ACCT 2001 Exam 2

The maturity value of a $25,000, 12%, 90-day note receivable dated February 20 (rounded to the nearest whole number) is

$25,750

The interest on a $6,000, 8%, 9-month note receivable is

$360

When the allowance method is used, the entry to write off a customer's account: a. increases bad debt expense b. has no effect on net accounts receivable c. decreases net accounts receivable d. increases the balance of the allowance for uncollectible accounts

b. has no effect on net accounts receivable

Grace Co. is preparing the August Bank Reconciliation and has the following info.: Cash Balance per books at 7/31 $6,815.30 Bank Balance per statement at 8/30 7,695.80 Bank Service Charge 25.00 Notes receivable & interest collected by Bank 1,868.00 Bank Charge for collecting notes receivable 10.00 NSF Check returned by Bank 550.00 Correction to check #4681 that cleared the bank at $492 but was incorrectly entered in the books at $429. 63.00 Deposits in transit 1,819.60 Outstanding checks 1,480.10 What is the adjusted cash balance per books at 8/30/00?

$ 8,035.30

Beginning inventory: 55 @ $10 = $550 Purchase February 4: 22 @ 12 = 264 Purchase May 15: 20 @ 13 = 260 Purchase October 20: 48 @ 15 = 720 Sales during the year: 84 @ $30 What is the weighted average cost?

$12.37

On June 2, ABC Company sold merchandise to XYZ Company for $2,000 with terms 2/15, n/30. XYZ Company returns damaged goods of $600. On June 16 ABC receives a check from XYZ to settle the account. What is the amount of the check?

$1372 2000-600=1400 1400 x .02=28 1400-28=1372

Under the perpetual inventory system, purchases of merchandise for sale are recorded in an account called

inventory

When legal title of goods remains with the seller until the goods reach the buyer the terms are __________ and the ___________ has legal title.

FOB destination, seller

A company has Accounts Receivable of $60,000 for the year and it estimates that uncollectible accounts will be 10% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of:

$6,000

Units Unit Cost Total Beginning inventory 55 $10 $550 Purchase February 4 22 12 264 Purchase May 15 20 13 260 Purchase October 20 48 15 720 Sales during the year 84 30 What is the cost of ending inventory, assuming the LIFO method is used?

$622

Units Unit Cost Total Beginning inventory 55 $10 $550 Purchase February 4 22 12 264 Purchase May 15 20 13 260 Purchase October 20 48 15 720 Sales during the year 84 30 What is cost of goods sold, assuming the FIFO method is used?

$905

Smith Company had Beginning Inventory of $50,000, Ending Inventory of $80,000, Cost of Goods Sold of $320,000, and Sales of $500,000. Smith's Inventory Turnover is:

4.9 times

Units Unit Cost Total Beginning inventory 55 $10 $550 Purchase February 4 22 12 264 Purchase May 15 20 13 260 Purchase October 20 48 15 720 Sales during the year 84 30 What is Reed Company's gross profit percentage (rounded) for the year, assuming that ending inventory totaled $685?

56%

Journalize the following transactions using the perpetual inventory system: -June 3 Purchased goods of $5,000. Credit terms were 3/15 n 30. -June 9 Returned 20% of the inventory purchased on June 3. -June 17 Paid supplier for goods purchased on June 3. -June 18 Sold inventory on credit terms 2/10 n/30, $2,000 (cost $1,180). -June 22 Received damaged goods from customer of the June 18 sale, $800 (cost, $480).

6/3 Inventory 5,000 Accounts Payable 5,000 6/9 Accounts Payable 1,000 Inventory 1,000 6/17 Accounts Payable 4,000 Inventory 120 Cash 3,880 6/18 Accounts Receivable 2,000 Sales 2,000 Cost of Goods Sold 1,180 Inventory 1,180 6/18 Sales Return & Allowances 800 Accounts Receivable 800 Inventory 480 Cost of Goods Sold 480

Smith Company had Beginning Inventory of $50,000, Ending Inventory of $80,000, Cost of Goods Sold of $320,000, and Sales of $500,000. Smith's Days in Inventory is:

74 days

Use the following code letterset to indicate where the items described in questions 29 to 32 would appear on the July Bank Reconciliation for Rankin Company: A. Add to the bank statement balance B. Deduct from the bank statement balance C. Add to the book balance D. Deduct from the book balance E. Does not appear on the bank reconciliation Included on the bank statement was a deduction for $40 for a safe deposit box; Rankin does not have a safe deposit box at the bank.

