Accounting221 exam 2

Jefferson Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash flow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be

$0, and $360 (6000 x .06)

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's Year 2 financial statements would be

$1,200 interest revenue and $1,800 cash inflow from operating activities ($150 per month x 8 months= 1200) (36000 x 0.5= 1800)

Eagan Company started the year with a $4,600 balance in accounts receivable and a $150 balance in the allowance for doubtful accounts. The company had credit sales of $12,000, collections on accounts receivable of $13,000, and wrote off uncollectible accounts of $200 during the year. The company believes that 2 percent of its credit sales will be uncollectible. The amount of uncollectible accounts expense appearing on the year's income statement would be

$240 (sales 12000 x 0.02)

Assume the perpetual inventory system is used. 1) Green Company purchased merchandise inventory that cost $64,900 under terms of 3/10, n/30 and FOB shipping point. 2) Green Company paid freight cost of $2,490 to have the merchandise delivered. 3) Payment was made to the supplier on the inventory within 10 days. 4) All of the merchandise was sold to customers for $95,800 cash and delivered under terms FOB destination with freight cost amounting to $1,690. What is the net cash flow from operating activities that results from these transactions?

$28,667 inflow (inflow from sale $95,800 − outflow from purchases $65,443 ((purchase $64,900 − purchase discount ($64,900 × 0.03) + transportation in $2,490)) − outflow from transportation out $1,690

Eagan Company started the year with a $4,600 balance in accounts receivable and a $150 balance in the allowance for doubtful accounts. The company had credit sales of $12,000, collections on accounts receivable of $13,000, and wrote off uncollectible accounts of $200 during the year. The company believes that 2 percent of its credit sales will be uncollectible. The net realizable value of receivables at the end of the year would be

$3210 3400 (beg bal 4600 + credit sales 12000 - collections 13000 - write off 200) - 190 ((beg bal 150 + 240 (((sales 12000 x 0.02))) - write off 200))

On January 1, Year 1, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 1, an $800 uncollectible account was written-off. What is the net realizable value of accounts receivable immediately after the write-off?

$34,200 (acc rec 36000 ((37000-800)) - allow doubtful acc 2000 ((2800 - 800))

Eagan Company started the year with a $4,600 balance in accounts receivable and a $150 balance in the allowance for doubtful accounts. The company had credit sales of $12,000, collections on accounts receivable of $13,000, and wrote off uncollectible accounts of $200 during the year. The company believes that 2 percent of its credit sales will be uncollectible. The balance in the accounts receivable account at the end of the year would be

$3400 (beg bal 4600 + credit sales 12000 - collections 13000 - write off 200)

Beginning inventory 200, $1.20 First purchase 400, $1.30 Second purchase 250, $1.40 Sales 550, $2.00 Assuming a LIFO cost flow, the amount of ending inventory reported on the balance sheet would be

$370 ending inventory 300 (200 +400+250-550 )- beg inventory 200 x first cost 1.30)

Beginning inventory 200, $1.20 First purchase 400, $1.30 Second purchase 250, $1.40 Sales 550, $2.00 Assuming a weighted average cost flow, the amount of ending inventory reported on the balance sheet would be closest to:

$392 1.3058 ((200 x 1.20 + 400 x 1.30 + 250 x 1.40/ total inventory 850 (((200 + 400+ 250))) x ending inventory 300 ((200 + 400 + 250 - 500))

Beginning inventory 200, $1.20 First purchase 400, $1.30 Second purchase 250, $1.40 Sales 550, $2.00 Assuming a FIFO cost flow, the amount of gross margin reported on the income statement would be

$405 (1100 ((sales units 550 x sales price 2 )) - 695 ((beg inventory 200 x beg price 1.20 + first purchase 400 x first price 1.30))

The inventory records for Radford Company reflected the following: - beginning inventory May 1= 1100 units @ $3.80 each - first purchase May 7= 1200 units @ $4.00 each - second purchase May 17= 1400 units @ $4.10 each - third purchase May 23= 1000 units @ $4.20 each - sales May 31= 3600 units @ $5.70 each What is the amount of gross margin assuming the FIFO cost flow method?

$6,210 (Sales $20,520 ((3600 units x 5.70)) − Cost of goods sold $14,310 (( (1,100 × $3.80) + (1,200 × $4.00) + (1,300 × $4.10) ))

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be

$600 interest revenue and zero cash flow from operating activities. ($150 per month ((36000 x 0.5/12)) x 4 months ((September))

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively?

