Accounting Exam 2 Study Guide

Rosewood Company made a loan of $12,200 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:

$549 and $183 12,200 x .06 x (9/12)

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $12,100 of common stock for cash. 2) The company paid cash to purchase $7,400 of inventory. 3) The company sold inventory that cost $4,800 for $9,650 cash. 4) Operating expenses incurred and paid during the year, $4,300. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $10,400 of inventory. 2) The company sold inventory that cost $9,000 for $16,250 cash. 3) Operating expenses incurred and paid during the year, $5,300. Note: Sanchez uses the perpetual inventory system. Sanchez's gross margin for the Year 2 is:

16,250 - 9000 = 7,250

Which of the following is considered a period cost?

Advertising Expense for the current month.

The cost of goods sold account is classified as?

An expense.

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

FIFO

Faust Company uses the perpetual inventory method. Faust sold goods that cost $5,100 for $8,200. If the sale was made on account, the net effect of the sale will:

Increase total assets by $3,100

Assume the perpetual inventory method is used. 1) The company purchased $12,400 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,900 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,800 cash. The net cash flow from operating activities as a result of the four transactions is:

Rev - COGS = GM Revenue = 18,800 COGS = (12,400 - 1900) (.98) = 10,290 (COGS) 18,800 - 10,290 = 8,510$ Answer: $8,510

Assume the perpetual inventory method is used. 1) The company purchased $13,200 of merchandise on account under terms 3/10, n/30. 2) The company returned $2,700 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $20,400 cash. The amount of gross margin from the four transactions is:

Revenue - C.O.G.S = GM Revenue = 20,400 C.O.G.S = 13,200 - 2700 = 10,500 10,500 x .97 (what we paid 1 - .03) = 10,185 R - COGS 20,400 - 10, 185 = 10,215 (Answer)

Ballard Company uses the perpetual inventory system. The company purchased $9,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $350 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $17,000 cash. The amount of gross margin for this merchandise is:

Step 1 : 9,000 X .98 = 8,820 Step 2: 8,820 + 350 = 9,170 Step 3: Rev - COGS = GM 17,000 - 9,170 = 7,830 (answer0

he Miller Company earned $129,000 of revenue on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $85,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of Year 2 was:

Step 1: 129,000 x .03 = 3870 Step 2: 129,000-85,000 = 44,000 (A.R. - ADA) Step 3: 44,000- 3870 = 40,130

Middleton Company uses the perpetual inventory method. The company purchased an item of inventory for $150 and sold the item to a customer for $270. What effect will the sale have on the company's inventory account?

The account will decrease by $150

Assume the perpetual inventory method is used. 1) The company purchased $13,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $3,000 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $21,000 cash. What effect will the return of merchandise to the supplier have on the accounting equation?

The assets and liabilities are reduced by 3,000.

The term "FOB Shipping Point" means:

The buyer pays the shipping cost.

Which one of the following is NOT an accurate description of the Allowance for Doubtful Accounts?

This account is a temporary account.

Which of the following items is not a product cost?

Transportation Cost on goods delivered to customers.

Hoover Company purchased two identical inventory items. The item purchased first cost $42.50. The item purchased second cost $47.25. Then Hoover sold one of the inventory items for $70. Based on this information, the amount of:

gross margin is $25.12 if Hoover uses the weighted average cost flow method.

The amount of accounts receivable that is actually expected to be collected is known as the:

net realizable value

Barker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20.00 cash. Barker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income tax:

the amount of cash flow from operating activities is not affected by the cost flow method.