ACCT 240 Quizzes (Exam 2/Final)

Over the past five years, a company had average annual credit sales of $320,000 and this year had write-offs of $2,000. Credit sales in the current year are $300,000. The balance in the Allowance for Doubtful Accounts is a $500 credit. Using the percentage of credit sales method and an estimate of 1%, what amount should the company record as an estimate of bad debt expense? A. $2,500 B. $3,000 C. $2,980 D. $3,200

3000

Which of the following will cause net income to be overstated for the following (next) year? A. Current year's ending inventory is understated. B. Current year's ending inventory is overstated. C. Next year's beginning inventory is overstated. D. Next year's ending inventory is understated.

A

All of the following may be considered intangible assets except: A. Accounts receivables. B. Copyrights. C. Franchises. D. Goodwill.

A

An NSF check returned by the bank should be entered in the depositor's accounting records by a debit to: A. Accounts Receivable. B. An expense account. C. Cash. D. Cash Over and Short.

A

Gross profit is the difference between: A. Net sales and the cost of goods sold. B. The cost of merchandise purchased and the cost of merchandise sold. C. Net sales and net income. D. Net sales and all expenses.

A

If the inventory at the end of the current year is understated and the error is never caught, the effect is to: A. Understate income this year and overstate income next year. B. Overstate income this year and understate income next year. C. Understate income this year with no effect on income next year. D. Overstate the cost of goods sold, but have no effect on net income.

A

In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows: A. One entry recognizes the sales revenue and the other recognizes the cost of goods sold. B. One entry records the purchase of merchandise and the other records the sale. C. One entry records the cost of goods sold and the other reduces the balance in the Inventory account. D. One entry updates the subsidiary ledger and the other updates the general ledger.

A

Intangible assets are assets used in business operations but which: A. Lack physical substance. B. Cannot be sold. C. Have been depreciated below their estimated salvage values. D. Cannot be specifically identified.

A

Sales discounts and allowances: A. When properly recorded will reduce net sales. B. When properly recorded will increase net sales. C. Will not affect net sales. D. Are always immaterial and need not be recorded.

A

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million. Which of the following statements is true? A. The book value of long-lived assets is $2.4 million. B. The market value of long-lived assets is $3.5 million. C. The carrying value of long-lived assets is $3.5 million. D. The resale value of long-lived assets is $2.4 million.

A

The book value or carrying value of an asset is equal to: A. its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date. B. its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date. C. the amount that could be obtained for the asset on the balance sheet date if it were sold. D. the annual cost of carrying the asset in inventory.

A

The term accumulated depreciation, as used in accounting, is best defined as: A. The portion of a tangible asset recognized as expense since the asset was acquired. B. Funds (or cash) set aside to replace the asset being depreciated. C. Earnings retained in the business that will be used to purchase another asset when the present asset is depreciated. D. An expense of doing business.

A

A company reported the following information for its most recent year of operation: purchases, $100,000; beginning inventory, $20,000; and cost of goods sold, $110,000. How much was the company's ending inventory? A. $10,000. B. $20,000. C. $15,000. D. $30,000.

A. Beginning inventory + purchase - COGS = ending inventory 20, 000+ 100,000 - 110,000 = 10,000.

Maxim Corp. has provided the following information about one of its products: DATE TRANS. # of UNITS COST/UNIT 1/1 Beg. Inv. 200 $140 6/5 Purchase 400 $160 11/10 Purchase 100 $200 During the year, Maxim sold 400 units. What is ending inventory using the average cost method?

A. Total inventory value: 200 x 140 + 400 x 160 + 100 x 200 = 112,000 Average price per unit, 112,000/ (200+400+100) = 160 COGS = 400 x 160 = 64,000, the ending inventory value = 300 x 160 = 48,000 Answer is A. In this cost method, we treat all units cost equally, 160 per unit.

If the ending inventory is overstated in the current year: A. Net income will be understated in the current year. B. Next year's beginning inventory will also be overstated. C. Next year's net income will be overstated. D. Next year's beginning inventory will be understated

B

The Grass is Greener Corporation uses the allowance method and learns that a customer who owes $350 has gone bankrupt and payment will not be made. The Grass is Greener Corporation should: A. debit Bad Debt Expense and credit Accounts Receivable for $350. B. debit the Allowance for Doubtful Accounts and credit Accounts Receivable for $350. C. debit Bad Debt Expense and credit Cash for $350. D. debit Accounts Receivable and credit Bad Debt Expense for $350.

