Accounting for Decision Making Exam 1

Business entities generally carry on:

Operating, investing, and financing activities

Which method of inventory costing is not acceptable for financial accounting purposes?

replacement cost

If a company overstates its ending inventory balance for 2017 by $10,000 and overstates its ending inventory for 2016 by $5,000, what are the effects on Net Income?

2017: overstated by $5,000 2016: overstated by $5,000

How much sales discount will Floors recognize?

0

If the amount assigned to ending inventory is incorrect:

Both balance sheet and income statement are affected.

Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incurred. Which accounting principle is applied in this example?

Cost/Benefit

Which inventory costing method results in the lowest income tax expense for a period of decreasing prices?

FIFO

Texas inc sold merchandise to Fagin Corp. on December 28, 2016, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2017. Which of the following statements is true?

Fagin Corp. should record a liability for the purchase on January 3, 2017.

Which statement best represents Hopper's performance?

Hopper's profit margin decreased.

Forman, Inc. earned $600,000 profit during 2016. On which financial statement(s) will you find the dollar amount of the profit earned by the company?

Income statement and statement of retained earnings

The average current ratio for stores such as Guinther & Sons is 2.4 to 1.

It is more liquid than its competitors.

Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income?

LIFO

Which of the following situations is not allowed by federal income tax rules?

LIFO for tax reporting FIFO for financial reporting

Blenham Inc sells merchandise on credit. If a customer pays its balance due after the discounts period has passed, which is the effect of the payment on Blenham's accounting equation?

NO NET EFFECT

Tavella Company applies the consistency convention. What does this mean?

Tavella Co. applies the same accounting principles each accounting period.

Which one of the following statements regarding the application of the lower of cost or market method is true?

The lower of cost or market method is an exception to the historical cost principle.

Which of the following is the best description of the purpose of financial reporting?

To help the users reach their decisions in an informed manner.

Which of the following would not appear on an income statement?

accounts receivable

In a period inventory system, the cost of purchases is recognized as

an integral part of the calculation of cost of goods sold

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for:

both periodic and perpetual

Lottony is concerned about its profitability for the current year. Which is the least useful comparison in evaluating profit margin?

comparison with current ratio for current year

Sales discounts is classified as what type of account?

contra-revenue

Which of the following terms best describes cost of goods available for sale?

cost of goods available for sale is allocated into cost of goods on hand and cost of hoods sold at the end of the year

How are assets which are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within on year reported on a classified balance sheet?

current assets

What is the correct method for calculating working capital?

current assets minus current liabilities

The cost of goods sold is

goods available for sale less ending inventory

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?

in contra accounts to the purchases account

Xu Corp selected FIFO for inventory method. In order to maximize its profits, prices for the year must be

increasing

Which of the following would not be found as an asset on the balance sheet of a manufacturer?

merchandise inventory

Transportation-in is

part of cost of goods purchased

Which one of the following is not a major category for long-term assets?

receivables

The qualitative characteristics of accounting data include

reliability

Excursion Corp. increased its dollar amount of working capital over the past several years. To further evaluate the company's short-run liquidity, which one of the following measures should be used?

the current ratio

Vern Corp. sold merchandise to a customer on credit. The invoice amount was $2,000; the invoice date was June 10; credit terms were 1/20, n/30. Which one of the following statements is true?

the customer should pay $2,000 is the invoice is paid on July 9.

All of the following statements are true EXCEPT:

write-down of inventory can be reversed in later periods under U.S. GAAP