Accounting multiple choice questions test 2
On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine was expected to produce a total of 60,000 units during its life. The machine actually produced 16,000 units during 2018, 23,000 units during 2019, and 21,000 units during 2020. The machine has a salvage value of $3,000. Using the units-of-production method, the amount of depreciation that should be recorded during 2018, is approximately
$8000
straight line depreciation
(cost - salvage value) / useful life
units of production depreciation
(cost-residual value)/estimated total production x actual production
Days' Sales in Inventory
(ending inventory/CGS)*365
reinstating an uncollectible account(allowance)
1) DR: accounts receivables CR: allowance for DA 2) DR: Cash CR: Accounts receivables
A 60-day, 11 percent, promissory note dated June 10 matures on
August 9th
XYZ Company made a mistake in counting its ending inventory. Determine which of the items below will be affected by this error.
Net income, Cost of goods sold, current assets
Which of the following summarizes the weighted average cost flow assumption?
Weighted average assumes that cost flow at an average of the costs available.
double declining balance depreciation
a accelerated method that allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in later years
On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the straight-line method, the book value of the machinery at December 31, 2019, is approximately
$13,000
recording a dishonored notes
DR: Accounts receivables CR: Interest revenue and notes receivables
Last year, Mountain Top, Inc., purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the current year. Complete the necessary adjusting journal entry to record depletion expense for the current year by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR: Depletion expense for $280000 CR: Accumulated Depletion for $280,000
reporting accrued interest
DR: Interest receivable CR: interest revenue
The supplementary record providing information on each customer is called the _____.
accounts receivables ledger
Sarbanes-Oxley Act requires each of the following
an effective internal control and auditors must evaluate internal controls
inventory turnover focuses on
average inventory
If all units are purchased at the same unit cost, cost of goods sold will ____?
be the same for all four methods
weighted average smooths out
erratic changes in costs
lifo differs taxes to
future periods
all of the following are examples of cash except
short term investments
Kirov, Inc. reports credit sales of $200,000 for the year ending December 31. The year-end unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. Experience suggests 6 percent of its net sales will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in its year-end adjusting entry is
$12,000- no need to add in ADA
A company used straight-line depreciation for equipment that cost $12,000, had a salvage value of $2,000, and a 5-year useful life. At the beginning of year 4 of its useful life, the estimate of the salvage value was reduced to $1,200 and its total useful life was increased to 6 years. The amount of depreciation that will be recorded during each of the remaining years of its useful life is:
$1600
Bailey Company has $200,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. An aging of its accounts receivable suggests that $12,000 of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is
$21000
On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the double-declining balance method, depreciation for 2018 is approximately
$22,000
Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is:
$4000(100000*.05-1000)
On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the double-declining balance method, depreciation for 2020 is approximately
$667
On January 1, 2019, Coopers Industries bought a parcel of land for use in its operations by paying the seller $100,000 in cash and signing a 5-year, 12 percent note payable in the amount of $400,000. In connection with the purchase of the land, Coopers incurred legal fees of $19,000, a real estate agent sales commission of $25,000, surveying fees of $1,000, and an appraisal fee of $5,000. The acquisition cost of the land is
550000
A company had total sales of $620,000, net sales of $582,000, and an average accounts receivable of $97,000. Its accounts receivable turnover equals
6
The total interest that is due at maturity on a $1,500, 12 percent, 120-day note is
60
_____ are additional costs of plant assets that provide benefits extending beyond the current period and increase or improve the type or amount of service an asset provides.
Capital expenditures
Cake Mart understated its ending inventory in the current year by $5000. The company incorrectly reported net income of $100,000. Determine the effect of the error.
Cost of goods sold will be too high by 5000 causing net income to be understated by 5000.
On December 29, 2018, Patel Products, Inc., sells a delivery van that cost $20,000. After recording the entry to bring the accumulated depreciation up-to-date, the delivery van had accumulated depreciation of $18,000. Patel received $2,000 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR Accumulated Depreciation for 18000 and cash for 2000 CR: Delivery Van for 20000
On January 2, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR: Accumulated Depreciation and Loss on disposal of machinery CR: Machinery and Cash
writing off an uncollectible(allowance)
DR: Allowance for DA CR: accounts receivables
On January 5, Barnaby, Inc., purchased a patent costing $100,000 with a useful life of 20 years. The company records its adjusting entries at the end of each year on December 31. Complete the necessary adjusting entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR: Amortization expense for $5000 CR: Accumulated amortization for $5000
journaling accounts that are expected to be uncollectible
DR: Bad debts expense CR: allowance for doubtful accounts
writing off uncollectible sales(allowance)
DR: Bad debts expense CR: allowance for DA
receiving payment for a note with interest
DR: Cash CR: Interest revenue and notes receivables
recording a fully honored note
DR: Cash CR: interest revenue, interest receivable, notes receivable
On December 29, 2019, Patel Products, Inc., sells a delivery van that cost $20,000. The equipment had accumulated depreciation of $16,000 at December 31, 2018. Annual depreciation on this equipment is $2,000 computed using straight-line depreciation. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR: Depreciation Expense 2000 CR: Accumulated Depreciation 2000
On August 4, Armstrong Trucking, Inc., paid $4,500 to replace the engine in one of its trucks. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
DR: Trucks 4500 CR: Cash 4500
All of the following statements regarding a voucher system are incorrect except _____.