B

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation. One-half of the total cost is paid in cash; the other half is financed. How should the company record this transaction? A. Debit cash for $250,000, debit notes payable for $250,000 and credit equipment for $500,000. B. Debit equipment for $500,000, credit cash for $250,000 and credit notes payable for $250,000. C. Debit cash for $250,000, debit notes payable for $250,000 credit equipment for $450,000, and credit expenses for $50,000. D. Debit equipment for $450,000, debit expenses for $50,000, credit cash for $250,000 and credit notes payable for $250,000.

B

When prices are increasing, which inventory method will produce the highest cost of goods sold? A. FIFO. B. LIFO. C. Average. D. Cost of goods sold will not change.

B

Which of the following credit terms is the most advantageous to the purchaser of merchandise? A. 1/10, n/30. B. 5/10, n/60. C. 2/10, n/30. D. 5/10, n/20.

B

An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold? A. A gain of $1,200. B. A loss of $1,200. C. A loss of $7,200. D. A gain of $7,200.

B ($18,800 - $6,000) - $11,600 = $1,200 LOSS

Linetech Company's bank statement showed an ending balance of $8,000. Items appearing in the bank reconciliation included: outstanding checks, $500; deposits in transit, $1,000; bank service charges, $50; and Driver Company's $250 check erroneously deducted from Linetech's bank account by the bank. How much is the correct cash balance at the end of the month? A. $10,600. B. $8,750. C. $8,500. D. $8,250.

B. Book cash balance, $8,750 = Bank balance, $8,000 - Outstanding checks, $500 + Deposits in transit, $1,000 + Bank error, $250.

The bookkeeper prepared a check for $68 but accidentally recorded it as $86. When preparing the bank reconciliation, this should be corrected by: A. Adding $18 to the bank balance. B. Subtracting $18 from the bank balance. C. Adding $18 to the book balance. D. Subtracting $18 from the book balance.

C

The credit term 2/10, n/30 means: A. That after 10 days 2% interest is charged. B. That there is a 10% discount if payment is received within 30 days. C. That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days. D. There is a 10% discount if paid immediately and 2% if paid within 30 days.

C

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false? A. Income tax expense will be higher under FIFO than under LIFO. B. Net income will be higher under FIFO than under LIFO. C. Ending inventory will be lower under FIFO than under LIFO. D. Cost of goods sold will be lower under FIFO than under LIFO.

C

When a company records depreciation it debits: A. liabilities and credits expenses. B. expenses and credits cash. C. expenses and credits a contra-asset account. D. long-lived assets and credits expenses.

C

Which of the following statements is correct? A. Revenue is recognized at the time of shipment when goods are shipped FOB destination. B. Sales returns and allowances are reported as operating expenses on an income statement. C. Revenue is recorded when title and risks of ownership transfer to the buyer. D. Sales discounts are reported as cost of sales on an income statement.

C

A deposit in transit on a bank reconciliation should be: A. Added to the depositor's book cash balance. B. Subtracted from the depositor's book cash balance. C. Added to the bank statement balance. D. Subtracted from the bank statement balance.

C. Deposits in transit represent deposits recorded on the books, which have not yet been recorded on the bank statement. They are therefore added to the bank statement balance.

During the same year, what is the ending inventory value if maxim is using the FIFO cost method? A. $48,000. B. $64,000. C. $52,000. D. $44,000.

C. FIFO, first in, first out. The left over inventory will be 200 units purchased on 6/5 and 100 units purchased on 11/10. 200*160 + 100*200 = 52,000, Answer is C.

An allowance for doubtful accounts is a contra-account that offsets: A. bad debt expense. B. cash. C. net income. D. accounts receivable.

D

When preparing a bank reconciliation, checks outstanding will: A. Increase the balance per depositor's records. B. Decrease the balance per depositor's records. C. Increase the balance per the bank statement. D. Decrease the balance per the bank statement.

D

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system. Your company should record: A. $3 million in equipment, and $200,000 in expenses. B. $3.2 million in expenses. C. $2.8 million in equipment and the rest in expenses. D. $3.2 million in equipment.

D

Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land? A. $256,000. B. $281,000. C. $284,600. D. $282,200.

D ($256,000 + $15,300 + $2,400 + $8,500 = $282,200)

During the same year, what is the ending inventory value if maxim is using the LIFO cost method? A. $48,000. B. $64,000. C. $52,000. D. $44,000.

D. LIFO, last in first out. The left over inventory will be 200 units from the beginning inventory, and 100 units purchased on 6/5. 200*140 + 100*160 = 44,000, Answer is D.