$720 in Year 1 and $240 in Year 2 ($16,000 × interest rate 0.06 × apr-dec 9/ 12 months) ($16,000 × interest rate 0.06 × jan-march 3/ 12 months)

On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Assume that the Loudoun Corporation uses the direct write-off method. Which of the following correctly describes the effect of the write-off of the customer's account on Loudoun's financial statements?

(1,050) A, na L, (1,050) E, na R, 1,050 EXP, (1,050) NET INC, na CF

On April 1, Snell Company made a $50,000 sale giving the customer terms of 3/10, n/30. The receivable was collected from the customer on April 8. How does the collection of cash from the customer affect the company's financial statements?

(1500) A, na L, (1500) E, (1500) REV, na EXP, (1500) NET INC, 48500 OA

The Garrett Company uses the perpetual inventory system. The company's records showed a book balance of $18,000 in the Merchandise Inventory account, and a physical count finds only $16,250 of inventory. Which of the following indicates the effect of the necessary write-down entry?

(1750) A, na L, (1750) E, na REV, 1750 EXP, (1750) NET INC, na CF

Foote Company was granted a purchase discount of $200 on merchandise the company had purchased a few days ago. Foote uses the perpetual inventory system. Which of the following reflects the effects of this event on the financial statements?

(200) A, (200) L, na E, na REV, na EXP, na NET INC, na CF

At the end of Year 1, Voss Company had $6,000 of inventory. During Year 2 the following events occurred: (1) Voss Company purchased $30,000 of inventory with cash. (2) Sold $20,000 of inventory for $28,000 cash to customers. (3) At the end of the year, during a physical count of the inventory, it found only $15,000 of inventory on hand. What would Voss Company report for net operating cash flow on the Year 2 Statement of Cash Flows?

(2000) (Event 1 OA outflow $30,000 - Event 2 OA inflow $28,000 )

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable within the discount period for the inventory purchased in Event 1. Based on this information, which of the following shows how the recognition of the cash discount will affect the Company's financial statements?

(40) A, (40) L, na E, na REV, na EXP, na NET INC, na CF

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $50 of the inventory purchased in Event 1. (3) Sold the inventory for $6,000 cash. Based on this information, which of the following shows how the recognition of the return will affect the Company's financial statements.

(50) A, (50) L, na E, na REV, na EXP, na NET INC, na CF

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize uncollectible accounts expense. Kardashian had credit sales of $547,000 and estimates uncollectible accounts expense to be one percent of credit sales. Which of the following shows how this entry will affect Kardashian's financial statements?

(5470) A, na L, (5470) E, na REV, 5470 EXP, (5470) NET INC, na CF

Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to

(8000) (operating income $12,000 − loss on sale of land $20,000)

Taha Company purchased $8,000 of inventory under terms FOB destination. Freight cost amounted to $200. The cost of inventory and freight were paid with cash. Which of the following shows how the recognition of this purchase, including freight costs if applicable, will affect Taha's financial statements?

(8000) A, (8000) L, na E, na REV, na EXP, na NET INC, (8000) OA

Which of the following shows the effects of purchasing inventory on account?

+ A, + L, na E, na REV, na EXP, na NET INC, na CF

Lamar Company experienced an accounting event that is recorded in the following T-accounts: -inventory deb 2000 -acc pay cred 2000 Which of the following illustrates how this event affects Lamar's financial statements? (Assume the perpetual inventory method.)

+ A, + L, na, E, na REV, na EXP, na NET INC, na CF

How does an error that results in an overstatement of ending inventory affect the elements of the company's financial statements in the current year?

+ a, na L, + E, na REV, - EXP, + NET INC, na CF

Exeter Company uses the allowance method to account for uncollectible accounts. The company wrote off an uncollectible account receivable. Which of the following reflects how the write-off affects Exeter's financial statements?

+/- A, na L, na, E, na REV, na EXP, na NET INC, na CF

The following general journal entry is taken from the journal of Becker's Bookstore: DEBIT 198 transportation out CREDIT 198 cash Which of the following choices reflects how the entry will affect the company's financial statements?

- A, na L, - E, na REV, + EXP, - NET INC, - OA

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement?

- A, na L, - E, na REV, + EXP, - NET INC, na CF

Wagon Company paid $500 cash for freight costs to have merchandise inventory delivered to its customers. Which of the following illustrates how this event affects Wagon's financial statements?