an invoice approval initiates the recording of a purchase
gross profit method of estimating inventory
applying gross profit ratio to net sales
If goods are shipped FOB shipping point then the ? is responsible for paying freight charges and the ? will not include the merchandise in their inventory
buyer, seller
inventory that cannot be resold is included in inventory
false
The LIFO cost flow assumption assumes that the cost of items purchased ? are the costs that will be transferred first to cost of goods sold on the ?
latest, income statement
The useful life of a new plant asset _____.
might be estimated based on the experience of others or on engineering studies and judgment if the company does not have past experience with a similar asset
Total asset turnover
net sales/average total assets
The double-declining-balance and straight-line depreciation methods:
produce the same amount of total depreciation over an asset's useful life
The allowance method of accounting for bad debts has the following advantages over the direct write-off method including
recording estimated bad debts expense in the period the sales are recorded and report accounts receivable on the balance sheet at the amount of cash expected to be collected
The acquisition cost of a plant asset does not include
repair costs resulting from damage to the plant asset while it was being unpacked
Plant assets are:
tangible assets used in a company's operations that have a useful life of more than one accounting period
The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that
the adjusted balance is equal to the estimate of the uncollectible accounts receivable
When using the allowance method of accounting for uncollectible accounts, the entry to write off Jeannie's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable—Jeannie.
true
Partial Year Depreciation
when a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned
Meredith Company's records reflected the following as of September 30: Currency and coins $ 12,500 Checking account 35,000 Customer checks on hand (not yet deposited) 2,000 Money market fund 50,000 Investment in 3-month U.S. Treasury bills 10,000 Investment in Microsoft common stock 15,000 The company's balance sheet on September 30, reflects cash and cash equivalents of _____.
$109,500
Days' sales uncollected
(accounts receivable-ending not average/net sales) x 365
The consistency concept allows a company to use different accounting methods from period to period in order to maximize profits
False
Expense Recognition Principle
Match expenses with revenues in the period when those expenses are incurred
merchandise inventory is updated continually with the perpetual system
True
FIFO approximates
current cost on the balance sheet
An item was shipped from a supplier under FOB shipping point. The invoice in the amount of $2,000 included payment terms of 2/10, n/30. When the invoice was paid, a purchase discount in the amount of $40 was taken. Other details relating to the purchase of this item included the following: shipping charges of $300, storage fees of $50, and insurance premium of $100. The cost of this inventory item is _____.
$2410
The following information is available for the Maribel Company for the month of June: The unadjusted balance of the company's Cash account was $26,620 at the end of June. The bank statement shows a balance on June 30 of $26,960. Outstanding checks totaled $4,000 at June 30. Deposit in transit totaled $3,000 on June 30. The bank statement included a credit memorandum in the amount of $150 for interest. Check #1221 (in payment of account payable) was written for $4,900, but recorded in the accounting records as $4,090. The adjusted bank and book balance is:
$25960
A company's warehouse was destroyed by a tornado on March 15. The only information that was salvaged is as follows: Inventory, January 1: $28,000 Purchases for the period 1/1 through 3/15: $15,000 Sales for the period 1/1 through 3/15: $50,000 Sales returns for the period 1/1 through 3/15: $300 Company's gross profit ratio: 20% Using the gross profit method, the estimated cost of inventory that was destroyed is ____:
$3240
A company has beginning inventory of $20,000, purchases of $15,000, and ending inventory of $2,500. The cost of goods available for sale is ___.
$35000
A company uses a periodic inventory system. On November 1, the company had 8 items of beginning inventory with a cost of $22 per unit. On November 2, the company purchased 10 units at $21 per unit. On November 6, the company purchased 5 units at $25 per unit. Then, on November 8, the company sold 18 units. Using LIFO, the cost of the 18 units sold is _____.
$401
Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the last-in, first-out (LIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet.
$52
Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the weighted average inventory costing method. Identify the cost of the ending inventory on the balance sheet. (Round your answer to 2 decimal places.)
