Exam 2 Flash Cards

A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value of the note is

$10,150

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

$108

Based on the following data, what is the accounts receivable turnover? Sales on account during year $700,000 Cost of merchandise sold during year 270,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

17.5

Based on the following data for the current year, what is the inventory turnover? Sales on account during year $700,000 Cost of merchandise sold during year 270,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

2.7

Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is

a deduction from the balance per company's records

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?

Accounts Receivable

Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

Accounts Receivable—Stanton, debit $19,600; Sales, credit $19,600, and Accounts Receivable—Stanton, debit $500; Cash, credit $500

Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as

cash sales

What is the type of account and normal balance of Allowance for Doubtful Accounts?

contra asset, credit

Which one of the following below is not an element of internal control?

cost-benefit considerations

If merchandise sold on account is returned to the seller, the seller acknowledges the return by issuing a

credit memo

The arrangements between buyer and seller as to when payments for merchandise are to be made are called

credit terms

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

credit to Merchandise Inventory

Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

credit to Merchandise Inventory

Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a

credit to Sales for $4,900

Merchandise inventory is classified on the balance sheet as a

current asset

Which of the following items would not​​ affect the cost of merchandise inventory acquired during the period?

sales commissions

Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a

debit to Accounts Receivable

Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

debit to Merchandise Inventory

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a

debit to Merchandise Inventory

Entries are made to the petty cash account when

establishing the fund

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

gross profit

A debit balance in the Allowance for Doubtful Accounts

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

management estimates the amount of uncollectibles

The entry to record the return of merchandise from a customer would include a

debit to Customer Refunds Payable

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

makes no journal entry for the freight

Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Merchandise Inventory account?

$20,580

At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year, previously written off accounts of $120 are reinstated and accounts totaling $740 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be

$140

Calculate income from operations for Jonas Company based on the following data: Sales $764,000 Operating expenses 52,500 Cost of merchandise sold 538,000

$173,500

Calculate the gross profit for Jefferson Company based on the following: Sales $764,000 Selling expenses 42,500 Cost of merchandise sold 538,000

$226,000

Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. Pound Co. paid the invoice within the discount period. What is the sales amount to be recorded in the above transactions?

$24,990

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $340,000 and Allowance for Doubtful Accounts has a balance of $51,000. What is the net realizable value of accounts receivable?

$289,000

Using the following information, what is the amount of income from operations? Purchases $32,000 ​ Selling expense $ 960 Merchandise inventory, September 1 5,700 ​ Merchandise inventory, September 30 6,370 Administrative expense 910 ​ Sales 63,000 Rent revenue 1,200 ​ Interest expense 1,040

$29,800

Using the following information, what is the amount of net income? ​ Purchases $32,000 ​ Selling expense $ 960 Merchandise inventory, September 1 5,700 ​ Merchandise inventory, September 30 6,370 Administrative expense 910 ​ Sales 63,000 Rent revenue 1,200 ​ Interest expense 1,040

$29,960

On October 1, Black Company receives a 9% interest-bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of

$450

Using the following information, what is the cost of merchandise sold? Purchases $32,000 Selling expense $ 960 Merchandise inventory, September 1 5,700 Merchandise inventory, September 30 6,370 Administrative expense 910 Sales 63,000 Rent revenue 1,200 Interest expense 1,040

$31,330

Using the following information, what is the amount of gross profit? ​ Purchases $32,000 ​ Selling expense $ 960 Merchandise inventory, September 1 5,700 ​ Merchandise inventory, September 30 6,370 Administrative expense 910 ​ Sales 63,000 Rent revenue 1,200 ​ Interest expense 1,040

$31,670

Minor Company had checks outstanding totaling $19,200 on its April bank reconciliation. In May, Minor Company issued checks totaling $64,900. The May bank statement shows that $47,600 in checks cleared the bank in May. A check from one of Minor Company's customers of $300 was also returned marked "NSF." The amount of outstanding checks on Minor Company's May bank reconciliation should be

$36,500

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

$364

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

$372

If net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2?

$4.02

. Rodgers Company gathered the following reconciling information in preparing its May bank reconciliation. Calculate the adjusted cash balance per books on May 31. ​ Cash balance per books, 5/31 $5,400 Deposits in transit 375 Notes receivable and interest collected by bank 650 Bank charge for check printing 40 Outstanding checks 2,400 NSF check 140

$5,870

Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of sales discount allowable?

$500

The inventory data for an item for November are: Nov. 1 Inventory 20 units at $19 4 Sold 10 units 10 Purchased 30 units at $20 17 Sold 20 units 30 Purchased 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

$590

Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold was $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

$7,972

A company reports the following: Net income $160,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $35 ​ The company's earnings per share on common stock is

$7.50

A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of the note is

$7000

The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:

$750

If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on total assets for the year?

11.9%

What is the rate earned on stockholders' equity?

13.6%

If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on stockholders' equity for Year 2?

14.5%

Based on the following data for the current year, what is the number of days' sales in accounts receivable? Sales on account during year $584,000 Cost of merchandise sold during year 300,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

25

Assume the following sales data for a company: Current year $325,000 Preceding year 250,000 ​ What is the percentage increase in sales from the preceding year to the current year?

