Accounting (Chapter 4-6) Test 2

Calculate net sales.

$187,000

If Adam uses the FIFO method, how much is cost of goods sold for the month of January?

$204

Lola's adjusted cash balance at February 28, 2017 is

$35,641.

In addition, Fazzi incorrectly recorded a customer's check in cash receipts as $150; the bank recorded the amount correctly as $510. What amount will Fazzi report as its adjusted cash balance at April 30, 2017?

$46,110

The following set of items describes activities completed by a company in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. Monthly statements, indicating the current balance due, are mailed to customers.

Adheres to sound internal control procedures

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the effect of the payment on Blenham's accounting equation?

Assets and stockholders' equity decrease.

Which of the following statements regarding cost of goods available for sale is true?

Cost of goods available for sale is a "pool" of costs to be distributed between what was sold and what was not sold during a period.

During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold?

FIFO

Which of the following statements regarding limitations on internal control is true?

Human errors can weaken an internal control system.

Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2017. On November 21, 2017, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the periodic inventory system. What effect does the merchandise return have on Herndon's accounting equation?

Liabilities decrease and stockholders' equity increases.

Which of the following items is a reconciling item on the bank side of a bank reconciliation?

Outstanding checks

Which of the following is not considered a business (source) document?

Schedule listing all of the insurance policies in force

Which of the following items would be subtracted from the balance per books on a bank reconciliation?

Service charge assessed by the bank

Which of the following statements is true?

Sound internal control practice dictates that all cash payments should be made by check.

Vern Corp. sold merchandise to a customer on credit. The invoice amount was $2,000; the invoice date was June 10; credit terms were 1/20, n/30. Which one of the following statements is true?

The customer should pay $2,000 if the invoice is paid on July 9.

Which of the following statements regarding inventory is true?

Wholesalers and retailers incur a single type of cost, the purchase price, of the inventory they sell.

When preparing a bank reconciliation, deposits in transit are

added to the bank statement balance.

Deposits made by a company, but not yet reflected on a bank statement are called

deposits in transit.

An outstanding check is a check that

has been written by the account holder but has not been presented to the bank for payment.

Transportation-in is

part of cost of goods purchased.

Effective cash management and control includes all of the following except

purchase of stocks and bonds.

Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2017, on account. Tile Magic Corp. paid the invoice on August 31, 2017. How much sales discount will Floors recognize?

$0

Border also had checks outstanding of $169. What is Border's adjusted cash balance at August 31?

$1,007

Mars Corp.'s balance per books before the reconciliation is

$18,190.

Realistic Sound's unadjusted bank balance amounted to $3,000. Outstanding checks amounted to $500 and deposits in transit totaled $300. Based on this information alone, Realistic's adjusted cash balance is

$2,800.

Calculate the gross profit.

$289,000

Anthony's Shoe Company uses a perpetual inventory system. The beginning balance in its Inventory account is $1,500, and the ending balance is $1,000. Cost of goods sold is $6,500. What was the amount of inventory purchased during the year?

$6,000

If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO?

$800

Calculate cost of goods purchased.

$84,000

Which of the following is not a requirement of the Sarbanes-Oxley Act?

An internal control system that guarantees financial accuracy must be established.

Which of the following statements regarding changing inventory methods is true?

Changing inventory methods affects consistency.

Which of the following is an example of a credit memorandum?

Collection of a note receivable by the bank

While reconciling the checking account, an accountant with Sonic Corporation noticed that an error had been made in recording a check received by the company. Sonic recorded the receipt as $729, and the correct amount of the check was $279. Which of the following reconciling adjustments is required?

Deduct $450 from the company's book balance

Which of the following items would be added to the balance per bank statement on a bank reconciliation?

Deposit in transit

Which of the following statements is not true?

Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in the purchases.

Which of the following is not a generally recognized internal control procedure?

Internal review by the audit committee of the board of directors

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2017. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2017. Park paid the amount due on June 13, 2017. When did title to the merchandise transfer from Jay Zee Music Company to Park?

June 5, 2017

When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP?

Lower of cost or market

Annual reports must include an internal control report. In this report, which group has the primary responsibility for establishing and maintaining an adequate control structure and procedures for financial reporting?

Management

Which one of the following types of inventory accounts would be used by a wholesaler or retailer?

Merchandise Inventory

Why is the use of the U.S. dollar as a unit of measure for financial statement data in the United States widely accepted?

The U.S. dollar is the medium of monetary exchange in the United States.

Question Content Area Summer, Inc. has been in business for 20 years. During that time, the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which of the following statements is true?

The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

Chamberlain Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from Dallas and Europe, Chamberlain Company must pay freight charges to get the merchandise shipped in. Which of the following statements is true?

Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.

If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company's books, then this item would be included on the bank reconciliation as a(n)

addition to the balance per the company's records.

Each of the following documents is used in the control of cash receipts except

canceled checks from customers.

When preparing a bank reconciliation, bank service charges are

deducted from the company's book balance.

The Sarbanes-Oxley Act requires that the audit committee be composed of

entirely outside members of the board of directors.

Which one of the following best explains the distinction between inventory and an operating asset?

intent

At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of

the buyer.