- A, na L, -, E, na REV, + EXP, - NET INC, - OA

Fordlane Co. purchased inventory that cost $10,000 under terms 2/10, n/30. The inventory was delivered under terms FOB destination. Freight costs of $500 were paid in cash. Fordlane paid for the inventory within ten days. Fordlane sold the goods on account for $13,000, freight terms FOB destination. Freight costs of $320 were paid in cash. Fordlane would report net cash inflow or outflow from operating activities on its statement of cash flows

-10120 (9800 ((cost 10000- 200((( cost 10000 x discount 0.02 )) + freight cost 500)

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

1000 (Sales 5,000 − Cost of Goods Sold 4,000 (($5,000 original cost − $1,000 purchase return))

Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to

102000 ($60,000 cost of goods sold + $42,000 gross margin)

Darlington Company experienced the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $14,100 of merchandise on account under terms 2/10, n/30. 2) The company returned $2,800 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $22,000 cash. What is the gross margin that results from these four transactions?

10926 (cash inflow from inventory sale $22000 - cash outflow from inventory purchase $11,074 ((merchandise on account $14,100 − returned $2,800 − purchase discount $226 ((($14,100 − $2,800 × 0.02)))

The inventory records for Radford Company reflected the following: - beginning inventory May 1= 2100 units @ $5.80 each - first purchase May 7= 2200 units @ $6.00 each - second purchase May 17= 2400 units @ $6.10 each - third purchase May 23= 2000 units @ $6.20 each - sales May 31= 6600 units @ $7.70 each What is the amount of gross margin assuming the weighted-average inventory cost flow method? (round 2 decimals)

11022 (Sales 6600 x 7.70 - Cost of goods sold 39798 ((units sold 6600 x avg. cost per unit 6.03 ((( (2,100 × $5.80) + (2,200 × $6.00) + (2,400 × $6.10) + (2,000 × $6.20) / 8,700 total units )))

Darlington Company experienced the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $14,300 of merchandise on account under terms 2/10, n/30. 2) The company returned $3,000 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $22,400 cash. What is the net cash flow from operating activities as a result of the four transactions?

11326 (cash inflow from inventory sale $22,400 - cash outflow from inventory purchase $11,074 ((merchandise on account $14,300 − returned $3,000 − purchase discount $226 ((($14,300 − $3,000 × 0.02)))

On August 1, Year 1 Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following shows how the accrual of interest revenue in Year 2 will affect Hernandez's financial statements?

1400 A, na L, 1400 E, 1400 REV, na EXP, 1400 NET INC, na CF ($200 per month ((48000 x 0.5/ 12)) x 7 months ((August=5 so remaining 7 months))

Hancock Medical Supply Company earned $81,000 of revenue on account during Year 1, its first year of operation. During Year 1, Hancock collected $64,800 of cash from its receivables accounts. The company did not write-off any uncollectible accounts. It estimates that it will be unable to collect 1% of revenue on account. What is the net realizable value of receivables that will be reported on the balance sheet at December 31, Year 1?

15390 (acc rec 16200 ((rev on acc 81000 - collections on acc 64800)) - allow doubt acc 810 ((81000 x 0.01)) )

On January 1, Year 2 Grande Company had a $23,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $82,000 of service on account. The company collected $78,500 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. What is the amount of uncollectible accounts expense recognized on the Year 2 income statement?

1640 (Sales on account $82,000 × 0.02)

Taylor Company had beginning inventory of $400 and ending inventory of $600. Taylor Company had cost of goods sold amounting to $1,800. What is the amount of inventory that was purchased during the period?

2000 (purchases $1800- beg inventory $400 + ending inventory $600)

An analysis of the inventory owned by Owens Company as of the Company's fiscal closing date is shown in the following table: item/ quantity/ cost per unit/ market val unit A 200 $20 $17 B 190 $50 $52 C 400 $34 $30 D 320 $25 $29 Assuming Owens applies the lower of cost or market rule on an individual basis, the Company would be required to recognize an expense amounting to:

2200 (item A: 200 x 20 - 17 + item C: 400 X 34 - 30)

The inventory records for Radford Company reflected the following: - beginning inventory May 1= 1500 units @ $4.60 each - first purchase May 7= 1600 units @ $4.80 each - second purchase May 17= 1800 units @ $4.90 each - third purchase May 23= 1400 units @ $5.00 each - sales May 31= 4800 units @ $6.50 each What is the amount of cost of goods sold assuming the LIFO cost flow method?

