Unit 2 Exam Prep

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Snow Company has the following inventory transactions for the year: Date Transaction Numbers of Units Unit Cost Jan.1 Beginning inventory 200 $4.00 Apr.20 Purchase 800 4.25 Sep.8 Purchase 400 4.50 Assuming Snow sells 1,000 units, calculate ending inventory under FIFO.

$1,800.

At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold?

$11,500.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23?

$11,760.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17?

$12,000.

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:

$2,000.

Maxwell Corporation has the following inventory information at the end of the year: InventoryQuantity Unit Cost Unit NRV Item A 20 $20 $35 Item B 50 30 25 Item C 40 10 15 Using the lower of cost and net realizable method, for what amount would Maxwell report ending inventory?

$2,050.

Kidz Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. Age GroupAmountReceivable Estimated PercentUncollectible 0-60 days$20,000 2% 61-90 days 6,000 15% More than 90 days past due 2,000 50% Total$28,000 At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet?

$2,300.

Katie Malls has the following inventory transactions for the year: Date Transaction Numbers of Units Unit Cost Totalcost Jan. 1 Beginning inventory 20 $35 $700 Apr. 8 Purchase 50 40 2,000 $2,700 Jan. 1 - Dec. 31 Total sales to customers 60 What amount would Madison report for cost of goods sold using LIFO under a periodic inventory system?

$2,350

Madison Outlet has the following inventory transactions for the year: Date Transaction Numbers of Units Unit Cost Totalcost Jan. 1 Beginning inventory 10 $200 $2,000 Mar. 14 Purchase 15 300 4,500 $6,500 Jan. 1 - Dec. 31 Total sales to customers 12 What amount would Madison report for cost of goods sold using FIFO?

$2,600.

A company has the following account balances at the end of the year: Credit Sales = $400,000 Accounts receivable = $80,000 Allowance for Uncollectible Accounts = $400 credit The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement?

$2,800.

At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

$22,200

$3,380.

A company has the following account balances at the end of the year: Credit Sales = $400,000 Accounts receivable = $80,000 Allowance for Uncollectible Accounts = $400 debit The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement?

$3,600.

$3,900.

$4,350.

A company has the following account balances at the end of the year: Credit Sales = $400,000 Accounts receivable = $80,000 Allowance for Uncollectible Accounts = $400 credit The company estimates 1% of credit sales will be uncollectible. At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet?

$4,400.

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current year's income statement?

$4,800.

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What is the amount of net revenues (total revenue minus sales discounts) as of August 12?

$4,850.

A company's own cash records show a balance of $3,200. After examining the bank statement, the following information is revealed: Bank's balance for cash $4,000 Deposits outstanding $2,300 NSF check $600 Checks outstanding $1,800 Note collected by the bank $2,000 Service fee charged by the bank $100 After reconciliation, the correct balance of cash is:

$4500

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$5,100.

At the end of its first year of operations, a company establishes an allowance for future uncollectible accounts for $5,600. At what amount would bad debt expense be reported in the current year's income statement?

$5,600.

At the end of the previous year, a company's balance sheet reports cash of $30,000. For the current year, the company's statement of cash flows reports operating cash inflows of $90,000; investing outflows of $110,000; and financing inflows of $40,000. What amount of cash will be reported in the current year's balance sheet?

$50,000.

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

$5000

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). On December 31, 20X1, Nelsen will accrue interest revenue of:

$6,000

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$6,100.

Nija Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. What is the total estimate of uncollectible accounts using the aging method? Age GroupAmountReceivable Estimated PercentUncollectible 0-60 days$40,000 1% 61-90 days 15,000 20% More than 90 days past due 5,000 60% Total$60,000

$6,400.

On January 1, 2021, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2021, the date that the note is due.

$600.

On September 1, Bates Supplies borrows $30,000 from Vines Incorporated by signing an 8% note due in 12 months. Calculate the amount of interest revenue Vines will record on December 31, four months after the note is issued.

$800.

Use the information below to calculate net revenues. Service Revenue $100,000 Sales Discounts $2,000 Accounts Receivable $15,000 Sales Allowances $7,000 Cash $18,000

$91,000.

Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:

$96,000.

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy's gross profit ratio?

20%

For the year, Simmons Incorporated reports net sales of $100,000, cost of goods sold of $80,000, and an average inventory balance of $40,000. What is Simmons' gross profit ratio?

20%.

On May 1, 2021, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in 12 months. Nees has a December 31 year-end. Calculate the amount of interest revenue Nees will report in its 2021 and 2022 income statements.

2021 = $600; 2022 = $300.

At the beginning of 2021, Clay Ventures has total accounts receivable of $100,000. By the end of 2021, Clay reports net credit sales of $900,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Clay Ventures?

6.0.

At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?

6.0.

Use the information below to calculate the receivables turnover ratio: Net Credit Sales $200,000 Beginning Accounts Receivable $40,000 Ending Accounts Receivable $10,000 Cash $20,000

Which of following best describes a merchandising company?

