Management 200 test 2

The acquisition cost of a plant asset is equal to the asset's cash price and the reasonable and necessary costs incurred to prepare the asset for its intended use. A. True B. False

A

A business may use the periodic or perpetual inventory systems for different types of inventory. A. True B. False

A.

A company accepts a note receivable of $5,000 on September 1, 2018, that matures in 10 months and has stated interest of 6%. What amount of interest revenue will the company record in 2018 and 2019? A. 2018 = $100; 2019 = $150 B. 2018 = $125; 2019 = $125 C. 2018 = $150; 2019 = $100 D. 2018 = $0; 2019 = $250

A.

An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system. A. True B. False

A.

At the end of the year, a company reports the following inventory amounts ($ per unit): Item # of Units Cost NRV A 100 $4 $8 $400 + $900 B 150 $8 $6 or $1,300 The year‐end adjustment using the lower of cost and net realizable value would include: A. A credit to Inventory for $300 B. A debit to Cost of Goods Sold for $400 C. A debit to Inventory for $500 D. A credit to Cost of Goods Sold for $700

A.

Companies are free to choose FIFO, LIFO, or weighted‐ average cost to report inventory and cost of goods sold. A. True B. False

A.

Dover Corporation uses the allowance method to record its expected credit losses. It estimates its losses at one percent of credit sales, which were $750,000 during the year. The Accounts Receivable balance was $220,000 and the Allowance for Doubtful Accounts had a credit balance of $1,000 before adjustment at year‐end. What amount is the debit to the Bad Debt Expense. A. $7,500 B. $8,500 C. $6,500 D. $3,200

A.

J&L Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance $1,000. During the year J&L wrote off uncollectible receivables of $2,100 In addition, J&L recorded during the year Bad Debt Expense of $2,700. What is J&L's year‐end balance in Allowance for Doubtful Accounts? A. $1,600 B. $4,800 C. $3,700 D. $600

A.

Many intangible assets are not recorded on the balance sheet at their estimated market values A. True B. False

A.

Royce, Inc. purchased the entire business of JW Enterprises, Inc. including all its assets and liabilities for $600,000. Below is information related to the two companies: Royce JW Enterprises Fair value of assets $1,050,000 $800,000 Fair value of liabilities 575,000 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 60,000 50,000 How much goodwill did Royce pay for acquiring JW Enterprises? A. $100,000. (see following) B. $300,000 C. $200,000 D. $150,000

A.

The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO. A. True B. False

A.

The direct write‐off method is used for tax purposes but is not permitted for financial reporting A. True B. False

A.

The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following? A. Matching principle B. Periodicity C. Revenue recognition D. Double‐entry

A.

Which of the following costs would be expensed? A. Performing a tune‐up on the delivery truck. B. Adding a refrigeration unit to a delivery truck. C. Adding a new suspension system to a delivery truck that will allow for heavier loads. D. Adding a new transmission to a delivery truck, which will increase its life and future benefits.

A.

Hillsborough, Inc. makes a basket purchase of land, buildings, and equipment with estimated fair values of $50,000, $150,000, and $50,000, respectively. The purchase price is $200,000. How much should be recorded to the Equipment account? A. $ 200,000 B. $ 40,000 C. $ 25,000 D. $ 20,000

B

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the FIFO method if 200 units were sold in January? A. $ 800 B. $ 900 C. $ 1,000 D. $ 1,100

B.

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25. A. True B. False

B.

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances. A. True B. False

B.

At December 31, Bampton Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (debit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be A. $6,540 B. $7,740 C. $7,800 D. $7,140

B.

Bower Hill Company began the period with $20,000 in inventory. Bower Hill also purchased an additional $20,000 of inventory and returned $2,000 for a full credit. A physical count of the inventory at year‐end revealed an inventory on hand of $16,000. what was Bower Hill's cost of goods sold for the period. A. $16,000 B. $22,000 C. $48,000 D. $50,000

B.

Cambridge, Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation? A. Decrease assets and decrease liabilities B. Decrease assets and decrease stockholders' equity C. Increase liabilities and decrease stockholders' equity D. Increase assets and decrease stockholders' equity

B.

Costs that are expensed when incurred are called? A. Product costs B. Period costs C. Direct costs D. Inventoriable costs E. Indirect costs

B.

Depreciation in accounting is recording the physical deterioration or loss in value of a long‐term asset. A. True B. False

B.

Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods. A. True B. False

B.

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory. A. True B. False

B.

Goods in transit shipped FOB shipping point should be included in the seller's ending inventory. A. True B. False

B.

If a company has ending inventory of $10,000, purchases during the year of $20,000, and beginning inventory of $30,000, cost of goods sold equals $30,000. A. True B. False

B.

If a company has total revenues of $100,000, sales discounts of $5,000, sales returns of $10,000, and sales allowances of $15,000, the income statement will report net revenues of $75,000. A. True B. False

B.

If inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is: A. LIFO B. FIFO C. Weighted Average D. Dollar Value LIFO

B.

If the receivables turnover ratio decreased during the year, A. the days to collect also decreased. B. receivables collection slowed down. C. sales revenues increased at a faster rate that accounts receivables increased. D. none of the above.

B.

In accounting for inventory, the assumed cost flow must match the physical goods flow. A. True B. False

B.

On September 1, 2017, Langdon Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Langdon Corp. report during 2017? A. $60 B. $40 C. $20 D. $30

B.

Research and development costs should be: A. Expensed in the period they are determined to be unsuccessful B. Expensed in the period incurred C. Deferred pending determination of success D. Expensed if unsuccessful, capitalized if successful

B.

San Andreas has the following inventory activity for the month of April. Under the FIFO inventory costing method and the perpetual inventory system, how much is San Andreas' cost of goods sold for April 14? A. $525 B. $650 C. $700 D. $1,400

B.

The amount of cash owed to a company by its customers from the sale of products or services on account is commonly referred to as: A. Income B. Accounts receivable C. Revenue D. Sales

B.

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______. A. Revenue; Income statement B. Asset; Balance sheet C. Expense; Income statement D. Liability; Balance sheet

B.

The ending balance of the Accounts Receivable account was $10,000. Services billed to customers for the period were $20,000, and collections on account from customers were $25,000. What was the beginning balance of Accounts Receivable? A. $30,000 B. $15,000 C. $10,000 D. $20,000

B.

Total revenues $1,000,000 Sales returns and allowances $100,000 Sales discounts $50,000 Sales expenses $100,000 What is the amount of net revenues for Witney? A. $750,000 B. $850,000 C. $900,000 D. $1,000,000

B.

Trade discounts represent a discount offered to the purchasers for quick payment. A. True B. False

B.

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits A. True B. False

B.

When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value A. True B. False

B.

Which of the following is not a period cost? A. Legal costs B. Wages of assembly‐line workers C. Sales commissions D. The salary of a company's chief financial officer

B.

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher? A. $10,000. B. $9,400. C. $9,100. D. $8,000.

C

Meadowcroft Construction purchased a 3‐acre tract of land for a building site for $300,000. The company demolished the old building at a cost of $10,000, but was able to sell scrap from the building for $1,000. The cost of title insurance was $500 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $500 covered the period after the purchase date. The capitalized cost of the land is: A. $300,000 B. $310,000 C. $312,500 (see following) D. $313,000

C

Reilly Company purchased a $500,000 tract of land that is intended to be the site of a new office complex. Reilly incurred additional costs and realized salvage proceeds as follows: Demolition of existing building on site $75,000 Legal and other fees to close escrow 15,000 Proceeds from sale of demolition scrap 10,000 What would be the capitalized cost of the land? A. $500,000 B. $600,000 C. $580,000 (see following) D. $515,000

C

Which of the following expenditures incurred in connection with acquiring machinery is a proper addition to the asset account? A. Freight B. Installation costs C. Both A and B D. Neither A or B

C

Which of the following would be recorded as land improvements? A. Land taxes. B. New building facade. C. Adding a parking lot. D. Real estate commissions.

C

A company purchased $5,250 of merchandise on May 1 with terms of 2/10, n/30. On May 6, it returned $250 of that merchandise. On May 8, it paid the balance owed for merchandise taking any discount it is entitled to. The cash paid on May 8 is A. $250 B. $4,000 C. $4,900 D. $5,000 E. $5,250

C.

An increasing inventory turnover ratio A. Indicates a longer time span between the ordering and receiving of inventory. B. Indicates a shorter time span between the ordering and receiving of inventory. C. Indicates a shorter time span between the purchase and sale of inventory. D. Indicates a longer time span between the purchase and sale of inventory.

C.