23500 (1,400 × $5.00) + (1,800 × $4.90) + (1,600 × $4.80)

Fordlane Co. purchased inventory that cost $10,000 under terms 2/10, n/30. The inventory was delivered under terms FOB destination. Freight costs of $500 were paid in cash. Fordlane paid for the inventory within ten days. Fordlane sold the goods on account for $13,000, freight terms FOB destination. Freight costs of $320 were paid in cash. Fordlane would report net income on its income statement of

2880 (sold goods on account 13000- 980 ((cost 10000 - 200 (((cost 10000 x discount 0.02))) - fright cost 500)

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be

30

Sales on account amounted to $80,000. Sales returns were $2,000 and sales discounts were $1,000. Cost of goods sold amounted to $45,000. Based on this information the amount of gross margin was

32000 (Net sales $77,000 ((Sales revenue $80,000 − Sales returns $2,000− $1,000 Sales discounts)) - Cost of goods sold $45,000 )

An analysis of the inventory owned by Owens Company as of the Company's fiscal closing date is shown in the following table. item/ quantity/ cost per unit/ market value A 200 $20 $17 B 190 $50 $52 C 400 $34 $30 D 320 $25 $29 Assuming Owens applies the lower of cost or market rule on an individual basis the amount of inventory shown on the balance sheet would be

32900 (sum of quantity of each item x lower of cost/value of each item ((ex: A= 200 x 17 because < 20 ))

The following balances were drawn from the accounts of Stripling Company as of December 31, Year 1: -debit accounts receivable 60000 -credit allowance for doubtful accounts 9000 During Year 2 Stripling earned $700,000 of revenue on account and collected $710,000 cash from accounts receivable. Also, the company wrote off $8,000 of accounts receivable that were classified as uncollectible during Year 2. If Stripling estimates uncollectible accounts expense to be 1% of revenue, the net realizable value of receivables as of December 31, Year 2 will be.

34000 (accounts receivable balance 42000 ((beg bal 60000+ rev on acc 700000+ collections of acc rec -710000 + write off -8000)) - allowance for doubtful accounts 800 ((beg balance 9000 + write off -800 + adjusted uncollectible expense 7000 (((revenue 700000 x .01)))

The Miller Company earned $119,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $80,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. What is the net realizable value of Miller's receivables at the end of Year 1?

35430 (acc rec 39000 ((rev on acc 119000 - collections on acc 80000)) - allow doubt act ((119000 x 0.03)) )

Sanchez Co. sold for $12,000 inventory that had cost $8,000. Freight terms for the sale were FOB destination and payment terms were 1/10, n/30. Sanchez records sales transactions at the gross amount. Sanchez paid freight costs of $400 in cash. The receivable was collected within the discount period. Based on this information alone, the amount of gross margin would be

3880 (4000 ((sold 12000 - cost 8000)) - 120 ((sold 12000 x discount 0.01))

The following information was drawn from the inventory records of Alpha Company as of December, Year 2: - beginning inventory (purchased Y1)= 200 units @ $5 each - purchases made in Y2= 800 units @ $8 each - units sold= 900 units @ $12 each Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a LIFO cost flow method?

3900 (Sales revenue $10,800 ((900 units x $12 per unit)) - Cost of goods sold $6,900 ((800 units x $8 each + 100 units((( 900 sold- 800 year 2))) x $5 each))

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable within the discount period for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is

3960 ($5,000 original cost − $1,000 purchase return − $40 cash discount)

The inventory records for Radford Company reflected the following: - beginning inventory May 1= 1100 units @ $3.80 each - first purchase May 7= 1200 units @ $4.00 each - second purchase May 17= 1400 units @ $4.10 each - third purchase May 23= 1000 units @ $4.20 each - sales May 31= 3600 units @ $5.70 each If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

4.03 (( (1,100 × $3.80) + (1,200 × $4.00) + (1,400 × $4.10) + (1,000 × $4.20) / total units 4,700 ))

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is

4000 ($5,000 original cost - $1,000 purchase return)

At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is

4000 (4500-500)

The following information was drawn from the inventory records of Alpha Company as of December, Year 2: - beginning inventory (purchased Y1)= 200 units @ $5 each - purchases made in Y2= 800 units @ $8 each - units sold= 900 units @ $12 each Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a weighted average cost flow method?

4140 (Sales revenue $10,800 ((900 units x $12 per unit)) - Cost of goods sold $6,660 ((cost per unit $7.40 (((200 units x $5 each + 800 units x $8 each/ 800+200 units))) x 900 units sold

The following information was drawn from the inventory records of Alpha Company as of December 31, Year 2: - beginning inventory (purchased Y1)= 200 units @ $5 each - purchases made in Y2= 800 units @ $8 each - units sold= 900 units @ $12 each Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method?

