ACCT 209 CHAPTER 5-9 STUDY QUESTIONS

(8) A business has net sales of $60,000, a beginning balance in Accounts Receivable of $5,000, and an ending balance in Accounts Receivable of $7,000. What is the company's accounts receivable turnover? a. 10.0 b. 12.0 c. 8.6 d. 9.2

A

(8) Rufus & Company pays a three percent credit card fee on all credit sales, and receives a cash deposit immediately following each credit card transaction. If credit sales for the company total $15,000 on December 13, what journal entry should be recorded to recognize the receipt of cash and the credit card fee expense? a. Debit Cash $14,550; debit Credit Card Fee Expense $450. b. Debit Cash $15,000; credit Credit Card Fee Expense $450. c. Debit Cash $15,450; debit Credit Card Fee Expense $450. d. Debit Cash $15,450; credit Credit Card Fee Expense $450

A

(8) Wesson Company uses the allowance method to record its expected credit losses. It estimates its losses at one percent of credit sales, which were $750,000 during the year. The Accounts Receivable balance was $220,000 and the Allowance for Doubtful Accounts had a credit balance of $1,000 at year-end. What amount is the debit to the Bad Debts Expense? a. $7,500 b. $8,500 c. $6,500 d. $3,200

A

(9) A company reports net income of $12,000, net sales of $30,000, and average total assets of $48,000. What is the company's asset turnover? a. 0.625 b. 0.250 c. 0.400 d. None of the above

A

Gross Profit Margin is also known as...

Return on sales

salvage value

the estimated value of a fixed asset at the end of its useful life

Average Inventory

(Beginning Inventory + Ending Inventory) / 2

straight line method formula (to find annual depreciation)

(cost - salvage value) / useful life

Age of inventory

365/Inventory turnover

(5) Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 What is the company's gross profit percentage? a. 40 percent c. 15 percent b. 60 percent d. None of the above

A

(6) Which inventory costing method is expensive to implement? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

A

(9) Which of the following statements is false? a. Expenditures for ordinary repairs are a capital expenditure. b. Betterment expenditures are a capital expenditure. c. Expenditures to acquire low-cost assets are revenue expenditures. d. Material additions to a plant asset are capital expenditures.

A

(8) Lite Company received a 90 day, six percent note receivable for $10,000 on December 1. How much interest should be accrued on December 31? a. $150 b. $90 c. $50 d. $25

C

(5) Bleu Company began the period with $20,000 in inventory. The company also purchased an additional $20,000 of inventory and returned $2,000 for full credit. A physical count of the inventory at year-end revealed an inventory on hand of $16,000. What was Bleu's cost of goods sold for the period? a. $16,000 c. $48,000 b. $22,000 d.$50,000

B

(5) On March 1, Kate Company purchased merchandise with an invoice price of $2,700 and 2/10, n/30 terms. On March 3, Kate pays $98 transportation cost on the purchased goods. On March 10, Kate pays for the merchandise. What is Kate's total cost of the purchased merchandise? a. $2,700 c. $2,746 b. $2,744 d. $2,800

B

(5) Which of the following statements regarding cost flows is true? a. Cost of goods available for sale is equal to beginning inventory minus cost of goods purchased. b. Cost of goods available for sale is equal to beginning inventory plus cost of goods purchased. c. CGAS 5 beginning inventory minus ending inventory. d. CGAS 5 cost of goods sold minus cost of goods purchased

B

(6) Mack Corp. reported annual cost of goods sold of $30,000 and average inventory on hand during the year of $3,750. What was Mack's inventory turnover? a. 0.125 times b. 8.0 times c. $26,250 d. 8.0%

B

(6) The periodic inventory system differs from the perpetual inventory system: a. because the periodic system is not compatible with modern technology. b. because the perpetual system continually updates inventory, while the periodic inventory system only updates inventory at the end of the period. c. because the periodic system continually updates inventory, while the perpetual inventory system only updates inventory at the end of the period. d. because the periodic system is more complex and costly.