$55.20
Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the first-in, first-out (FIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet.
$59
A company has the following per unit recorded cost and replacement cost relating to its inventory: Item 1 5 units Cost $50 Market $45 Item 2 7 units Cost $60 Market $65 Item 3 9 units Cost $30 Market $25 Applying the lower of cost or market method, the reported value of this company's ending inventory if LCM is applied to individual items is _____.
$870
Reinstating an account(direct)
1) DR: Accounts Receivables CR: Bad Debts Expense 2) DR: Cash CR: Accounts Receivables
Inventory, December 31, 2018 $ 75,000 Inventory, December 31, 2019 125,000 Net Sales for 2019 850,000 Cost of Goods Sold for 2019 400,000 The company's days' sales in inventory is closest to ____.
114 days
A company borrowed $11,000 by signing a 90-day promissory note at 10%. The total interest due on the maturity date is: (Use 360 days a year.)
275
Inventory, December 31, 2018 $ 75,000 Inventory, December 31, 2019 125,000 Net Sales for 2019 850,000 Cost of Goods Sold for 2019 400,000 The company's inventory turnover ratio is closest to ____.
4
direct write-off method
A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible
Intercontinental, Inc., uses a perpetual inventory system. Consider the following information about its inventory: July 1, purchased 10 units for $910 or $91 per unit; July 3, purchased 15 units for $1,590 or $106 per unit; July 14, sold 20 units; July 17, purchased 20 units for $2,300 or $115 per unit; July 28, purchased 10 units for $1,190 or $119 per unit; July 31, sold 23 units. Using FIFO, the cost of goods sold for the sale of 23 units on July 31 is ____ and the inventory balance at July 31 is _____.
CGS for 23 units on July 31-2600 Inventory Balance- 1420
Intercontinental, Inc., uses a perpetual inventory system. Consider the following information about its inventory: July 1, purchased 10 units for $910 or $91 per unit; July 3, purchased 15 units for $1,590 or $106 per unit; July 14, sold 20 units; July 17, purchased 20 units for $2,300 or $115 per unit; July 28, purchased 10 units for $1,190 or $119 per unit; July 31, sold 23 units. Using weighted average, the cost of goods sold for the sale of 23 units on July 31 is ____ and the inventory balance at July 31 is _____.
CGS for July 31st sale- $2622 Inventory balance-$1368
Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:
DR: Accounts receivables 2000 CR: allowance for DA 2000 DR: cash 2000 CR: accounts receivables
A company reports merchandise inventory on December 31 at $250,000 but LCM applied to items is $200,000.Record the journal entry to report merchandise inventory at the correct amount.
DR: CGS-$50,000 CR: Merchandise Inventory-$50,000
Accepting a note on a past due account with cash
DR: Cash and Notes receivables CR: Accounts Receivables
Selling receivables to a company or bank
DR: Cash and factoring fee expense CR: Accounts Receivables
At the end of business on September 1, the total displayed on the cash register tape shows $1,059 of cash sales for the day. However, when the clerk and the supervisor count the cash in the register, the count reveals that $1,050 was actually collected from customers
DR: Cash-1050 and Cash Over and Short-9 CR: Sales-1059
accepting a notes receivables for a sale
DR: Notes Receivables (for principal) CR: Sales
Recall on February 1, Derrick Company established a $200 petty cash fund. On February 15, when the fund balance reached $7, the petty cash custodian prepared a petty cash report that summarized receipts for postage ($140) and printing ($54). Complete the seller's necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.
DR: Postage expense and printing expense CR: Cash over and Short and cash
The work of one person acts as a check on another person to prevent fraud and errors. Responsibility for a task should be clearly established and assigned to one person. Use of cash registers, time clocks and personal identification scanners to improve internal control Use of detailed records to help prevent loss of assets.
Divide responsibilities establish responsibilities apply technological controls maintain adequate records
The accounts receivable turnover is calculated by:
Dividing net sales by average accounts receivable
On July 18, Jerry Pope signed a note when he borrowed $1,200 at 12 percent for 30 days from Second National Bank. In this situation:
Pope is the maker of the note
Which of the following is a correct statement regarding control of over-the-counter cash receipts:
The supervisor should compare the register transactions with the cash receipts report to make sure that both are correct
A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.
True
If the Cash Over and Short account has a credit balance at the end of the period, the amount is commonly reported as miscellaneous revenue.