4200 (Sales revenue $10,800 ((900 units x $12 per unit)) - Cost of goods sold $6,600 ((200 units x $5 each + 700 units((( 900 sold- 200 beginning))) x $8 each))

Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is

48000 ($140,000 sales revenue - $92,000 cost of goods sold)

The following information was drawn from the inventory records of Preston Company: - beginning inventory (purchased Y1)= 100 units @ $10 each - first purchase made in Y2= 400 units @ $12 each - second purchase made in Y2= 500 units @ $14 each - units sold= 950 units @ $15 each Based on this information, which of the following represents the amount of ending inventory appearing on the balance sheet assuming a LIFO cost flow?

500 (cost of goods available for sale $12800 (( 100 units x $10 each + 400 units x $12 each + 500 units x $14 each)) - cost of goods sold $12300 ((500 units x $14 each + 400 units x $12 each + 50 units x $10 each))

The inventory records for Radford Company reflected the following: - beginning inventory May 1= 100 units @ $4.30 each - first purchase May 7= 300 units @ $4.70 each - second purchase May 17= 500 units @ $4.90 each - third purchase May 23= 100 units @ $5.10 each - sales May 31= 900 units @ $8.10 each What is the amount of ending inventory assuming the FIFO cost flow method?

510 (Ending inventory 100 units ((1000 units available for sale- 900 units sold)) × $5.10 per unit)

Aaron Co. purchased $5,000 of inventory on account with payment terms of 2/10, n/30. The goods were delivered FOB shipping point. Aaron paid freight costs of $200 in cash. Aaron paid for the goods within the discount period. Assuming a beginning inventory balance of zero, what would be the balance in the inventory account after the purchase and payment for inventory were recorded? Aaron Co. keeps perpetual inventory records and uses the gross method of accounting for inventory purchases.

5100 (5000 x 0.02=100 + 5000 )

The balance in Accounts Receivable at the beginning of the year amounted to $1,920. During the year, $7,160 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $1,220, and uncollectible accounts expense amounted to $500. What is the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement?

7,860 (acc rec beg bal $1,920 + sales $7,160 − acc rec ending bal $1,220)

At the end of Year 1, Voss Company had $6,000 of inventory. During Year 2 the following events occurred: (1) Voss Company purchased $30,000 of inventory with cash. (2) Sold $20,000 of inventory for $28,000 cash to customers. (3) At the end of the year, during a physical count of the inventory, it found only $15,000 of inventory on hand. What would Voss Company report for net income on the Year 2 Income Statement?

7000 (Sales 28,000 − 21,000 Cost of Goods Sold ((inventory sold $20,000 + inventory shrinkage $1000 (((Beg. Bal. $6,000 + Purchased $30,000 − Inventory Sold $20,000- physical count $15000))) )

On January 1, Year 2 Grande Company had a $28,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $92,000 of service on account. The company collected $88,500 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. What is the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows?

88500

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be

9 (sales revenue $40 - cost of goods sold $31 ((first cost $30 + second cost $32/ 2))

Anton Company uses the perpetual inventory system and FIFO cost flow method. During the year, Anton purchased 400 units of inventory that cost $12.00 each and then purchased an additional 600 units of inventory that cost $16.00 each. If Anton sells 700 units of inventory, what is the amount of cost of goods sold?

9600 (400 × $12.00) + (300 × $16.00)

The total amount of uncollectible accounts expense recognized over the life of a business will be the largest under the

All methods (percent of revenue, percent of receivables, direct write-off) produce the same amount of uncollectible accounts expense recognized over the life of a business.

Darlington Company experienced the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $14,300 of merchandise on account under terms 2/10, n/30. 2) The company returned $3,000 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $22,400 cash. What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements?

Assets and liabilities decrease by $3,000.

Forest Beach Company experienced an event that had the following effects on its financial statements: +/- A, na L, na E, na REV, na EXP, na NET INC, + IA Which of the following events could have caused these effects?

Collected cash for the principal balance of a note receivable.

Xu Co. purchased $5,000 of inventory on account. Assuming that Xu Co. uses the perpetual inventory method, which of the following entries would it make to record this transaction?

Debit inventory, credit accounts payable

How does the year-end adjusting entry to recognize uncollectible accounts expense affect the elements of the financial statements?

Decrease total assets and decrease stockholders' equity.

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $68,200 and $2,300, respectively. During Year 2, Kincaid reported $176,000 of credit sales, wrote off $1,550 of receivables as uncollectible, and collected cash from receivables amounting to $203,300. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Which of the following describes the effects of Kincaid's entry to recognize the write-off of the uncollectible accounts?

