Financial Accounting Chapters 5-7

Windsor, Inc. gathered the following reconciling information in preparing its June bank reconciliation: Cash balance per books, 6/30 $10800 Deposits in transit $800 Notes receivable and interest collected by bank $1910 Bank charge for check printing $65 Outstanding checks $3900 NSF check $360 The adjusted cash balance per books on June 30 is

$10800 + $1910 - $65 - $360 = $12285 (Cash bal. + Note coll - Print char. - NSF check)

Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?

$120,000 and $85,000 explanation: Sales revenue ($450,000) less sales returns and allowances ($10,000) less cost of goods sold ($320,000) = gross profit of $120,000. The difference between net income ($35,000) and gross profit ($120,000) = operating expenses ($85,000)

Metlock, Inc. gathered the following reconciling information in preparing its October bank reconciliation: cash balance per books 10/31 $15100 deposits in transit $500 notes receivable & interest collected by bank $3100 bank charge for check printing $70 outstanding checks $7200 NSF check $610 The adjusted cash balance per books on October 31 is

$15100 + $3100 - $70 - $610 = $17520 (Cash bal. + Note coll. - Print char. - NSF check)

Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31?

1 and 4

The journal entry to record a credit sale ignoring cost of goods sold is

Accounts Receivable Sales Revenue

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

Cash 78.40 Sales Discounts 1.60 Accounts Receivable 80.00

A company has the following items at year end: cash on hand, $1,000; cash in a checking account, $3,000; cash in a savings account, $5,000; postage stamps, $50; and Treasury bills, $10,000 that mature in less than 90 days. How much should the company report as cash and cash equivalents on its balance sheet?

Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash, and are so near their maturities that their market value is relative insensitive to changes in interest rates. $1,000 + $3,000 + $5,000 + $10,000 = $19,000

Which of the following is not a principle of internal control? Documentation procedures Collusion between employees Segregation of duties Bonding of employees

Collusion between employees

What accounting concept is employed when using the lower-of-cost-or-market valuation?

Conservatism dictates the lower-of-cost-or-market inventory valuation.

Davidson Electronics has the following: Units Unit Costs inventory Jan. 1 5000 $8 purchase Apr. 2 15,000 $10 purchase Aug. 28 20,000 $12 If Davidson has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?

Ending inventory cost equals average-cost per unit times 7,000 units. Average cost per unit equals the total cost of all inventory amounts divided by the number of inventory units. Average inventory = [(5,000 × $8) + (15,000 × $10) + (20,000 × $12)] ÷ (5,000 + 15,000 + 20,000) = $430,000 ÷ 40,000 units = $10.75 per unit. Ending inventory = $10.75 × 7,000 units = $75,250

Kam Company has the following units and costs: Units Unit Cost inventory Jan. 1 8000 $11 purchase Jun. 19 13,000 $12 purchase Nov. 8 5000 $13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

Ending inventory under FIFO uses the most recent costs in computing ending inventory. Ending inventory = (5,000 × $13) + (4,000 × $12) = $113,000

Kam Company has the following units and costs: Units Unit Costs inventory Jan. 1 8000 $11 purchase Jun. 19 13,000 $12 purchase Nov. 8 5000 $13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

Ending inventory under FIFO uses the most recent costs in computing ending inventory. Ending inventory = (5,000 × $13) + (4,000 × $12) = $113,000

Kam Company has the following units and costs: Units Unit Cost inventory Jan. 1 8000 $11 purchase Jun. 19 13,000 $12 purchase Nov. 8 5000 $13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system?

Ending inventory under LIFO uses the earliest costs in computing ending inventory. Ending inventory = (8,000 × $11) + (1,000 × $12) = $100,000

LIFO/FIFO: results in lower net cash provided by operating activities

FIFO

LIFO/FIFO:results in higher net income

FIFO

LIFO/FIFO:results in higher phantom profits

FIFO

Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count? Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due. Goods that Reeves is holding on consignment for Parker Company. Goods in transit that Reeves has sold to Smith Company, FOB shipping point. Goods in transit to Reeves, FOB destination.

Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due.