Baker Fine Foods has beginning inventory for the year of $10,000. During the year, Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory. Baker will report cost of goods sold equal to: A. $170,000 B. $160,000 C. $140,000 D. $120,000

C.

Castle, Inc., sold inventory for $1,200 that was purchased for $700. Castle records which of the following when it sells inventory using a perpetual inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. C. Debit Cost of Goods Sold $700; credit Inventory $700. D. Debit Inventory $700; credit Cost of Goods Sold $700.

C.

Consider the following year‐end information for JW Enterprises, Inc.: Cost of goods sold $300,000 Sales revenue 800,000 Nonoperating expenses 20,000 Operating expenses 200,000 Income tax expense 125,000 What amount will JW Enterprises report for operating income? A. $200,000 B. $280,000 C. $300,000 D. $500,000

C.

Identify the likely disadvantage(s) of extending credit to customers A. Lower profitability B. Lower revenues C. Delay or failure to collect cash D. All of the other answers are disadvantages of extending credit to customers

C.

Inventory records for Half Moon, Inc. revealed the following: Date Transaction # of Units Unit Cost Apr. 1 Beg. inventory 500 300 x $2.00 = $600 Apr. 20 Purchase 400 x $3.00 = $1,200 Half Moon sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be: A. $1,600 B. $1,700 C. $1,800 D. $1,900

C.

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports A. which customer accounts are uncollectible. B. fewer bad debts from customer receivables. C. bad debt expense in the same period as the credit sale. D. greater total cash collected from customers.

C.

Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. Ending balance is $1,200. The year‐end adjustment would include a A. Credit to Allowance for Uncollectible Accounts for $1,200 B. Debit to Bad Debt Expense for $700 C. Debit to Bad Debt Expense for $1,700 D. Debit to Bad Debt Expense for $1,200

C.

The following information relates to inventory for Whitney, Inc. Date Quantity Price March 1 Beginning Inventory 20 $2 March 7 Purchase 15 3 March 11 Sale (25) 7 March 12 Purchase 20 4 Ending inventory 30 At what amount would Whitney report ending inventory using FIFO cost flow assumptions? A. $55 B. $70 C. $110 D. $170

C.

The income statement in which the total of all expenses is deducted from the total of all revenues is termed: A. multiple‐step form B. account form C. single‐step form D. report form

C.

Total revenues $800,000 Sales returns and allowances $50,000 Sales expenses $20,000 Ending inventory $100,000 What is the amount of net revenues for Cotswolds? A. $630,000 B. $730,000 C. $750,000 D. $870,000

C.

Which inventory method provides a better matching of current costs with sales revenue on the income statement but also results in older values being reported for inventory on the balance sheet? A. Weighted Average B. FIFO C. LIFO D. Specific Identification

C.

Which of the following statements is true? A. Product costs affect only the balance sheet B. Product costs affect only the income statement C. Product costs eventually affect both the balance sheet and the income statement. D. Period costs affect only the balance sheet

C.

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? A. A return of damaged inventory to the vendor B. A purchase discount taken for prompt payment C. Costs of incoming freight charges on merchandise inventory D. Shipping charges for outgoing inventory

C.

Burford Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint after being offered a 10% price reduction. The price reduction is an example of a A. sales discount. B. sales return. C. sales allowance. D. sales expense.

C..

A building is offered for sale at $600,000 but is currently assessed at $500,000. The purchaser of the building believes the building is worth $575,000, but ultimately purchases the building for $550,000. The purchaser records the building at A. $50,000 B. $575,000 C. $500,000 D. $550,000 E. $600,000

D

A company's Accounts Receivable balance at its December 31 year‐end is $125,000, and its Allowance for Doubtful Accounts has a credit balance of $300 before year‐end adjustment. It estimates that 4% of outstanding accounts receivable are uncollectible. What amount of bad debt expense is recorded at December 31? A. $22,880 B. $300 C. $5,000 D. $4,700 E. $22,580

D

Beverly Company purchased land, a building, and equipment for $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would Beverly record the land? A. $800,000 B. $100,000 C. $ 90,000 D. $ 80,000

D

A London men's custom suit designer that makes high‐ end tailored suits needs to know the exact cost of each suit. Most likely the store uses which inventory costing method? A. FIFO B. LIFO C. Weighted Average D. Specific Identification

D.