True
companies make a physical inventory count at least once a year
True
A bank issues a debit memorandum to notify a depositor of:
a deduction to the depositors account
If a perpetual inventory system is in use _____.
a physical inventory count should be taken at least annually.
inventory turnover
cost of goods sold/average inventory value(Year 1 inventory+year 2 inventory/2)
FIFO assumes
costs flow in the order incurred
During the month of July, Clanton Industries issued a check in the amount of $856 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:
deduct the check amount from the bank balance
FIFO
lowest CGS, highest net income, and highest inventory
The pledging of receivables:
enables a company to raise cash, retain ownership of receivables, not transfer bad debts to the lenders and are disclosed in finance statements
days sales in inventory focuses on
ending inventory
Weighted Average
middle CGS and middle net income
financial, family and societal stresses to succeed
pressure
An internal control system is used to do all of the following:
protect assets and ensure reliable accounting
Internal control systems are:
requires by the SOX act to be documented and certified if the companys stock is traded on an exchange
goods in transit shipped to purchaser- FOB destination
excluded from inventory
Most large thefts in a company come from payments of:
fictitious invoices
goods in inventory include all goods except
goods sold
LIFO
highest CGS, lowest net income and lowest tax expense
The accounts receivable turnover measures:
how often on average receivables are received and collected during the period
goods in transit shipped from person- FOB destination
included in inventory
Principles of internal control include all of the following except:
maintaining security by having one person track and record assets
The listing of cash received via mail should be sent to each of the following individuals
Cashier, Recordkeeper, Mail Clerk
a high inventory turnover is
best(more is being sold)
Employees justifying fraudulent behavior
rationalization
Select the items below which must be adjusted to the book balance
book errors, interest earning on checking accounts, collections of accounts receivables
LIFO approximates
current cost on the income statement/ CGS approximates its current cost
In applying the lower of cost or market method to inventory valuation, market is defined as
current replacement cost
Cash management principles include all of the following except _____.
maximize other assets
accounts receivables turnover
net credit sales/average net accounts receivable
if goofs can be sold at a reduced price they are included in the
net realizable value (sales price-cost of making the sale)
internal control weaknesses in a business
opportunity
fob shipping point
ownership of goods passes to the buyer when the public carrier accepts the goods from the seller-seller accepts shipping charges
FOB destination
ownership of goods remains with the seller until the goods reach the buyer-buy doesn't pay for shipping
Market value is replacement cost for LIFO, but net ___ value is used for FIFO, Specific Identification and Weighted Average methods.
realizable
What are the two reasons that inventory must be estimated?
Companies report interim statements and companies might experience a casualty
The direct write off method
is permitted if results are similar to the allowance method
Technology helps managers to monitor and control business activities and includes each of the following except:
less extensive testing of records
Sellers allow customers to use credit cards for all of the following reasons:
seller does not decide who gets credit, seller receives cash sooner than if credit is granted directly to the customers, and it may allow seller to increase sales volume
used by bank employees to verify signatures on checks
signature card
If a check correctly written and paid by the bank for $745 is incorrectly recorded in the company's books for $754, how should this error be treated on the bank reconciliation?
subtract $9 from the book balance
A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.
true
goods from inventory are not included in the consignee inventory
true
Marion Industries has an average accounts receivable turnover ratio of 12 times per year whereas most of its competitors have a ratio nearer to 8 times. This suggests that Marion's management should consider:
using more liberal credit terms to increase sales
An advantage of FIFO is that it assigns the most recent costs to CGS and does a better job of matching current costs wit revenues on the income statement.
False
A company uses a periodic inventory system. On August 1, the company had 6 items of beginning inventory with a cost of $7 per unit. On August 3, the company purchased 16 units at $14 per unit. Then, on August 5, the company sold 12 units. Using FIFO, the cost of the 12 units sold is _____.
$126
A company has beginning inventory of $10,500, purchases of $5,500, and ending inventory of $2,500. The cost of goods sold is ___.
$13,500
A company uses a periodic inventory system. On August 1, the company had 6 items of beginning inventory with a cost of $7 per unit. On August 3, the company purchased 16 units at $14 per unit. Then, on August 5, the company sold 12 units. The 12 units sold consisted of 7 units from the August 3rd purchase and 5 units from the August 1st beginning inventory. Using specific identification, the cost of the 12 units sold is _____.
$133
Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $112,000 in sales during the second quarter of this year. If it began the quarter with $19,200 of inventory at cost and purchased $73,200 of inventory during the quarter, its estimated ending inventory by the gross profit method is:
$14000
A company uses a periodic inventory system. On April 1, the company had 9 items of beginning inventory with a cost of $13 per unit. On April 18, the company purchased 15 units at $14 per unit. Then, on April 29, the company sold 14 units. Using weighted average, the cost of the 14 units sold is closest to _____.
$190.75
to establish a petty cash fund
debit petty cash and credit cash
Writing off an account(direct)
DR: Bad Debts Expense CR: Accounts Receivables