T/F: If inventory at the end of 2017 and 2016 is $30,000 and $40,000, respectively, and cost of goods sold is $276,000 and $290,000 respectively, inventory turnover for 2017 is 8.3 times.

Inventory turnover is computed by dividing cost of goods sold by average inventory, or $276,000 / [($30,000 + $40,000)/2] = 7.89

LIFO/FIFO:results in a higher quality of earnings ratio

LIFO

LIFO/FIFO:results in lower taxes

LIFO

With the assumption of costs and prices generally rising, which of the following is correct? LIFO provides the closest valuation of inventory on the balance sheet to replacement cost. Specific identification method provides the closest cost of goods sold to replacement cost on the income statement. LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold. FIFO provides the closest cost of goods sold to replacement cost.

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold

To what is the gross profit rate equal?

Net sales minus cost of goods sold, divided by net sales

If cash is restricted as to its use, and is expected to be used within the next year, how is it reported? Included in the Cash and Cash Equivalents line on the balance sheet. Reported as a current liability on the balance sheet. Reported as a current asset separate from Cash and Cash Equivalents on the balance sheet. Reported as a noncurrent asset on the balance sheet.

Reported as a current asset separate from Cash and Cash Equivalents on the balance sheet

Ned Douglas owns Ned's Blankets. Ned asks you to explain how he should treat the following reconciling items when reconciling the company's bank account. A deposit in transit

add to balance per bank

Ned Douglas owns Ned's Blankets. Ned asks you to explain how he should treat the following reconciling items when reconciling the company's bank account. The bank charged to our account a check written by another company

add to balance per bank

on mutiple step income statement,where would cost of goods sold go?

cost of goods sold

All of the following are examples of internal control procedures except... reconciling the bank statement. customer satisfaction surveys. insistence that employees take vacations. using prenumbered documents.

customer satisfaction surveys

The collection of an $2000 account within the 2 percent discount period will result in a

debit to Sales Discounts for $40

Ned Douglas owns Ned's Blankets. Ned asks you to explain how he should treat the following reconciling items when reconciling the company's bank account. Outstanding checks

deduct from balance per bank

Ned Douglas owns Ned's Blankets. Ned asks you to explain how he should treat the following reconciling items when reconciling the company's bank account. A debit memorandum for a bank service charge

deduct from balance per books

Internal auditors... are employees of the IRS who evaluate the internal controls of companies filing tax returns. cannot evaluate the system of internal controls of the company that employs them because they are not independent. are hired by CPA firms to audit business firms. evaluate the system of internal controls for the companies that employ them.

evaluate the system of internal controls for the companies that employ them

1,200 units of inventory sold but being held for customer pickup; included in inventory taking or excluded?

excluded

3,000 units of inventory in transit from a supplier shipped FOB destination; included in inventory taking or excluded?

excluded

500 units of inventory held on consignment from another company; included in inventory taking or excluded?

excluded

T/F: sales discounts is a contra asset

false

900 units of inventory shipped on consignment by Peete to another company; included in inventory taking or excluded?

included

Which one of the following is not a physical control? Bank safety deposit boxes for important papers Safes and vaults to store cash Independent bank reconciliations Locked warehouses for inventories

independent bank reconciliations

Assets purchased for resale are recorded in which of the following accounts?

inventory

on mutiple step income statement, where would depreciation expense go?

operating expenses

on multiple step income statement, where would gain on disposal of plant assets go?

other revenues and gains

Under which of the following do computer programs that limit unauthorized access to certain files fall? Documentation procedures Physical controls Human resource controls Independent internal verification

physical controls

on multiple step incomestatement, where would sales returns and allowances go?

sales revenues

Bramble Corp. just began business and made the following four inventory purchases in June: June 1 147 units $1020 June 10 196 untis $1530 June 15 196 units $1650 June 28 147 units $1290 $5490 A physical count of merchandise inventory (rounded to whole dollar) on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is

the FIFO method

If goods in transit are shipped FOB destination... the transportation company has legal title to the goods while the goods are in transit. the seller has legal title to the goods until they are delivered. the buyer has legal title to the goods until they are delivered. no one has legal title to the goods until they are delivered.

the seller has legal title to the goods until they are delivered.