A company that purchases products that are primarily in finished form for resale to customers.

At the end of its first year of operations, a company estimates future uncollectible accounts to be $4,500. The company's year-end adjusting entry would include

A credit to Allowance for Uncollectible Accounts for $4,500.

At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a net realizable value of $5,800. The adjustment to write down inventory to net realizable value would include:

A credit to inventory for $700.

Using the allowance method, the entry to record a write-off of accounts receivable will include

A debit to Allowance for Uncollectible Accounts.

The entry to record the estimate for uncollectible accounts includes:

A debit to Bad Debt Expense.

The effect of writing off a specific account receivable is:

A reduction in the Allowance for Uncollectible Accounts.

When employee expenditures with company-issued credit cards are recorded:

Accounts Payable is credited.

Employee purchases of supplies with a company-issued credit card is typically recorded with a credit to

Accounts Payable.

The amount of cash owed to the company by its customers from the sale of products or services on account is known as:

Accounts Receivable.

When a company provides services on account, which of the following accounts is debited?

Accounts Receivable.

The direct write-off method is generally not permitted for financial reporting purposes because

Accounts receivable are not stated for the amount of cash expected to be collected.

Fraudulent reporting by management could include

All of the answer choices are correct.

The Sarbanes-Oxley Act (SOX) mandates which of the following?

All of the answer choices are correct.

The allowance method for uncollectible accounts

All of the answer choices are correct.

Which of the following is considered cash for financial reporting purposes?

All of the choices are correct

A company's ratio of cash to noncash assets provides some indication of the company's ability to:

All of the choices are correct.

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a:

All of the these are included to record the sale.

When a company determines that the net realizable value of its ending inventory is lower than its cost, what would be the effect(s) of the adjustment to write down inventory to net realizable value?

All of these answer choices are correct.

Which of the following could cause a company to have a high ratio of cash to noncash assets?

All of these factors could contribute to a high ratio of cash to noncash assets.

Net income is defined as:

All revenues minus all expenses.

Which of the following is considered cash for financial reporting purposes?

Amounts held in checking amounts

Accounts receivable are best described as

Assets of the company representing the amount owed by customers.

Which of the following is considered cash for financial reporting purposes?

Balances in savings account

Which of following companies record revenues when selling inventory?

Both manufacturing and merchandising companies.

A company's petty cash refers to:

Cash on hand to pay for minor purchases.

Operating cash flows include which of the following?

Cash paid for supplies.

Financing cash flows include which of the following?

Cash received from the issuance of common stock.

Investing cash flows include which of the following?

Cash received from the sale of a used company truck.

Which of the following adjusts the bank's balance of cash in a bank reconciliation?

Checks outstanding.

Which of the following is considered cash for financial reporting purposes?

Checks received from customers.

A sales discount is recorded by the seller as a(n):

Contra revenue.

Sarbanes-Oxley Act (SOX) was passed in response to:

Corporate scandals involving unethical behavior of top executives

Under a perpetual inventory system:

Cost of goods sold is recorded with each sale.

Fan Company sells inventory on account. The entry to record this sale using a periodic inventory system would include a:

Credit to Sales Revenue.

Using a periodic inventory system, recording the sale of inventory on account would include:

Debit Accounts Receivable; credit Sales Revenue.

A company has the following aging schedule of its accounts receivable with the estimated percent uncollectible: Age Group Amount Receivable Estimated Percent Uncollectible Not yet due $175,000 4% 0-60 days past due $40,000 10% 61-120 days past due $10,000 30% More than 120 days past due $5,000 60% Assuming the balance of Allowance for Uncollectible Accounts is $3,000 (credit) before adjustment, which of the following would be recorded in the year-end adjusting entry?

Debit Bad Debt Expense for $14,000.

A company provides services to a customer in the current year and then determines in the following year that the customer's account needs to be classified as uncollectible. If the company uses the direct write-off method, which of the following would be recorded in the following year at the time of the write-off?

Debit Bad Debt Expense.

Using a perpetual inventory system, the purchase of inventory on account would be recorded as

Debit Inventory; credit Accounts Payable.

Using a periodic inventory system, the purchase of inventory on account would be recorded as

Debit Purchases; credit Accounts Payable

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

Debit Sales Discount for $10.

A company's own cash records show a balance of $3,200. After examining the bank statement, the following information is revealed: Bank's balance for cash $4,000 Deposits outstanding $2,300 NSF check $600 Checks outstanding $1,800 Note collected by the bank $2,000 Service fee charged by the bank $100 The entry to update the company's cash balance after the bank reconciliation is prepared would include a:

Debit to Accounts Receivable

The entry to write down inventory from cost to net realizable value at the end of the year includes a:

Debit to Cost of Goods Sold.

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjustment to write down inventory to net realizable value?

Decrease in net income.

Which of the following adjusts the bank's balance of cash in a bank reconciliation?

