Accounting Test 1

The average current ratio for stores such as Gunther & Sons is 2.4 to 1. What does this comparison tell you about its liquidity?

It is more liquid than its competitors

Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?

FIFO

Texas Inc. sold merchandise to Fagin Corp. on December 28, 2016, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2017. Which one of the following statements is true?

Fagin Corp. should record a liability for the purchase on January 3, 2017.

Xu Corp. stated business in the beginning of 2016. Xu selected FIFO method for its inventory. In order to maximize its profits for 2016 under this method, prices must be

Increasing

Which method of inventory costing is not acceptable for financial accounting purposes?

Replacement cost

All of the following statements are true except:

Write-downs of inventory can be reversed in later periods under U.S. GAAP

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, 2016, on account. Tile Magic Corp. paid the invoice on August 31, 2016. How much sales discount will Floors recognize?

$-0-

Sales discounts is classified as what type of account?

A contra- revenue

What are Bevco's current assets?

Cash + Accounts Receivable + Inventory

Which statement best represent's Hopper's performance?

Hopper's profit margin ratio decreased

What is the primary objective of financial reporting?

To provide useful information for decison making

In a periodic inventory system, the cost of purchases is recognized as

an integral part of the calculation of cost of goods sold.

Rosu Company has total current assets of $150,000 and total current liabilities of $50,000. What is the amount of working capital for Rosu Company?

$100,00

If Roki uses the weighted average cost inventory method, the amount assigned to the June 30th inventory would be

$3,626.50/240 = $15.11 :$15.11 X 90 = $1,359.90

Grinn, Inc. ofers terms of 2/10, n/30 to credit customers. Great Buy Corp. purchased 100 tile cutters with a list price of $20 each on March 5, 2016, on account. If Great Buy Corp. pays the amount of the invoice for its purchase on March 14, 2016, how much cash will Grinn receive from Great Buy Corp?

($20 X 100 Tile Cutters) - 98% (100%-2%)

If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase, Roki's cost of goods sold under the specific identification method would be

(50 X $15 - On hand June 1) + (70 X 15.10 - June 5 Purchase) + (30 X$15.20 - June 14 Purchase)

How many units did Roki, Inc. sell during June?

50 + 115+ 75 - 90

Which of the following would not appear on the income statement?

Accounts Receviable

What was the cash balance for Marvel Shoes at the end of the current year?

Beginnign Balance + Increase in Cash

If the amount assigned to ending inventory is incorrect:

Both the balnce sheet and the income statement are affected.

In order to determine inventory for its balance sheet, it is best for a company to count the inentory at the end of its acounting period for

Both the periodic and perpetual inventory systems

Lottony, Inc. is concerned about is profitability for the current year, since its profit marign has dropped 10% since last year. Which of the following is the least useful comparison in evaluating the drop in Lottony's profit margin?

Comparison with its current ratio for the current year

Which of the following terms best describes "Cost of goods available for sale"?

Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year

Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incured. Which accounting principle or concpet is applied in this example?

Cost/Benefit

What is the correct method for calculating working capital?

Current Assets minus Current Liabilities

What is the correct method for calculating working captial?

Current Assets minus Current Liabilities

How are assets which are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cyle is shorter than one year) reported on a classifed balance sheet?

Current assets

If a company overstates its ending inventory balnce for 2017 by $10,000, and overstates its ending inventory balnce for 2016 by $5,000, what are the effects on its net income for 2017 and 2016?

Effect on 2017 Net Income: Overstated by $5,000 Effect on 2016 Net Income: Overstated by $5,000

The inventory account a manufacturer uses to record the cost of products completed and available for sale is called

Finshed goods inventory

The cost of goods sold is

Goods available for sale less ending inventory

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?

In contra accounts to the Purchases account

Forman, Inc. earned $600,000 profit during 2016. On which financial statement(s) will you find the dollar amount of the profit earned by the company?

Income statement and statement of retained earnings

Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income?

LIFO

Federal income tax rules allow busineses to use differnt inventory costing methods for tax reporting and financial reporting with one exception. Which of the following situations is not allowed by federal income tax rules?

LIFO/FIFO

The qualitative characteristics of accounting data include

Reliability

Which one of the following would not be found as an asset on the balance sheet of a manufacturer?

Merchandise Inventory

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

No net effect

What was the amount of net increase or decrease in teh cash balance for Marvel Shoes for the current year?

Operating Activities - Investing Activities - Financing Activities

What is Seikoson's Net Income

Operating Revenues - Selling Expenses - General and Administrative Expenses - Interest Expense - Income Tax Expense = Net Income

Business entities generally carry on

Operating, investing, and financing activities

How much will Goldman report as its cost of goods sold in its 2016 income statement?

Purchases - Purchase Returns and Allowances + Transportation-in + Inventory + Inventory

Which one of the following is not a major category for long-term assets?

Receivables

Tavella Company applies the consistency convention. What does this mean?

Tavella Co. applies the same accounting principles each accounting period

Excursion Corp. increased its dollar amount of working capital over the past several years. To further evaluate the company's short-run liquidity, which one of the following measures should be used?

The current ratio

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 $2,200 if the invoice is paid on July 9

Which one of the following statemnts regarding the application of the lower of cost or market method is true?

The lower of cost or market method is an exception to the historical cost principle.

Which of the following is the best description of the purpose of financial reporting?

To help the users reach their decisons in an informed manner

Which of the following is the best description of the purpose of financial reporting?

To help the users reach their decisons in an informed manner.

Transportaion-in is

part of cost of gods purchased