Does not affect assets or stockholders' equity.

GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value

F

T or F: McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses.

F

T or F: Most companies expect to collect the full balance of all of their accounts receivable.

F

T or F: Product costs are expensed when they are incurred

F

T or F: Uncollectible accounts expense would be recognized earlier under the direct write-off method than the percent of receivables method

F

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. When the Company sold one of the items for $40, it expensed $30 to its cost of goods sold account. Based on this information which of the following cost flow methods is the company using?

FIFO

Zhang Co. purchased $2,000 of inventory on account. This inventory was sold for $3,000 cash. The amount of gross margin reported on the income statement and the amount of net cash inflow from operating activities reported on the statement of cash flows would be

GM $1,000 (inventory sold 3000-inventory purchased 2000) Net Cash Inflow $3,000

The amount of net sales is determined by which of the following formulas?

Gross sales - Sales Returns and Allowances - Sales discounts

Rowan Company has four different categories of inventory. The quantity, cost, and market value for each of the inventory categories are as follows: item/ quantity/ cost per unit/ market value A 220 $4.40 $4.60 B 130 $6.20 $6.00 C 100 $10.00 $9.25 D 25 $20.50 $25.00 The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate. How would the implementation of the lower-of-cost-or-market rule impact the elements of the company's financial statements?

Have no effect on total assets or stockholders' equity.

Faust Company uses the perpetual inventory system. Faust sold goods that cost $6,000 for $10,000. The sale was made on account. What is the net effect of the sale on the company's financial statements?

Increase total assets by $4,000 (10000-6000)

In a period of rising prices, which inventory cost flow method results in the lowest balance sheet figure for inventory?

LIFO

In a period of rising prices, which inventory cost flow method results in the lowest income tax liability, all other things being equal?

LIFO

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment?

LIFO

What happens when prices are falling?

LIFO will result in higher net income and a higher inventory valuation than will FIFO.

Swenson Company experienced an accounting event that affected its financial statements as indicated below: +/- A, na L, na, E, na REV, na EXP, na NET INC, - OA Assuming Swenson uses the perpetual inventory method, which of the following events could have caused these effects?

Paid transportation-in costs

Because of its size, cost of goods sold normally has a significant impact on the amount of net income that is reported on the income statement. Since the reported balance in the inventory account has a direct effect on the amount of cost of goods sold, inventory manipulation is a target for unscrupulous managers seeking to control the amount of reported earnings.

T

T or F: Accrued interest revenue will appear on the income statement but not on the statement of cash flows

T

T or F: Cash revenue generated from notes receivable appears in the operating activities section of the statement of cash flows but as a non-operating item on the income statement

T

T or F: Purchase discounts decrease book value of inventory under the perpetual inventory method

T

T or F: The balance in the allowance for doubtful accounts provides an estimate of the amount of the accounts receivable that is expected to be uncollectible

T

T or F: The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method

T

T or F: The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect

T

Middleton Company uses the perpetual inventory system. The company purchased an item of inventory for $80 and sold the item to a customer for $130. How will the sale affect the company's Inventory account?

The Inventory account will decrease by $80

What is meant by "market" in the lower-of-cost-or-market rule?

The amount that would have to be paid to replace the merchandise.

Hoover Company purchased two identical inventory items. The item purchased first cost $44.00. The item purchased second cost $49.00. Then Hoover sold one of the inventory items for $60. Based on this information, which of the following statements is true?

The gross margin is $13.50 if Hoover uses the weighted-average cost flow method. (Sales $60 − Cost of goods sold $46.50 ((49+46/2))

Which of the following statements is true

The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

Which of the following statements is true regarding how cost of goods sold is determined under the perpetual inventory system using LIFO?

The units sold are multiplied by the last costs in inventory.

Galaxy Company sold merchandise costing $2,200 for $3,400 cash. The merchandise was later returned by the customer for a refund. The company uses the perpetual inventory system. What effect will the sales return have on the financial statements?

Total assets and total stockholders' equity decrease by $1,200 (3400-2200)

Under the allowance method, recording the write-off of an uncollectible account will have what effect on the accounting equation?

Total assets remain unchanged.

The Wilson Company purchased $23,000 of merchandise from the Poole Wholesale Company. Wilson also paid $1,600 for freight costs to have the goods shipped to its location. The company uses the perpetual inventory system. Which of the following summarizes the effects of the journal entries required to record these transactions for The Wilson Company?

