadal Company. The effect on Nadal's financial statements on 9-30-13 is as follows A) assets and equity increase B) no net change in equity C) assets and liabilities increase D) no net change in assets

On 3-1-12, Mack Corp accepted cash of $10,000 and a 6 month, $80,000 interest bearing note from Gee, Inc. as settlement of an account receivable. Mack has a fiscal year end of July 31st and Gee paid the principle and the interest on time. Select the appropriate journal entry that reflects the acceptance of the note on 3-1-12 A) cash 10,000 notes receivable 80,000 accounts receivable 90,000 B) notes receivable 90,000 accounts receivable 90,000 C) accounts receivable 90,000 notes receivable 90,000 D) accounts receivable 10,000 notes receivable 80,000 cash 90,000

Tanning Company uses the % of receivables method for recording bad debts expense. The accounts receivable balance is $300,000 and credit sales are $1,000,000. An aging of accounts receivable shows that 5% will be uncollectible. What adjusting entry will Tanning Company make if the allowance for bad debts account has a credit balance of $2,000 before the adjustment A) bad debts expense 13,000 allowance for bad debts 13,000 B) bad debts expense 15,000 allowance for bad debts 15,000 C) bad debts expense 13,000 accounts receivable 13,000 D) bad debts expense 15,000 accounts receivable 15,000

The days in receivable ratio A) is an estimate of the length of time the receivables have been outstanding B) measures the cash discount period for credit sales C) is net credit sales divided by average receivables D) is not meaningful and therefore is not used

Which one of the approaches for the allowance procedure emphasizes the net realizable value of accounts receivable on the balance sheet? A) the % of receivables approach B) the % of sales approach C) the % of accounts written off method D) the direct write off method

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's income statement? A) net sales increased by $10,000 or 2.78% during 2012 B) net sales increased by $2,300 or 10% during 2012 C) net sales is $360,000 in 2012 D) net sales decreased by $2,300 or 10% during 2012

A (change in net sales= 370,000-360,000=10,000 increase, % change= 10,000 / 360,000)

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. What's Max's days in receivables ratio in 2012? A) the days in receivables ratio is 50.62 in 2012 B) the days in receivables ratio is 54.75 in 2012 C) the days in receivables ratio is 42.62 in 2012 D) the days in receivables ratio is 60.04 in 2012

A (receivables turnover ratio= 370,000 / 51,310= 7.21) (Days in receivable ratio= 365 / 7.21)

If a company uses the direct write off method of accounting for bad debts A) it establishes an estimate for the allowance for doubtful accounts B) it will record bad debt expense only when an account is determined to be uncollected C) it will reduce the accounts receivable account at the end of the accounting period for estimated uncollected accounts D) total assets will stay the same, when an account is written off

If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited to write off a customer's account as uncollectible? A) uncollectible accounts expense B) accounts receivable C) allowance for bad debts D) interest expense

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is A) debit cost of merchandise sold; credit sales B) debit cost of merchandise sold; credit merchandise inventory C) debit merchandise inventory; credit cost of merchandise sold D) debit accounts receivable; credit sales

One of the weaknesses of the direct write off method is that it A) understates accounts receivable on the balance sheet B) violates the matching principle C) is too difficult to use for many companies D) is based on estimates

Peach Tree Farm received a promissory note from a customer on 3-1-12. the principal amount of the note is $20,000, the terms are 3 months and 9% annual interest Refer to the info for Peach Tree Farm. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that none of the interest had already been recognized A) decrease cash and notes receivable by $20,000 B) increase cash by $20,450, increase interest revenue by $450, and decrease notes receivable by $20,000 C) increase cash by $20,450, increase notes receivable by $20,000, and increase interest revenue by $450 D) no entry is required, the customer pays the amount due to peach tree farm

The amount of inventory expensed during the year is reported on the income statement as A) sales revenue B) cost of goods sold C) operating expenses D) administrative expenses

The following data concern Digital Corp for 2012 Credit sales during the year $2,400,000 Account receivable-12-31-12 410,000 Allowance for bad debts-12-31-12 55,000 Bad debts expense for the year 35,000 Refer to the info provided for Digital Corp. What are the effects on the accounting equation when digital makes the adjustment to record bad debt expense using the allowance method? A) assets increase and liabilities decrease B) assets and equity decrease C) assets increase and equity decreases D) assets decrease and equity increase

The following journal entry was included in the accounting records of Spica, Inc. Oct. 15 Accounts payable 4,000 inventory 40 cash 3,960 Based on this info, it's likely that Spica A) purchased inventory for cash B) paid for inventory purchased on credit, and took advantage of a 1% purchase discount C) sold inventory for cash D) collected cash for inventory sold on credit, and recognized a 1% sales discount

Harper Company lends Hewell Company $40,000 on March 1, accepting a 4 month, 6% interest note. Harper Company prepares financial statements on March 31. What adjusting entry Harper should make before the financial statements can be prepared A) cash 200 interest revenue 200 B) interest receivable 800 interest revenue 800 C) interest receivable 200 interest revenue 200 D)note receivable 40,000 cash 40,000

