Intro to Financial Accounting Exam 2 Chapters 4-6

A company purchased $2,000 of merchandise on August 15 with terms 1/10, n/30. On August 17, it returned $200 worth of merchandise. On August 18, it paid the amount due. The amount of the cash paid on August 18 equals:

$1,782 (2000 minus 200= 1800. 1800*.01=18. 1800-18=1782)

Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:

$115,000 (800,000-12000-18000-380000-275000)= 115000

Garza Company had sales of $137,000, sales discounts of $2,050, and sales returns of $3,290. Garza Company's net sales equals:

$131,660 (137,000-3290-2050=131,660)

Prince Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prince's net sales for this period equal:

$172,550 ((94275+83450)-(1,700+3475))= 172550

A company has net sales of $375,000 and its gross profit is $157,500. Its cost of goods sold is:

$217,500 (gross profit minus 157,500)

A company purchased $4,000 worth of merchandise. Transportation costs for the buyer were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

$4,000.50 ({4000-275} *.98) +350= 4,000.50

A company has net sales of $729,000 and cost of goods sold of $292,000. Its gross profit equals:

$437,000 (Take cost of goods sold minus net sales)

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the full balance due in 30 days

A company's gross profit (or gross margin) was $73,920 and its net sales were $352,000. Its gross margin ratio is:

21% (Divide 73,920 by 352,000)

The entry to establish a petty cash fund includes:

A debit to Petty Cash and a credit to Cash

Bank fees for check printing are recorded by the bank as:

A decrease in the depositor's bank account

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

Add the deposit to the bank statement balance

Cash equivalents:

Are short-term, highly liquid investment assets

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Bank reconciliation

An error in ending inventory causes an error in the next period's:

Beginning inventory

The inventory turnover ratio is calculated as:

Cost of goods sold divided by average inventory

Cash and cash equivalents include:

Customer checks, cashier's checks, certified checks, and money orders

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the GROSS METHOD, the correct journal entry to record the payment on July 28 is:

Debit Accounts Payable $1,600; credit Cash $1,600

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the payment on August 16 is:

Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50

At the end of the day, the cash register's record shows $1,274, but the count of cash in the cash register is $1,257. The correct entry to record the cash sales is

Debit Cash $1,257; debit Cash Over and Short $17; credit Sales $1,274

A company had $13 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

Debit Cash Over and Short for $13

On a bank reconciliation, a bank fee for check printing not yet recorded by the company is:

Deducted from the book balance of cash

A merchandiser:

Earns net income by buying and selling merchandise

Two clerks sharing the same cash register is a violation of which internal control principle?

Establish responsibilities

When a petty cash fund is in use:

Expenses paid with petty cash are recorded when the fund is replenished

When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is:

FIFO method

Expenses that support a company's overall operations and include expenses related to accounting, human resources, and finance are known as:

General and administrative expenses

Which of the following is not an inventory costing method?

Gross margin method

Purchasing insurance against theft by employees who frequently handle cash follows which principle of internal control?

Insure assets and bond key employees

Which of the following statements regarding inventory shrinkage is false?

Inventory shrinkage is recognized by crediting an operating expense

Cost of goods sold:

Is the term used for the expense of buying and preparing merchandise for sale

The inventory costing method that best matches current costs with current revenues is the:

LIFO method

Sales less sales discounts, less sales returns and allowances equals:

Net sales

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Recognizes that a customer returned merchandise and/or received an allowance

Sales Returns:

Refer to customers returning merchandise back to the seller for a refund

Internal control systems are:

Required by Sarbanes-Oxley (SOX) to be documented and verified if the company's stock is traded on an exchange (a public company)

The LIFO conformity rule:

Requires that when LIFO is used for tax reporting, it must also be used for financial reporting

The expenses of advertising merchandise, making sales, and delivering goods to customers are known as:

Selling expenses

The inventory turnover ratio:

Tells how many times a company turns over (sells) its inventory in a period

Managers use an internal control system:

To monitor and control business activities

The inventory costing method that smooths out erratic changes in costs is:

Weighted average

Goods in transit are included in a purchaser's inventory:

When the goods are shipped FOB shipping point

Outstanding checks refer to checks that have been:

Written by the depositor, subtracted on the depositor's books, and sent to the payee but not yet turned in for payment at the bank statement date

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between:

ending inventory and cost of goods sold

Merchandise Inventory:

is a current asset