B

(6) Under which of the following freight terms does the seller retain ownership of the shipped goods? a. F.O.B. shipping point b. F.O.B. destination

B

(6) Which inventory costing method is frequently used when undifferentiated units are stored in a common area? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

B

(6) Which of the following concepts relates to the elimination or minimization of inventories by a manufacturing firm? a. Quick response b. Just-in-time c. Just-in-case d. Specific identification

B

(8) A firm has accounts receivable of $90,000 and a debit balance of $900 in the Allowance for Doubtful Accounts. Two-thirds of the accounts receivable are current and one-third is past due. The firm estimates that two percent of the current accounts and five percent of the past due accounts will prove to be uncollectible. The adjusting entry to provide for the bad debts expense under the aging method should be for what amount? a. $2,700 c. $1,800 b. $3,600 d. $4,500

B

(9) A company reports net income of $12,000, net sales of $30,000, and average total assets of $48,000. What is the company's return on assets? a. 62.5 percent b. 25.0 percent c. 40.0 percent d. None of the above

B

(5) Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 what is The Eureka Company's return on sales ratio? a. 40 percent c. 15 percent b. 60 percent d.None of the above

C

(5) Angle Company started business on January 1. During the year, the company purchased merchandise with an invoice price of $500,000. Angle also paid $20,000 freight on the merchandise. During the year, Angle also returned $80,000 of the merchandise to its suppliers. All purchases were paid for in a timely manner, and a $10,000 cash discount was taken. $418,000 of the merchandise was sold for $627,000. What is the December 31 balance in the Inventory account? a. $82,000 b. $32,000 c. $12,000 d. $2,000

C

(5) Daniel Co. uses the periodic inventory system. When goods are purchased, Daniel will: a. debit freight costs to Inventory. b. debit purchase returns and allowance for returned items. c. debit the Purchases account for purchases on account. d. debit the Inventory account for purchases on account.

C

(5) Jackson Company reports net sales of $500, cost of sales of $300, and net income of $50. What is the gross profit percentage and return on sales ratio for Jackson? a. Gross profit percentage is 10 percent and return on sales ratio is 40 percent. b. Gross profit percentage is 60 percent and return on sales ratio is 10 percent. c. Gross profit percentage is 40 percent and return on sales ratio is 10 percent. d. Gross profit percentage is 40 percent and return on sales ratio is 25 percent.

C

(5) Jefferson & Sons purchased $5,000 of merchandise from the Claremont Company with terms of 3/10, n/30. How much discount is Jefferson & Sons entitled to take if it pays within the allowed discount period of 10 days? a. $50 c. $150 b. $100 d.$300

C

(5) Samuel Company uses the perpetual inventory system. Samuel purchased merchandise with an invoice price of $800, terms 2/10, n/30. If Samuel returns merchandise with an invoice price of $200 to the supplier, what should the journal entry to record the return include? a. Debit to Inventory of $200 b. Debit to Inventory of $196 c. Credit to Inventory of $200 d. Credit to Inventory of $100

C

(6) The Molly Company reports ending inventory under the LIFO method of $15,000. Had Molly used FIFO, the ending inventory would have been reported as $16,500. Molly's LIFO inventory reserve is: a. $31,500 b. $15,000 c. $1,500 d. 91%

C

(6) Which inventory costing method results in the highest net income during a period of rising unit prices? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

C

(6) Which inventory costing method results in the highest-valued ending inventory during a period of rising unit costs? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

C

(8) On September 1, the Pavey Company accepted a $24,000, 60 day, nine percent, promissory note in exchange for overdue accounts receivable balance for the same amount from the Wagner Company. On November 30, the Wagner Company dishonored the note. What journal entry should be recorded on November 30? a. Debit Dishonored Note Receivable Expense; credit Notes Receivable. b. Debit Allowance for Doubtful Accounts; credit Notes Receivable. c. Debit Accounts Receivable; credit Interest Income; credit Notes Receivable. d. None of the above entries is correct

C

(8) Which of the following statements is true? a. The direct write-off method is generally accepted. b. The percentage of net sales method estimates the bad debts expense indirectly. c. The accounts receivable aging method estimates the bad debts expense indirectly. d. None of the above is true.