Metal Company sold merchandise to Steel Corp on 12-1-12, for $150,000, and accepted a promissory note for payment in the same amount. The note has a term of 3 months and an annual interest rate of 8%. Metal's accounting period ends on December 31st Refer to the data provided for Metal Company. What's the maturity date of the note A) 12-31-12 B) 1-31-13 C) 2-28-13 D) 3-31-13

The cost of goods sold is equal to A) purchases less beginning inventory plus ending inventory B) the inventory account as reported on the balance sheet C) the cost of goods available for sale less ending inventory D) the amount of inventory on hand at the end of the accounting period

What should a company do to improve its accounts receivable turnover ratio? A) lower its selling prices B) increase its sales force C) give customers credit terms of 2/10, n/30 rather than 1/10, n/30 D) reduce the # of employees working in the credit department

Which inventory cost flow method assigns the cost of the most recent items purchased to ending inventory A) specific identification B) weighted average C) FIFO D) LIFO

Which of the following statements is FALSE? A) the inventory account is updated after every sale after every merchandise purchase under the perpetual inventory system B) the inventory account is uploaded only at the end of the accounting period under the periodic inventory system C) a cost of goods sold account is updated after each sale of merchandise under the periodic inventory system D) a purchases account is used only under the periodic inventory system

Which of the following statements is true regarding the 2 allowance approaches used to estimate bad debts? A) the % of sales approach takes into account the existing balance in the accounts receivable account B) the direct write off method takes into account the existing balance in the allowance for bad debts account C) the % of receivables approach takes into account the existing balance in the allowance for bad debts account D) the direct write off method does a better job of matching revenues and expenses than allowance method

On 10-1-12, Nadal Company received a $50,000 promissory note from Borg Company. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of 9-9-13 Refer to the info provided for Nadal Company. An adjusting entry for Nadal's year end, 12-31-12 needed to A) increase interest revenue by $2,250 B) increase notes receivable by $750 C) increase interest receivable by $750 D) increase notes receivable by $2,250

C (50,000 X 6% X 3/12)

Land Shoes received a promissory note from a customer on 7-1-12. The face value of the note is $45,000; the terms are 12 months and 10% annual interest Refer to the info provided for Land Shoes. At the maturity date, the customer pays for the note and interest. Land shoes made the proper adjustment at the end of December 2012 for interest. The effect of recognizing the transaction on the maturity date is A) a decrease to cash B) a decrease to interest receivable C) a increase to interest receivable D) a decrease to notes receivable

On 12-1-12, Alex's Drug Store concluded that a customer's $325 account receivable was uncollectible and that the account should be written off. What effect will this write off have on Alex's 2012 net income and balance sheet totals assuming the allowance method is used to account for bad debts? A) decrease in net income; decrease in total assets B) increase in net income; no effect on total assets C) no effect on net income; decrease in total assets D) no effect on net income; no effect on total assets

Transportation in is A) an operating expense B) part of purchase returns and allowances C) added to transportation out as part of the calculation of cost of goods sold D) part of the cost of net purchases

What's the distinguishing characteristic between accounts receivable and notes receivable A) accounts receivable are usually current assets while notes receivable are usually long term assets B) accounts receivable require payment of interest while notes receivable does not have payment of interest C) notes receivable result from credit sale transactions for merchandising companies, while accounts receivable result form credit sale transactions for service companies D) notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid

When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when A) a customer's account balance becomes past due B) an account becomes bad and is written off C) a sale is made D) the management estimates the amount of uncollectibles

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in 2012? A) net accounts receivable increased by $12,300 or 28.47% during 2012 B) net accounts receivable decreased by $12,300 or 28.47% during 2012 C) net accounts receivable is 6% of total assets in 2012 D) net accounts receivable is 12% of total assets in 2012

D (55,000 / 462,000)

Selected data from the financial statements of Max's Tire Center are provided below 2012 2011 Net accounts receivable $55,000 $43,200 Allowance for bad debts 2,220 1,700 Total assets 462,500 720,000 Cash flow from operations 314,500 316,800 Net sales 370,000 360,000 Cost of goods sold 185,000 190,000 Capital expenditures 50,000 25,000 Refer to the selected data provided for Max's Tire Center. What's Max's receivables turnover ratio in 2012? A) the receivables turnover is 7.79 in 2012 B) the receivables turnover is 6.67 in 2012 C) the receivables turnover is 8.56 in 2012 D) the receivables turnover is 7.21 in 2012

D (average accounts receivable= (55,500 + 2,220) + (43,200 + 1,700) / 2= 51,310) (receivables turnover ratio= 370,000 / 51,310)

An _____ _____ categorizes the various accounts receivable amounts by their ages

aging schedule

The method in which companies use 2 entries to account for bad debt expense- one to estimate the expense and a second to write off receivables is the _____ _____

allowance method

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