A. Included on the bank statement was a deduction for $40 for a safe deposit box; Rankin does not have a safe deposit box at the bank.

Horizon, Inc. purchased merchandise on account. Subsequently, Horizon paid for the merchandise within the discount period. What journal entry would Horizon make using the perpetual method?

Accounts Payable Cash Inventory

Which of the following is characteristic of a perpetual inventory system? -Cost of goods sold is recorded at the time of each sale -Merchandise purchased for resale is debited to merchandise inventory -Merchandise inventory is credited for damaged items returned to seller

All of the above

Which statement is false regarding the lower of cost or market (LCM) method of inventory? -Market is defined as current replacement cost, not selling price. -LCM is an example of an accounting concept of conservatism. -Inventory is written down to its market value in the period in which the price decline occurs. -All of the above are true regarding LCM.

All of the above are true regarding LCM.

While preparing the bank reconciliation for March, the accountant for Oliver & Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following statements is true? -An adjusting entry must be made to debit Accounts Payable and credit Cash for $45. -An adjusting entry must be made to debit Cash and credit Accounts Payable for $45. -The bank should be notified and the bank balance corrected by adding $45. -No adjusting entry is needed for this reconciling item because it appears on the bank side of the reconciliation.

An adjusting entry must be made to debit Accounts Payable and credit Cash for $45

The due date on a 90 day promissory note dated June 1

August 30

Use the following code letterset to indicate where the items described in questions 29 to 32 would appear on the July Bank Reconciliation for Rankin Company: A. Add to the bank statement balance B. Deduct from the bank statement balance C. Add to the book balance D. Deduct from the book balance E. Does not appear on the bank reconciliation A check written to Connally Supplies Company in June for $420 was not among the checks returned by the bank in either the June or the July bank statement.

B. Deduct from the bank statement blance

Which of the following is false: a. Allowance for doubtful accounts is an estimate of the uncollectible accounts. b. The Direct Write-off Method conforms to the Matching Principle. c. Bad Debts Expense is an operating expense on the income statement. d. Allowance for doubtful accounts is a contra-asset account.

B. The Direct Write-off Method conforms to the Matching Principle.

Use the following code letterset to indicate where the items described in questions 29 to 32 would appear on the July Bank Reconciliation for Rankin Company: A. Add to the bank statement balance B. Deduct from the bank statement balance C. Add to the book balance D. Deduct from the book balance E. Does not appear on the bank reconciliation

C. The bank reported $38 of interest earned by the account during July.

When an account is written off under the allowance method the: A. Bad Debts Expense account is debited. B. Accounts Receivable account is debited. C. Allowance for Doubtful Accounts is debited. D. Loss on Accounts Receivable account is debited.

C. Allowance for Doubtful Accounts is debited

Martinez Co. paid Acme Co. for merchandise with a $2,000, 90-day, 8% note dated April 1. If Martinez pays off the note at maturity, what entry should Acme make on its books at that time assuming interest has not been accrued?

Cash 2040 Notes Receivable 2000 Interest Revenue 40

Bengal Retailers accepted $2,000 of Visa credit card charges for merchandise sold on November 1. Visa charges a 2% fee for its credit card use. The entry to record this transaction by Bengal Retailers will include a credit to Sales revenue of $2,000 and a debit(s) to:

Cash for $1,960 and Service Charge Expense for $40

Which of the following is a primary concern of internal control? -Promote training programs and control incentives. -Enhancing the accuracy and reliability of accounting data. -Ensuring fairness of the financial statements. -Encouraging adherence to prescribed managerial performance.