Total debits to the inventory account would be $24,600 (23000 + 1600)

Hope Company determined that an $8,000 account receivable was uncollectible. Which of the following shows how the write-off of this receivable will affect Hope's financial statements?

all NA

On November 1, Year 1 Shelter Company loaned $7,000 cash to Cove Company. The one-year note carried a 7% rate of interest. Which of the following shows how the loan will affect Shelter's financial statements on November 1, Year 1?

all NA, (7000) IA

Inventory is

an asset account that appears on the balance sheet

Paying cash to purchase inventory is

an asset exchange transaction.

Which accounts would appear on the balance sheet?

cash merchandise inventory common stock

Which accounts would affect gross margin?

cost of goods sold sales

Which accounts would appear on the income statement?

cost of goods sold transportation-out selling expense loss on sale of land sales

If the amount of ending inventory is overstated, the amount of

cost of goods sold will be understated

Which of the following general journal entries would be used to recognize $7,500 of uncollectible accounts expense under the direct write-off method?

deb 7500 uncollectible acc exp, cred 7500 acc rec

Grayson Company sold merchandise on account for $5,000 under terms 2/10, n/30. The purchaser paid for the merchandise within the discount period. Which of the following journal entries would be necessary to recognize the sales discount on Grayson's books?

debit 100 sales revenue, credit 100 accounts receivable (5000 x 0.02)

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. Based on this information the journal entry necessary to record the return is

debit 1000 accounts payable, credit 1000 inventory

Assume a company paid $800 for a computer that it plans to sell to its customers. Suppose that as a result of new technology the company could buy the same computer today for $600. Which of the following journal entries would be required to show the inventory at the lower of cost or market?

debit 200 cost of goods sold, credit 200 inventory (800-600)

Which of the following shows the journal entry that is required to recognize $4,000 of uncollectible accounts expense under the direct write-off method?

debit 4000 uncollectible accounts expense, credit 4000 accounts receivable

On August 1, Year 1 Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following journal entries would be required to recognize the collection of the principal balance in Year 2?

debit 48000 cash, credit 48000 notes receivable

Which of the following journal entries would be required to recognize the recovery of a $500 account receivable that was previously written-off?

debit 500 accounts receivable, credit 500 allowance for doubtful accounts

Which of the following journal entries would be required to recognize the cash purchase of $500 of merchandise inventory?

debit 500 inventory, credit 500 cash

The Bradford Company was recently required to record an inventory write-down of $5,200 because the market value of its inventory was less than cost. Assuming the amount of the write-down is immaterial, which of the following journal entries would be recorded?

debit 5200 cost of goods sold, credit 5200 inventory

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize uncollectible accounts expense. Kardashian had credit sales of $547,000 and estimates uncollectible accounts expense to be one percent of credit sales. Which of the following journal entries shows how this event would be recorded under the allowance method?

debit 5470 uncollectible accounts expense, credit 5470 allowance for doubtful accounts

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following journal entries would be required to recognize the cost of goods sold?

debit 5700 cost of goods sold, credit 5700 inventory

Beachwood Clothing Company operates a chain of high end men's clothing stores. Beachwood owned land that was originally purchased as a store location. However, after abandoning the plan to build a new store, the land that had cost $5,000 was sold for $6,000 cash. Which of the following journal entries would be required to record the sale of the land?

debit 6000 cash, credit 5000 land, credit 1000 gain from sale of land

At the end of its Year 1 accounting period, Voss Company had a $35,000 balance in its inventory account. Even so, when the company took a physical count of the inventory, it found only $34,300 of inventory on hand. Which of the following journal entries would be required to recognize the inventory shrinkage?

debit 700 cost of goods sold, credit 700 inventory (35000 inventory balance- 34300 inventory on hand)

DeKalb Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. Which of the following journal entries could be used to recognize accrued interest in Year 2?

debit 90 interest receivable, credit 90 interest revenue ($30 per month (( 6000 x .06/ 12)) x 3 months ((April = 9 so remaining is 3))

Under the direct write-off method, the write-off of a $500 uncollectible account will

decrease assets by $500 and increase uncollectible accounts expense by $500.