Deposits outstanding.

Section 404 of the Sarbanes-Oxley Act requires companies to:

Document and assess internal controls

What is the concept behind separation of duties in establishing internal control?

Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following generally would be considered a good internal control over cash payments?

Ensure checks are serially numbered and signed only by authorized employees

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

FIFO.

The Sarbanes-Oxley Act of 2002 applies to all companies that:

File reports with the Securities and Exchange Commission

Which inventory cost flow assumption generally results in the lowest reported amount for cost of goods sold when inventory costs are rising?

First-in, first-out (FIFO).

Under the allowance method for uncollectible accounts, the balance of Allowance for Uncollectible Accounts increases when:

Future bad debts are estimated.

Operating income is defined as:

Gross Profit minus Operating Expenses.

Which of the following levels of profitability in a multiple-step income statement represents revenues from the sale of inventory less the cost of that inventory?

Gross profit.

If a company understates its ending inventory in the current period, what effect will this have on the balance of Retained Earnings at the end of the following period?

Have no effect on retained earnings.

Using a perpetual inventory system, the sale of inventory on account would be recorded as I. Debit Cost of Goods Sold; credit Inventory. II. Debit Inventory; credit Sales Revenue. III. Debit Accounts Receivable; credit Sales Revenue.

I and III

Under the direct write-off method, uncollectible accounts are recorded:

In the period the account is determined actually uncollectible.

Which of the following adjusts the company's balance of cash in a bank reconciliation?

Interest earned.

Which of the following adjusts the company's balance of cash in a bank reconciliation?

Interest on bank deposit.

Fan Company purchases inventory on account. The entry to record this purchase using a perpetual inventory system would include a debit to:

Inventory.

Inventory is defined as:

Items a company intends for sale to customers.

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

LIFO.

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Last-in, first-out (LIFO).

Which of the following is an example of detective controls?

Management periodically determines whether the amount of physical assets agree with the accounting records.

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to I. Decrease total assets. II. Decrease net income.

Neither I nor II

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

Net accounts receivable do not change.

Which of the following levels of profitability in a multiple-step income statement represents all revenues less all expenses?

Net income.

In response to widespread fraudulent reporting in the late 1990's and early 2000's, Congress:

Passed the Sarbanes-Oxley Act

Operating cash flows would include which of the following?

Payment for employee salaries.

Investing cash flows would include which of the following?

Payment for land.

Operating cash flows would include which of the following?

Payment for prepaid insurance.

Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to:

Personally certify the company's financial statements

The purpose of a petty cash fund is to

Provide cash on hand for minor expenditures.

Which of the following transactions would result in an account receivable?

Providing services to customers on account.

Fan Company purchases inventory on account. The entry to record this purchase using a periodic inventory system would include a debit to:

Purchases.

Financing cash flows would include which of the following?

Repayment of long-term borrowing to the bank.

Which of the following generally would not be considered good internal control of cash receipts?

Requiring the employee receiving the cash from the customer to also deposit the cash into the company's bank account.

Which of the following refers to the seller reducing the customer's balance owed because of some deficiency in the company's product or service?

Sales Allowance.

Gross profit is defined as:

Sales Revenue minus Cost of Goods Sold.

A multiple-step income statement provides the advantage of:

Separating revenues and expenses based on their different types of activities.

Which of the following generally would be considered good internal control of cash disbursements?

Set maximum purchase limits on debit cards and credit cards.

When preparing a bank reconciliation, outstanding checks would be

Subtracted from the bank's cash balance.

When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:

Subtracted from the company's cash balance.

A company's gross profit ratio measures:

The amount by which the sale of inventory exceeds its cost per dollar of sales.

Who is ultimately responsible for the establishment and success of a company's internal control system?

The company's top executives

Which of the following represents the balance of Cost of Goods Sold at the end of the year?

The cost of inventory sold during the year.

At any given time, the amount of cash in the petty cash fund should equal:

The established balance of the fund less all vouchers written during the accounting period.

Consistent with the COSO framework, an effective internal control system includes the control environment. The control environment refers to:

The ethical tone set by top management

The receivables turnover ratio is a measure of:

The number of times during a year that the average accounts receivable balance is collected.

A company's inventory turnover ratio measures:

The number of times the company sells its average inventory balance during the year.

Effective internal control over cash includes the requirements that:

The person who makes deposits should NOT record the deposits.

If a company uses the allowance method of accounting for uncollectible accounts and collects cash on an account receivable previously written off:

There is no change in total assets.

The primary reason the balance of cash in the company's records will differ from the balance of cash in the bank's records includes:

Timing differences of recording cash transactions by the company and by the bank.

If a company understates its ending inventory in the current period, what effect will this have on cost of goods sold in the following period?

Understate cost of goods sold.

Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error?

Understate cost of goods sold.

Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error?

Understate net income.

Under the direct write-off method, the balance of the accounts receivable account is reduced:

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