Enhancing the accuracy and reliability of accounting data

Use the following code letterset to indicate where the items described in questions 29 to 32 would appear on the July Bank Reconciliation for Rankin Company: A. Add to the bank statement balance B. Deduct from the bank statement balance C. Add to the book balance D. Deduct from the book balance E. Does not appear on the bank reconciliation The bank statement included an EFT debit on July 17 for $700 representing Rankin's July insurance payment to EverReady Car Insurance

D. The bank statement included an EFT debit on July 17 for $700 representing Rankin's July insurance payment to EverReady Car Insurance

To ensure receivables are not overstated on the balance sheet, they are reported: a. At gross realizable value. b. At their cash (net) realizable value. c. Less estimated uncollectible receivables. d. Both b and c above.

D. Both B and C

Which accounts would be debited and credited in the entry to record accrued interest on a note receivable?

Debit - Interest Receivable Credit-Interest Revenue

Under the perpetual system when goods previously sold on account are returned to the seller, the seller should:

Debit sales returns and allowance

A company issues a check for $75 but records it incorrectly as $57. On the bank Reconciliation, the $18 should be: -Deducted from the balance per bank. -Added to the balance per bank. -Deducted from the balance per books. -Deducted from the balance per books and added to the balance per bank.

Deducted from the balance per books.

Journal entries are required for all of the following except: -Bank service charges such as check printing charges -NSF Checks and related bank fees -Collection of notes receivable by the bank -Deposits in transit

Deposits in transit

Which of the following is correct about FIFO? -Produces lowest net income in periods of rising prices. -Produces lowest income taxes in periods of rising prices. -Ending inventory reflects most recent purchases and is closest to replacement cost. -Assumes the last units purchased are the first units sold.

Ending inventory reflects most recent purchases and is closest to replacement cost.

Income from operations formula is

Gross Profit--Operating Expenses

Which of the following is not correct regarding internal controls? -Internal controls are based on reasonable assurance. -The purpose of internal controls is to safeguard assets and enhance the accuracy and reliability of the accounting records. -Internal controls are enhanced when one person is responsible for all related activities of a process such as the entire sales process. -Internal controls are limited by cost vs. benefit, human element such as collusion, and the size of the business.

Internal controls are enhanced when one person is responsible for all related activities of a process such as the entire sales process

Jones Company has merchandise for sale on consignment with Smith Corporation. Which of the following statements is true? -Jones owns the goods and must include the merchandise in ending inventory. -Jones does not own the goods and does not include the merchandise in ending inventory. -Smith owns the goods and must include the merchandise in ending inventory. -Neither Jones nor Smith should include the items in ending inventory.

Jones owns the goods and must include the merchandise in ending inventory

Profit Margin Ratio is calculated as

Net Income/Net Sales

Which of the following accounts has a normal credit balance? -Sales discounts -Sales returns & allowances -Purchase returns & allowances -Sales

Sales

Gross Profit is (f0rmula)

Sales revenue - cost of goods sold

Which of the following is not an example of a principle of internal controls? -Each cashier has a separate cash drawer. -Employees are required to use a time clock to record time worked. -One employee is responsible for ordering merchandise, another for receiving goods, and third for making payments. -The cost of establishing a control should not exceed its benefits.

The cost of establishing a control should not exceed its benefits

Which of the following statements is true? -Journal entries are required for every adjustment to the book balance. -Preparing a bank reconciliation changes the cash balance on the books. -A bank reconciliation has no effect on control over cash. -Two of the above are true.

Two of the above are true. A and B are true

Net Accounts Receivable is calculated as

c. Accounts receivable less the Allowance for Doubtful Accounts

Sales returns and allowances and sales discounts are

contra revenue acounts

Which of the following would not be considered an operating expense? -cost of goods sold -rent expense -freight-out -office expense

cost of goods sold

Under the allowance method, the entry to estimate uncollectible accounts is a debit to _____ and a credit to _____.

debit to Bad Debts Expense and credit to Allowance for Doubtful Accounts.