A company, using the allowance method of recording credit losses, wrote off a customer's account in the amount of $1,000. Later, the customer paid the account. The company reinstated the account by means of a journal entry and then recorded the collection. What is the result of these procedures? A. Increase in total assets by $1,000 B. Decrease total assets by $1,000 C. Decreases total assets by $2,000 D. Has no effect on total assets

D.

At the end of 2017, Norton Corporation had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. Norton estimated its future uncollectible accounts to be $12,000 using the percentage‐of‐receivables method. Norton's adjustment on December 31, 2017, to record its estimated uncollectible accounts included a: A. Credit to Allowance for Uncollectible Accounts of $12,000 B. Credit to Bad Debt Expense of $7,500 C. Credit to Allowance for Uncollectible Accounts of $16,500 D. Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500

D.

At the end of the fiscal year, before adjusting entries, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a debit balance of $2,500. If the estimate of uncollectible accounts determined by the aging of receivables is $8,500, the amount of bad debts expense is: A. $2,500 B. $6,000 C. $8,500 D. $11,000

D.

Camelot, Inc. has an accounts receivable turnover of ten. What is the company's average collection period? A. 36.0 B. 30.8 C. 34.6 D. 36.5

D.

Cost of goods sold equals: A. Beginning inventory ‐ net purchases + ending inventory. B. Beginning inventory ‐ accounts payable ‐ net purchases. C. Net purchases + ending inventory ‐ beginning inventory. D. Beginning inventory + net purchases ‐ ending inventory.

D.

Genco Pharmaceutical, Inc. spends $100,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $100,000 spending have on this year's financial statements? A. Increase Assets B. Decrease Revenues C. Increase Revenues D. Increase Expenses

D.

In a periodic inventory system, the entry at the time of a sale to record the cost of inventory sold includes a: A. Debit to Accounts Receivable B. Credit to Cost of Goods Sold C. Debit to Cost of Goods Sold D. Not recorded at this time of the sale

D.

In accounting, goodwill A. May be recorded whenever a company achieves a level of net income that exceeds the industry average. B. Is amortized over its useful life. C. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify. D. May be recorded when a company purchases another business.

D.

Inventory records for Cotswolds, Inc. revealed the following: Date Transaction Number of Units Unit Cost Apr. 1 Beg. inventory 500 $2.40 Apr. 20 Purchase 400 2.50 Sale (700) Ending inventory 200 Cotswolds sold 700 units of inventory during the month. Ending inventory assuming LIFO would be: A. $500 B. $490 C. $470 D. $480

D.

One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for: A. Current assets B. Selling expenses C. Employee salaries D. Inventory

D.

When a company, using the allowance method, writes off a specific customer's account receivable from the accounting system, how many of the following are true? • Total stockholders' equity remains the same. • Total assets remain the same • Total expenses remain the same A. none B. one C. two D. three

D.

When recording depreciation, which of the following statements is true? A. Total assets increase and stockholders' equity increases B. Total assets decrease and total liabilities increase. C. Total assets decrease and stockholders' equity increases D. None of the above are true

D.

Which inventory costing method assumes that the most recently purchased merchandise is sold first? A. Specific identification B. Weighted‐average cost C. FIFO D. LIFO

D.

Which level of profitability is considered profit from normal operations? A. Gross profit B. Income before taxes C. Net income D. Operating income

D.

Which of the following inventory accounts consists of items for which the manufacturing process is complete? A. Raw Materials B. Work‐In‐Process C. Cost of Goods Sold D. Finished Goods

D.

PDM, Inc. inventory account showed a balance of $10,000 before year‐end adjustments. The physical inventory count of goods on hand totaled $9,000. PDM uses a perpetual inventory system. To adjust the accounts which entry is required? Accounts & Description Debit Credit a. Cost of goods sold $1,000 Merchandise inventory $1,000 b. Merchandise inventory $1,000 Accounts receivable $1,000 c. Accounts payable $1,000 Merchandise inventory $1,000 d. Merchandise inventory $1,000 Cost of goods sold $1,000

a.

The journal entry for the purchase of inventory on account using the periodic inventory system is Accounts & Description Debit Credit a. Merchandise inventory $1,000 Accounts payable $1,000 b. Purchases $1,000 Accounts receivable $1,000 c. Accounts payable $1,000 Merchandise inventory $1,000 d. Purchases $1,000 Accounts payable $1,000

d.