C

(9) Davidson Company sold one of its worn-out delivery trucks on December 31, 2019. The truck was purchased on January 1, 2016, for $50,000 and was depreciated on a straight-line basis over a five- year life. There was no salvage value associated with the truck. If the truck was sold for $14,000, what was the amount of gain or loss recorded at the time of the sale? a. $4,000 loss c. $4,000 gain b. $14,000 gain d. $6,000 loss

C

(9) On January 1, Bush Company purchased a delivery truck for $10,000. The company estimates the truck will be driven 80,000 miles over its eight-year useful life. The estimated salvage value is $2,000. The truck was driven 12,000 miles in its first year. Which method results in the largest depreciation expense for the first year? a. Units-of-production b. Straight-line c. Double-declining balance

C

(9) The acquisition cost of a plant asset is equal to the asset's implied cash price and: a. The interest paid on any debt incurred to finance the asset's purchase. b. The market value of any noncash assets given up to acquire the plant asset. c. The reasonable and necessary costs incurred to prepare the asset for its intended use. d. The asset's estimated salvage value

C

(9) Which of the following statements is true? a. Goodwill is subject to amortization. b. Research and development costs may be capitalized to the balance sheet. c. Intangible assets are amortized to expense on the income statement. d. Goodwill arises because of a company's positive corporate image among its customers

C

Inventory Turnover Ratio

COGS/Average Inventory

Current Ratio

Current assets/Current Liabilities

(5) Adams Inc. purchased merchandise with a list price of $6,000 from the Sprague Company. Sprague offers its customers credit terms of 2/10, n/30. What amount should Adams pay if the cash discount is taken? a. $5,940 c. $6,120 b. $6,060 d.$5,880

D

(6) When should ending inventory be written down below its acquisition cost on the balance sheet? a. When units are damaged, physically deteriorated, or obsolete. b. When the inventory's net realizable value exceeds its acquisition cost. c. When the inventory's net realizable value is below its acquisition cost. d. Both a and c

D

(6) Which inventory costing method assumes that the most recently purchased merchandise is sold first? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

D

(6) Which inventory costing method does not require the use of the lower-of-cost-or-net realizable value method? a. Specific identification b. Weighted-average cost c. FIFO d. All methods require the use of LCM

D

(6) Which inventory costing method results in the lowest net income during a period of rising unit prices? a. Specific identification b. Weighted-average cost c. FIFO d. LIFO

D

(8) A business has an accounts receivable turnover of ten. What is the company's average collection period? a. 36.0 b. 30.8 c. 34.6 d. 36.5

D

(8) A firm receives a six-month note from a customer. The note has a face amount of $4,000 and an interest rate of nine percent. What is the total amount of interest to be received? a. $1,080 b. $30 c. $360 d. $180

D

(8) A firm, using the allowance method of recording credit losses, wrote off a customer's account in the amount of $500. Later, the customer paid the account. The firm reinstated the account by means of a journal entry and then recorded the collection. What is the result of these procedures? a. Increases total assets by $500 b. Decreases total assets by $500 c. Decreases total assets by $1,000 d. Has no effect on total assets

D

(9) On the first day of the current year, Griffin Company sold equipment for less than its book value. Which of the following is part of the journal entry to record the sale? a. A debit to Equipment b. A credit to Accumulated Depreciation—Equipment c. A credit to Gain on Sale of Plant Assets d. A debit to Loss on Sale of Plant Assets

D

(9) Which of the following statements is true? a. Intangible assets are shown on the balance sheet net of the Accumulated Amortization account. b. Goodwill is shown on the balance sheet net of the Accumulated Amortization account. c. The Accumulated Depreciation account need not be used for plant assets. d. Plant assets are shown on the balance sheet net of the Accumulated Depreciation account.

D

Gross Profit Margin/Return on sales

Gross profit/Net sales

Gross Profit

Net Sales - COGS

Age of inventory is also known as...

day sales in inventory

capital expenditures

land, land improvements, buildings, equipement

profit margin

net income/net sales