30%

. Income statement information for Sadie Company is below: Sales $175,000 Cost of goods sold 115,000 Gross profit $ 60,000 ​ Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.

34%

Based on the following data for the current year, what is the number of days' sales in inventory? Sales on account during year $1,204,500 Cost of merchandise sold during year 657,000 Accounts receivable, beginning of year 75,000 Accounts receivable, end of year 85,000 Inventory, beginning of year 85,600 Inventory, end of year 98,600

51.2

When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit

Accounts Payable

Kaden Co. sells merchandise on credit to Jase Co. for $9,600. The invoice is dated July 15 with terms of 1/15, net If Jase Co. chooses not to take the discount, by when should the payment be made?

August 29

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?

Bad Debt Expense 17,000 Allowance for Doubtful Accounts 17,000

The Corbit Corp. sold merchandise for $10,000 cash. The cost of the merchandise sold was $7,590. The journal entries to record this transaction under the perpetual inventory system would be

Cash 10,000 Sales 10,000 ​ Cost of Merchandise Sold 7,590 Merchandise Inventory 7,590

Which account is not classified as a selling expense?

Cost of Goods Sold

Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

Cost of Merchandise Sold

If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are

FOB destination

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

FOB shipping point

The inventory method that assigns the most recent costs to cost of merchandise sold is

LIFO

Under the perpetual inventory system, all purchases of merchandise are debited to the account

Merchandise Inventory

Which of the following accounts usually has a debit balance?

Merchandise Inventory

Generally, the revenue account for a merchandising business is entitled

Sales

Which of the following accounts has a normal credit balance?

Sales

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

Sales Tax Payable for $420

Which of the following accounts will not be found in the Cost of Merchandise Sold section of the income statement for a company using the periodic inventory method?

Selling Expense

. The following information is available for Jase Company: Market price per share of common stock $25.00 Earnings per share on common stock $1.25 ​ Which of the following statements is correct?

The price-earnings ratio is 20, and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year.

All of the following are documents used for inventory control except

a ​petty cash voucher

Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the company. This item is a(n)

addition to the balance per company's records

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would be included on the bank reconciliation as a(n)

addition to the balance per the company's records

President's salaries, depreciation of office furniture, and office supplies are

administrative expenses

Where are selling and administrative expenses found on the multiple-step income statement?

after gross profit

A voucher is usually supported by

all of these

The debit balance in Cash Short and Over at the end of an accounting period is reported as

an expense on the income statement

In horizontal analysis, each item is expressed as a percentage of the

base year figure

Journal entries based on the bank reconciliation are required in the company's accounts for

book errors

Multiple-step income statements show

both gross profit and income from operations

. A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is

debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; credit Interest Revenue, $120

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250

If the physical count of inventory revealed $158,000 of merchandise on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shrinkage?

debit Cost of Merchandise Sold, $5,000; credit Merchandise Inventory, $5,000

When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry?

debit Merchandise Inventory; credit Accounts Payable

The journal entry to record a note received from a customer to replace an account is

debit Notes Receivable; credit Accounts Receivable

When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a

debit to Cash; a credit to Merchandise Inventory

To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts

. A $150 petty cash fund has cash of $54 and receipts of $83. The journal entry to replenish the account would include a

debit to Cash Short and Over for $13

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

debit to Cash and a credit to Sales

A note receivable due in 18 months is listed on the balance sheet under the caption

investments

The bank reconciliation

is part of the internal control system

Which of the following would appear as an extraordinary item on the income statement?

loss from land condemned for public use

Cash equivalents include

money market accounts and commercial paper

When a firm uses internal auditors, it is adhering to which of the following internal control elements?

monitoring

What entry is required in the company's accounts to record outstanding checks?

no entry is required

Current assets are usually listed in order

of liquidity

In credit terms of 3/15, n/45, the "3" represents the

percent of the cash discount

The inventory system employing accounting records that continuously disclose the amount of inventory is called

perpetual

Which of the following should not be considered cash by an accountant?

postage stamps

The objectives of internal control are to

provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports are accurate, and laws and regulations are complied with

​Sarbanes-Oxley applies to

publicly held companies

Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

ratio of fixed assets to long-term liabilities

Which document establishes an initial record of the receipt of the inventory?​

receiving report

The portion of an invoice that is returned with payment is a

remittance advice

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

specific identification

Who is responsible for the freight costs when the terms are FOB shipping point?

the buyer

Inventory shrinkage is recorded when

there is a difference between a physical count of inventory and inventory records

The current ratio is

used to evaluate a company's liquidity and short-term debt paying ability

The percent of fixed assets to total assets is an example of

vertical analysis

One of the weaknesses of the direct write-off method is that it

violates the matching principle

Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000.​ Which of the following is correct regarding the entry to record estimated uncollectible receivables?

​Allowance for Doubtful Accounts will be credited

Selling receivables is called​

​factoring

FIFO reports higher gross profit and net income than the LIFO method when

​prices are increasing