The net realizable value of receivables is not shown on the balance sheet of a company using the

direct write-off method

Smith Company sold inventory that cost $5,000 for $9,000 cash. Freight cost was $600 paid in cash. The freight terms were FOB shipping point. Based on this information,

gross margin would be $4,000 (Revenue $9,000 - $5,000 cost of goods sold) net income would be $4000 ($4,000 gross margin - $0 operating expense)

Sandy Bay Merchandising Co. sold for $12,000 cash inventory that had cost $10,000. Assuming Sandy Bay uses the perpetual inventory method, the entries to record this transaction would

increase assets by $2,000 (CGAFS 12000 - CGS 10000)

The journal entry to recognize the write down of inventory based on the lower of cost or market rule will

increase the amount of expenses

The gross margin appears on a

multistep income statement

Contours, Inc. sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Customers returned merchandise that had been sold for $1,000. This merchandise had originally cost Contours $700. Which of the following shows how the sales return will affect a company's financial statements?

na CASH, (1000) ACC REC, na INVENTORY, na L, (1000) equity, (1000) N SALES, na EXP, (1000) NET INC, na cf na CASH, na ACC REC, 700 INVENTORY, na L, 700 equity, na N SALES, (700) EXP, 700 NET INC, na cf

Contours, Inc. sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Customers returned merchandise that had been sold for $1,000. This merchandise had originally cost Contours $700. The remaining receivables were collected within the discount period. Which of the following shows how recognizing the collection of the receivables will affect a company's financial statements?

na CASH, (160) ACC REC, na INVENTORY, na L, (160) equity, (160) N SALES, na EXP, (160) NET INC, na cf ($8,000 x .02) 7840 CASH, (7840) ACC REC, na INVENTORY, na L, na equity, na N SALES, na EXP, na NET INC, 7840 OA ($8,000 receivable balance - $ 160 discount)

At the end of its Year 1 accounting period, Voss Company had a $35,000 balance in its inventory account. Even so, when the company took a physical count of the inventory, it found only $34,300 of inventory on hand. Which of the following shows how recognizing the inventory shrinkage will affect the Company's financial statements?

na CASH, (700) INVENTORY, na L, (700) E, na REV, 700 EXP, (700) NET INC, na CF

Contours, Inc. sold merchandise that cost $6,000 to a customer on account for $9,000 under terms 2/10, n/30. Which of the following shows how this event will affect a company's financial statements?

na CASH, 9000 ACC REC, na INVENTORY, na L, 9000 equity, 9000 N SALES, na EXP, 9000 NET INC, na cf na CASH, na ACC REC, (6000) INVENTORY, na L, (6000) equity, na N SALES, 6000 EXP, (6000) NET INC, na cf

Which of the following shows how recognizing uncollectible accounts expense under the direct write-off method would affect the financial statements?

na CASH, na ACC REC, na L, - E, na REV, + EXP, - NET INC, na CF

Smith Co. purchased inventory for $5,000 on account with the freight terms FOB destination. Smith Co. then sold the inventory to customers for $8,000 cash with freight terms FOB shipping point. In both cases, the freight carrier charged $600 for shipping. Based on this information

net income would be $3,000 ($8,000 sales − $5,000 cost of goods sold)

Smith Company sold inventory that cost $5,000 for $9,000 cash. Freight cost was $600 paid in cash. The freight terms were FOB destination. Based on this information,

net income would be $3,400 ($4,000 gross margin - $600 transportation-out expense) gross margin would be $4000 (Revenue $9,000 - $5,000 cost of goods sold)

If the amount of ending inventory is overstated, the amount of

net income, total assets, and retained earnings will be overstated.

The recovery and collection of an account receivable that had previously been written off will

not affect total assets

When a merchandising company sells inventory it will

recognize revenue and expense

The following information was taken from the records of Cindy's Candies: ITEM A, 50, $24, $18 ITEM B, 20, $40, $42 ITEM C, 10, $20, $10 Cindy's reports inventory at the lower of cost or market (applied individually). The necessary adjusting entry would

reduce assets and equity by $400. (2200 (sum of cost values) ((1200 + 800 + 200)) - 1800 (sum of lower values) ((50 x 24= 1200) & (50 x 18=900): lower 900. (20 x 40=800) & (20 x 42=840): lower 800. (10 x 20=200) & (10 x 10=100): lower 100.))

Assume that the amount of ending inventory is overstated in Year 1. Further assume the overstatement in Year 1 is not discovered and the ending inventory in Year 2 is reported accurately. Under these circumstances,

the Year 2 ending balance in retained earnings will be accurate.

To avoid the risk of fraud associated with inventory manipulation

the employee in charge of counting inventory should be different from the employee in charge of recording inventory transactions.

Zack's, Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event

total assets decreased.

Under the direct write-off method, uncollectible accounts expense is recognized

when an account is determined to be uncollectible